Among the many quotes that business magazines enjoy repeating from investing legend Warren Buffet is a comment on his two rules for successful investing. He says, “Rule number one: don’t lose money. Rule number two: don’t forget rule number one.”
Though this advice makes common sense, it’s not particularly instructive. It can be more helpful for would-be investors to follow the example of successful investors, instead of their words. More than what they say, the things that highly effective investors do are what truly set them apart from others in the industry. They tend to have the following five characteristics in common.
1. They say “no” often.
Overall, a successful investor’s default position is to say “no” when presented with an opportunity. This might seem surprising—a “no” absolutely guarantees that the investor won’t make money on a project. It’s also common to see investment advice that emphasizes taking risks and making bold moves. In reality, successful investors are a bit more cautious. They spend most of their time saying “no” rather than yes.
The fact is that the majority of startups are going to fail, and most of the opportunities presented to investors will ultimately be unsuccessful. In light of this, “no” should be an investor’s default answer. Great investors set rules for themselves and then use those rules as a guiding light to help them decide when to finally say “yes.” The decision to join a project usually occurs when an investor encounters an opportunity where he or she can personally have an impact on the company’s growth and success. Smart investors look for a product that’s already great, so they can help make it even better. They don’t waste time trying to fix a flawed product.
Setting and then steadfastly following one’s own investment rules also prevents emotional investing—something all successful investors avoid like the plague.
2. They know how to wait.
As Shark Tank judge, Dallas Mavericks owner, and billionaire investor Mark Cuban has stated, there are “no shortcuts” when building wealth, including building wealth through investment. To be a successful investor is to make strategic decisions and to think long-term, rather than only looking for ventures where the profits come quickly. It means patience—giving oneself a chance to get rich and thinking in terms of years, rather than months.
Great investors are experienced in putting in the necessary work and then waiting for a return on their investment. This can be especially difficult for beginning investors to master, due to their more limited funds. The key for beginning investors is to find great companies offering entry prices low enough so they can benefit from scale as the startup experiences growth.
3. They’re motivated by and excited about their job.
With the need for long-term thinking, the demand on a person’s patience, and the high-stress decision making, the life of an investor is not suitable for everyone. The more success investors experience, the more high-risk, high-reward deals they will encounter, and the more pressure they will feel.
However, great investors thrive off the competition and the opportunity to problem-solve that are inherent in their job. They get excited by the ideas behind the ventures they support and are passionate about being involved and helpful, pushing a product to levels of success it otherwise could not have achieved. This doesn’t mean that investors don’t feel overwhelmed or burnt out, on occasion. But the most successful people in the industry are energized by the pursuit of the next successful investment opportunity and can’t stay away from investing for long.
4. They focus on meaningful relationships over chance meetings.
Inexperienced investors often pack their daily schedules with back-to-back coffee meetings and pitches with founders in search of the perfect project to support. Unfortunately, this approach to finding good investments isn’t always the best use of time—and one thing that all talented investors do is use their time effectively.
Instead of packing their days full of random meetings, the most successful investors go on the offensive and purposely seek out specific founders and networking connections based on comprehensive research. They know the value of their time, and they choose to spend it wisely. Great investors spend time building meaningful business relationships with people in the startup community and making valuable connections with professionals they truly believe in. They don’t sit through countless meetings day after day, waiting for the right project to appear.
5. They constantly search for new learning experiences.
Lastly, all talented investors are proactive learners. They are great listeners by nature and gather data wherever they can. Great investors are good at conducting research, and they study much more than the average person in the industry. They understand that everything they learn can help them make smarter decisions, and they pursue knowledge with a passion.
They use every book, magazine, and online article at their disposal to familiarize themselves with topics both directly related and unrelated to their work. They understand that good ideas sometimes come from unexpected places, and do not restrict their learning to a particular area of business. They can often be found at seminars and workshops, looking to improve their knowledge about new fields. In sum, they know that every learning experience can yield new opportunities.