The psychology of a successful investor

Prior to setting up my Capital Raising business several years ago I was a director at one of the world’s largest private property companies. On almost a daily basis I came into contact with many people who’d made tens of millions of dollars in real estate. Were they incredibly bright? No. Did they know more about real estate than anyone else? No. So how come they were so rich? They did it right – it’s all in the execution.

They had the right psychology. They didn’t panic when the market went against them, and even if on the odd occasion they might have had a wobble, as real estate is such an illiquid slow moving asset, they had plenty of time to change their minds. To keep assets they might have sold and acquire those they were about to walk away from. They all had convictions about various sector of the market which they stuck to, making a lot of money in the process.

Unfortunately gold and silver are markets where the very liquid nature of the product can and often does work against you. So when you get spooked into changing your mind, you hit the sell button. By the time you’ve come to their senses it’s too late. The trade’s gone through.

Despite recent IMF downgrades and some rapid back peddling by Bernanke, the general consensus seems to be that the world economy is recovering. The facts strongly suggest otherwise. This sentiment of long dollar, short gold, US recovering, has sent a herd of investors charging to the exits in gold and silver. Clearly panicked by the collapse in price and paying little to no attention to their own analysis. The very popular quote from Warren Buffett – “Be fearful when others are greedy and greedy when others are fearful” – being largely ignored. But given the fundamentals of this sector, if there was ever a time to pay attention to Mr Buffett, then now surely is the time.

We all know that the volatility can be stomach churning – with positions moving dramatically on a daily basis. But while all this is happening the mines are still producing the gold (which you can’t print) and for every willing seller there’s a willing buyer. Given the recent buying activity in Russia, China and India, it’s probably fair to say that many of these buyers won’t be sellers for a very long time. They can see the massive money printing going on – and in many cases are far more familiar with poverty than we are. They buy gold and silver as insurance rather than as an investment.

Volatility is an opportunity to back up the truck and buy more rather than panic and rush for the exits. Like some of their very wealthy real estate counterparts, they believe in the asset, know why they are buying it and – crucially – have the temperament to ride out the inevitable corrections.

Shall we call it, the right psychology?