Individual investors have an edge over Wall Street traders, but they need to ask themselves three questions before they invest
Investing successfully is not exclusively reserved for professional and institutional investors - private investors have advantages over Wall Street traders in terms of flexibility, as they are not constrained by the bureaucracy of large institutions, legal and social barriers, or short-term performance concerns.
However, it is important that a private investor asks themself three questions before buying shares in a company:
- Do I own a house? Before investing in stocks, you should consider buying a home, which, for most people, is a better investment. Houses are kept for many years, and are a good hedge against inflation. Also, having a roof over your head and somewhere to live for a long time is always a good place to start.
- Do I need money? The money you want to invest in stocks should be extra - for example, if you have to pay for your child's college education over the next two or three years, don't invest that money in stocks.
- Do I have the personal qualities required to become an investor? Investing successfully is potentially within everyone's reach, but there are fundamental, individual traits that you must possess: patience and perseverance, as well as the ability to keep a cool head and remain detached, to use common sense, but to also stay open-minded and be ready and willing to do your research. On the other hand, you also need to be ready to make decisions even when you don’t have all of the information on hand. Finally, you need humility, flexibility, and a willingness to learn from your mistakes.