I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.
-Warren Buffet
Imagine you have just walked past the “Occupy wall street protests “, you see the sea of angry faces, and you smile. You wanted to say something to them but you stop, you shake your head … walk to the parking lot and get into your shiny brand new Lexus Hybrid SUV. You have just bought this SUV from the proceeds of your dividends from investing in Apple Inc. You bought the stock a few years ago. Apple share was trading at $23, you bought the stock because you noticed … the tall bespectacled genius, and Steve Jobs Apple’s original founder and inventor of the Apple Macintosh took over the management of the company. Your hunch on Steve Jobs was right. Apple shares have made you over 1000 percent returns.
My story is what it’s like to be a successful investor. And there are many individuals who experience on a daily, monthly and yearly basis the kind of success I have just described
It is my intention to share with you …what I think makes the difference between thinking that leads to success and thinking that leads to failure.
I had my aha moment recently as I was reading a business summary on how great companies accomplish great results in their industries. I felt the lessons learnt from the study of these companies could be applied to make any investor accomplish their investing goals.
My aha moment came when I read that… great companies make a deliberate effort to become great. Great companies have traits that make them great. You can adopt the traits these companies have and become a great investor.
In his new book, Great by Choice Jim Collins, bestselling author of Good to Great highlights the important attributes of great companies use to achieve outstanding results. Collins and his team of researchers, studied companies he called 10X. He called them 10X companies because they all had outperformed their industry index by more than 10 times over the span of his study. In fact, on average, the 10X companies outperformed the marketplace as a whole by 32 times. Collins and his team wanted to learn from these 10X companies what attributes made them perform exceptionally. He concluded that 10X company had 4 main attributes in common:
- Fanatical Discipline
- Empirical Creativity
- Productive Paranoia
- Level 5 ambition.
When I studied these attributes, I could identify with them. I also felt, if you applied them in any entrepreneurial venture….you’ll not only become wealthy, you will succeed in many areas of your life.
How do Jim Collin’s findings be applied to our lives as individuals and as investors?
In order to understand how the characters of these 10 x companies could help you become a great investor…let’s look at them in more details
Fanatical Discipline
10X companies realised that you should do whatever you need to do in order to get results in the down years and resist the urge to grow too wildly in the up years. As an investor you should be consistently investing in the market, in your business and learning to improve your skills no matter the situation of the market.
Moral of this trait: You should focus on the big picture when you are investing – you are investing for the long term so that you can become wealthy. You need discipline to invest in the stock of a company and hold onto even when the share price plunges. You need discipline to invest in real estate and to continue investing when house prices are down. Smart investors know that economies have ups and down cycles. Smart investors; know that on the long term… it’s how long you stay in the market that matters when it comes to creating wealth. Warren Buffet, the most successful investor in the world shares this trait. Buffet takes a long term view when he invests in a company. Buffet chooses the stock of a company only when he sees that the company can make money. Buffet sticks to his decision to buy stock in a company no matter what the market thinks about the stock. Buffet’s philosophy is revealed in his famous quote: “in the short term the market is a popularity contest, in the long term it is a weighing machine”
Creative experimentation
Collins used a great metaphor to explain the process of “creative experimentation” that seems to be popular with web start-ups. I have mentioned this process before in my article “7 Tips for Real estate investing. The idea is that if you were down to your last bit of gunpowder and had an enemy ship bearing down on you, you’d need to be judicious in your use of your last reserves. If you fired the cannon ball first, the chances are that you are going to miss and be doomed. But fire buckets first instead, and sooner or later you are going to find the right aim for your shots. Then and only then should you load up your cannon ball and fire. Collins defines a bullets in relation to business as something that is
Low cost: it shouldn’t cost you a lot of money to do
Low Risk: the results shouldn’t have a major impact on your business.
Low Distraction: it shouldn’t take much time away from your major priorities.
Moral of this trait: Take small steps before you make giant strides. The bullets before cannon ball approach can also be called the “ready, fire, aim approach”. You can apply the- fire bullets before cannonball principle- as an investor. A good example to use to illustrate this principle is real estate investing; You can start out in real estate as a bird dog- that is someone who find good real estate deals for investors. You can then start out doing joint ventures with investors. When you have done your research, and you know your target real estate market you can go out and start buying houses.
You can also apply creative experimentation for business. You can start a business on a small scale before going out to sign up for expensive leases, hiring staff and incurring costly advertising expenses.
Many web start up companies started by creative experimentation. Amazon started by using the online bookselling model as a platform, then he created or bought companies the revolved around the hub of his business model. What the world saw as innovation and big bets Amazon saw itself firing bullets and then turning them into cannonballs after they were sure it was going to be a huge success.
Having fanatical discipline as an investor and taking the approach that you will fire bullets before cannons for any venture as an investor will help you weather any storm you face in your path to financial freedom and of course make you wealthy