It’s your way or the highway
First, let’s define what a professional investor is – at least according to me.
A professional investor is someone who thinks, acts and believes that their own investment activities will result in a monetary return or quite simply, profit. They rely on these returns as a source of income either to be reinvested or spent. They follow a defined method and process of identifying investment opportunities, allocating their resources based on the risk/reward profile, and finally they look upon this activity as an occupation, not an afterthought.
The first order of business is to build your personal methodology.
Define Your Beliefs About Investing
You must define various comfort levels of investing. How will you invest? How much will you allocate to an investment? What type of investments will you make? Do you think you should be in the stock market, bond market, private investments, venture capital, real estate or a combination of several? What type of investments are your long and short term goals best served? Are you comfortable with less liquidity which means your money may not be available right away if you wanted it? All these considerations will help to point you in the right direction toward what type of investing you will do.
What Are Your Long & Short Term Goals And Time Horizon
You can have different types of investments based on short and long term goals. For example, a 35 year old with a 401K plan from their employer may invest that money differently than money she has saved and earmarked for more speculative shorter term opportunities. It’s totally common for a person to have multiple goals and various strategies all within the same larger long term strategy.
Risk, Risk, Risk
Managing risk is the single most important factor that will determine your long term investing success. You all know how hard it is to make money. If you don’t manage risk with each and every investment, keeping it will be just as hard.
Before you chose to invest in any stock, company or otherwise, you need two exit plans. The first one to secure a profit when your right, and the second to minimize the loss if you’re wrong.
The reason why professional investors understand risk is not because their smart. In most cases, it’s because they were humbled by the markets one too many times and finally vowed to get it right or get out altogether.