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Over the past two years, I've scoured Canada, searching for ordinary people who also happen to be superstar investors. Several of these Main Street millionaires have agreed to appear in these pages. Many others have told me their tales, but, for one reason or another, have decided not to go public with their wealth.
The biggest lesson I've taken away from interviewing these stock-market wizards is the importance of character. When I began my search, I thought that great small investors would probably share some ingenious stock-picking technique or some unique perspective on the market. I found that largely isn't true — while most great small investors tend to be buy-and-hold value spotters, their methods of picking stocks are all over the place. So are the investments they choose.
But what all these investors have in common is a handful of personality traits. Time and time again, as I talked to people who had amassed fortunes on middle-class incomes, I was struck by how much they echoed one another's points and displayed common points of view. If you, too, want to become a great investor, you should pay attention to what these success stories have in common. Based upon my observations, these are the seven habits of highly successful investors:
You really want a million bucks
Sure I want a million dollars. Who doesn't? But after talking to lots of great small investors, I realize that my yearning for millions is a fleeting daydream. For truly great investors, it's an obsession.
Dale Johnson, one of the superstar investors we profiled last year, and Bengt Kaus, this year's newcomer to our all-star list, both spend at least 40 hours a week working on their portfolios. Jim Chuong, another star from last year, read all the investing classics while he was still in high school. Carl Anderson, another of last year's stars, owns more than 200 stocks — and reads the annual report for every one of them.
Before interviewing these great investors, I had no idea how much hard work is involved in beating the market. The majority of great investors devote between 10 and 40 hours a week to following the market and studying potential investments. For them, it's not just a hobby; it's a part-time — maybe even full-time — job.
I've often wondered if this single-minded determination is the reason that all the superstar investors I've found happen to be male. Numerous studies show that women, on average, tend to be better investors than men. But I suspect that women put more emphasis on friends and family than men do — and that's a drawback to amassing millions in the market. Unless you're prepared to spend hours every week studying stocks, you're unlikely to wind up at the very top of the investing heap. (On the other hand, if you are a woman who happens to be a great small investor, please call me. I've spent two years unsuccessfully trying to find great small investors who don't have to shave every morning. I would love to interview you.)
You like to save
Time and time again, when I've asked successful small investors how they live, I've been struck by their relatively modest lifestyles. They don't seem to care about fancy rides, waterfront mansions, or designer clothes. Instead, they love the freedom that a bulging portfolio provides. I also suspect that they love the challenge of the game itself.
Take an investor I'll call Doug Philips. He never graduated from high school and has spent decades working in a pulp and paper mill. He's now almost 59 and he's worth about $2.25 million. How did he do it? "Sometimes I wonder whether I'm a great investor or whether I just got lucky," he says. "But I know my wife and I are great savers. We've never had a mortgage, and until recently, we had never been on a vacation. All we did was save. Even today, we find it hard to spend money."
Philips says his work is stressful and he wants to retire, but he can't bring himself to do it, even though he would get $10,000 a month from his pension, dividends and other investing income if he retired tomorrow. "But if I stay on the job one more year," he says, "I'll get an extra $800 a month from my pension. My job is driving me crazy, but I can't give that up. I guess that's the conservative side of me."
Another great investor, who I'll call Peter Epstein, lived in a cramped rental apartment with his wife until he was 36. He was worth nearly seven figures at the time, but refused to borrow to buy a house. He didn't move until his portfolio had grown to the point where he could buy the house he wanted completely in cash while spending less than a quarter of his total net worth on it.
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