Consistency and patience key to becoming a successful investor

Those who misunderstand the market often make poor decisions that lead to losses. Getty Images

The stock market might be one of the most misunderstood concepts in the world. Given its central role in helping investors achieve financial independence and their cherished life goals, it’s crucial to understand what it is, what it isn’t and how it functions.

Unfortunately, the financial media is not always known for playing the role of educator – often favouring sensationalism, short-term events and fear-driven narratives. So, this month, I want to take things back to basics by unpacking some common misconceptions and offering a clear framework for thinking about the stock market throughout your investing journey.

My hope is that this helps you, first, to see the world through a new lens and, second, to grow into a more mature and successful investor.

The wrong way to think about the stock market

Many investors consider the stock market an abstract concept – something intangible they can’t see or engage with. With this mindset, stock ownership becomes little more than a piece of paper or a number on a screen. You might hope it increases in value one day but it’s not clear why that would happen. Investors who approach the market this way are essentially hoping for the best. When reality falls short of their expectations, resentment often follows.

Others adopt a more cynical view, seeing the stock market as a rigged casino favouring “insiders”. In this mindset, wealth is believed to come only at the expense of others – a zero-sum game. Given the numerous examples of nefarious activity within financial services, it’s understandable why some take this view. However, it’s a deeply unhelpful lens through which to engage with the market. Long-term success is unlikely for those who invest with suspicion and distrust.

Ultimately, investors without a proper understanding of the great companies of the world (the stock market) either opt out entirely or fail to behave in a disciplined manner when volatility inevitably arises. In both cases, they seriously compromise their chances of achieving a flourishing future.

The right way to think about the stock market

The first step towards a clearer understanding is to recognise the companies you interact with every day. From the moment you wake up, you consume goods and services produced by businesses – many of which are publicly listed and available for you to invest in. While some investors buy these shares directly, most become shareholders by investing in large investment funds.

These companies – through their management and boards – are incentivised to grow revenue and profits. They reinvest earnings into new opportunities or return capital to shareholders through dividends.

So, when you buy from a listed company, you’re indirectly sending money back to its investors. You are likely to be one of them. A stroll down any high street brings you into contact with dozens of publicly traded businesses. The stock market, then, is simply a collection of these companies – real businesses, selling real things to real people. Hence why we call it, “the great companies of the world”.

The aggregate market value quoted in the media is the best estimate of future value, as determined by millions of participants. It’s a remarkable system – and one that allows all of us to share in the economic potential of the society we live in.

Long-term success is inevitable

Success in the markets ultimately stems from sound investor behaviour – and that behaviour is rooted in understanding. Those who misunderstand the market often make poor decisions that lead to losses. Those with a mature perspective invest consistently and with patience and discipline.

The best way to engage with the stock market is to remember: you are the stock market. It surrounds you. You contribute to it and benefit from it. You own the great companies of the world – and what a marvel that is.

While short-term sentiment may rise and fall among professional investors, you can take comfort in knowing that, over time, markets grow – driven by rising corporate earnings and dividends. If you can remain disciplined through the inevitable (and temporary) downturns, lasting success is not just possible – it’s probable.