What Makes a Good Investor: Great Investor Characteristics


Aug 26, 2021

Becoming a great investor involves more than just financial knowledge about the keys to investing. Understanding what makes a good investor can help inform your own smart choices in this realm. If you need capital to grow or start a business, looking for these traits will help you find potential investors you can trust with the future of your enterprise. These are the five characteristics most commonly found among successful business investors.

Goal-Setting

Having clear financial and mission-based objectives for your enterprise is the first step to finding investors who share your vision and will help you work toward your objectives. Part of what makes a good investor is the ability to work toward the big picture, even if it’s years down the road. Finding a partner who understands and believes in your business goals can help you achieve success. Illustrate the potential return of your business idea by outlining long-term growth objectives and the timing for benchmarks such as liquidity, additional tiers of financing, or an initial public offering. The right investor can help you work backward and build a plan to make your vision a reality.

Patience

Whether we’re talking about buying shares directly in the stock market or serving as an angel investor for a promising new business, great investors need the patience to stay the course. Experts tout the benefit of making regular, consistent contributions over a period of years, not months, to build wealth.

While patience is a critical investor quality, the right candidate will closely monitor goals and outcomes and make adjustments accordingly. Waiting out rises and falls in the market is one of the keys to investing, but patience also requires the sense of timing to know when to get into a financial position and when to safely exit.

Some of the world’s most successful investors, including Warren Buffett and Peter Lynch, made their fortunes with a value investing approach. This strategy, which involves finding an undervalued company poised for growth, requires the patience to realize the full extent of the projected increase in value over time.

Risk Aversion

The U.S. Securities and Exchange Commission cautions investors about the importance of risk management. Putting money in the stock market, a private business, or any other investment always carries a chance of financial loss in exchange for the chance for a higher return on your funds. In general, the higher the potential reward, the higher the degree of risk. Diversifying your portfolio by combining high-risk and low-risk investments also assists with risk management.

The SEC notes that long-term investment is appropriate for riskier vehicles such as bonds and stocks. Holding shares in businesses and other assets for at least ten years improves the chances of profit. According to U.S. News and World Report, companies should look for investors that prefer a large margin of safety. This term describes the value metric used by an individual or firm to minimize the risk of loss in securities or business.

Knowledge

If you’re wondering how to be a good investor, work on building your knowledge base. The financial landscape changes as quickly as modern technology allows. Seek education about the options, fees, and risks in the investment world and study how the economic climate affects the value of your portfolio. Read as much as you can on these subjects and ask for professional guidance when you have questions. U.S. News and World Report refers to this concept as the “circle of competence.” Become intimately familiar with your own niches of expertise and seek advice from other experts for subjects outside that circle.

If you’re seeking an investor for your own business, the individual or firm should have profound knowledge of finance as well as specific knowledge about your industry and market. They should also have the motivation to learn all the ins and outs of your operation before providing capital. Avoid working with an investment firm that seems indifferent to your business model; they may plan to install their own ideas as soon as you sign on the dotted line. It is important to find an investor with the knowledge to help solve your problems, especially as the company grows beyond your direct control.

Decision-Making Skills

Emotional decisions can quickly derail your progress toward financial and business objectives. What does an investor do when market challenges arise? Success requires making choices that affect their portfolios with a clear head and an eye toward the end goal. Undergoing a comprehensive goal-setting process as described above creates a framework investors can use to guide good decision-making and take feelings out of the equation.

If you’re vetting potential investors for your business, ask about how they proceeded in times when they had to make tough choices that affected their finances. You need to be completely open and honest with anyone who invests in your enterprise, which means you need to trust your investors to make the right decisions for the health of your business.

Business investing is a complicated area that requires a complex combination of knowledge, skills, and personality traits. Cultivating these qualities as you manage your own portfolio and seeking these traits in potential investment partners can put you on the path to exceeding your benchmarks for success.

Sources:

https://www.sec.gov/investor/pubs/tenthingstoconsider.htm

https://money.usnews.com/investing/buy-and-hold-strategy/slideshows/common-investing-traits-of-billionaire-value-investors?slide=3

https://www.cnet.com/tech/computing/choosing-an-investor-5-tips-from-5-entrepreneurs/

  1. About the Author:

  2. About the Author:

    As Principal with Valesco, Patrick Floeck’s primary responsibilities include business development strategy and investment origination. Patrick received his Master of Business Administration from the Southern Methodist University Cox School of Business, with a concentration in Finance.

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