What makes one person a better investor than another? Why do some people see better returns on their investments, regardless of income? Is it due to superior business acumen, a broader knowledge base, lower fees, or better asset selection? Warren Buffett would argue that it comes down to being more disciplined than others.
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” ― Warren Buffett.
This aligns with the timeless investing mantra: it’s about time in the market, not timing the market.
Three core factors contribute to investment success:
- The Investment Vehicle
An ideal investment vehicle is structured to minimize taxes and estate duties while maximizing available tax exemptions. The right vehicle helps investors keep more of their gains, improving long-term results. - Asset Allocation
Before the COVID-19 pandemic, investors often relied on cash and equities for consistent returns. However, with recent global events and ongoing economic uncertainty, diversification has become critical. This includes spreading investments across asset classes and regions to manage risk effectively. - Investor Behaviour
By far the most significant determinant of investment success is behaviour. Even with an optimal vehicle and asset allocation, an investor’s inability to remain committed can hinder their success. Do you Want to understand your investing tendencies? Take this quick money personality test, at the end of this article, to see if you’re more prone to caution, risk, or emotional investing.
Emotions like envy and fear of loss often lead to irrational decisions—disinvesting when it’s best to stay the course or buying when assets are overpriced. While we often associate FOMO (fear of missing out) with teenagers, it frequently appears in investing as well. When others succeed, we may rush to invest out of fear of missing the next big opportunity, often making poor decisions in the process. Sometimes, past financial missteps can also push investors to chase high-risk investments in hopes of rapid recovery, adding unnecessary risk.
Investing inevitably involves losses. While recognizing losses is important, reacting to them can be counterproductive. During market downturns, staying invested is often the wisest choice. Disinvesting or switching investments locks in losses. It’s like selling a house in a down market—waiting for recovery can yield better results.
The stock market’s rapid fluctuations make timing it nearly impossible. Over the past thirty years, missing just the ten best days in the market would have halved an investor’s returns compared to staying fully invested. The best days often follow the worst, and times of crisis and uncertainty often present the best investment opportunities.
Market volatility is influenced by many factors, making it essential to ride out the highs and lows. Discipline is key. Leaving emotions out of investing helps us focus on what truly matters. Let’s reserve our emotional energy for the people in our lives, and let discipline guide our investments.
Investing is as much about understanding ourselves as it is about understanding the market. While tax-efficient investment vehicles and smart asset allocation play essential roles, it’s ultimately our behaviour that determines our success. As Warren Buffett wisely reminds us, we don’t have to be smarter than others—just more disciplined.
Understanding your own money personality can reveal valuable insights about your tendencies, strengths, and areas for growth. By recognizing and managing these, you are better equipped to stay the course, ride out the inevitable market fluctuations, and avoid costly, emotionally driven decisions. Time in the market—not timing the market—is the foundation of a successful investment journey. Stay focused, keep your emotions in check, and let your discipline be the guide that helps you reach your financial goals.