After we previously wrote about some traits of successful entrepreneurs, we would like to reflect on some traits we often see in successful investors. Investing is a world in which taking risks, making the right decisions at the right time, and knowing how to deal with failure are essential. The difference between an average and a wildly successful investor often lies in their personality and ability to persevere.
Some characteristics of thriving investors
Be able to judge potential
Being able to judge potential early on is especially important in the world of startup investing. Angel investors and VCs only ever see returns from a small fraction of their portfolio. This fraction should make up for the companies that produce very limited or no return at all. Having an eye for startups with the potential to provide this return is, therefore, one of the fundamental skills you should possess. ‘Someone who doesn’t know the first thing about the mechanics of venture funding but knows what a successful startup founder looks like is actually far ahead of someone who knows term sheets inside out, but thinks “hacker” means someone who breaks into computers.’ says Paul Graham, co-founder of Y Combinator.
Be strategic and consistent
Develop an investment strategy that is based on your goals and your readiness to take risks. It should be designed to serve you both in good and bad times, and it is essential to stick to your plan. Keeping your strategy up during market fluctuations can provide a good focus point to make sure you don’t panic or make emotional and rushed decisions. Especially during tough times, some of the most successful investors have shown that holding your investments through the storm and waiting for the market to recover can prove extremely rewarding.
Learn continuously and adapt to change
‘When experts are wrong, it’s often because they’re experts on an earlier version of the world.’ According to Paul Graham, it is absolutely critical to be aware that the world is in no way static, and that an idea that might have seemed stupid yesterday could be the next big thing tomorrow. Warren Buffett and his right-hand man Charlie Munger famously advocate the approach to keep practising and learning: ‘You have to keep learning because [the] world keeps changing and competitors keep learning. You have to go to bed wiser than you got up. As you try to master what you are trying to do — people who do that almost never fail utterly. ‘
Foresight and thorough due diligence
Before even entering an investment, due diligence is key. If you’re thorough, it extends beyond just looking at the books to looking at the management team, the culture, the product and the possible future directions of the company. The devil here lies in the detail, and being thorough will save you from nasty surprises. Part of this evaluation should also include foresight, and it might seem strange at first to plan your exit strategy before even investing. But considering different options in advance can help avoid chaos and a less than favourable outcome for you once an exit occurs. As an early investor, you should make sure that in the case of success, you will be rewarded with a piece of the cake that reflects the considerable risk you took.
If these sound like they are within reach: you may well be on the way to becoming a successful investor. So join us & have a look at these startups!