As a trader and investor, I study the biggest and brightest stars – aka, institutional money managers – to learn how they achieve great wealth for themselves and their clients. I read books and study methods and strategies that make them successful, because the “big money” is where the action is.
So, what moves someone from good to outstanding? Over the years, I have learned that it often requires one simple trait.
How to trade like institutional money managers
The best institutional money managers on the planet are patient. Being patient allows them to have good timing (getting into or out of trades).
Patience is incredibly difficult to come by in this business. If you’re a trader, you want results now, but the market doesn’t care. It’s not going to accommodate your short time frame. However, if you have a longer horizon, your odds for success greatly increase.
Think about how wealth was created just after the turn of the 20th century. New companies like Ford, Coca Cola, IBM and General Electric were established. Investors who bought into these upstart companies and waited were rewarded handsomely for taking the risk. The most patient investor of them all, Warren Buffett, has amassed enormous wealth by being patient. He buys companies that he plans to hold forever. I don’t know of anyone who is more patient than that.
Patience lends itself to good timing. If you remain alert and ready for opportunities, you will find fantastic trades. During the last couple of years, there have been very few market drops but most of them have been good buying chances. When volatility is low (or remains low, as it is currently), there is a huge rush to buy dips. If you have dry powder (you should always have cash on hand) and are prepared when the market dips, step in and buy just like an institutional money manager.
The Great Recession taught us many lessons, among them to ignore the noise from the “end of the world as we know it” crowd and take advantage of the fear often seen in the short term but absent in the long term. Institutional money managers bought that massive dip, and ten years later, it is still paying off.