How To Become A Better Investor (Level 1-4)

IMPORTANT: Please read the disclaimer before continuing.

When it comes to Growth Investing, let’s say investors can be categorized into four levels.

There are certain characteristics that each level has, and also methods to move up a tier into a higher level.

Which level would you say you are? Read on to find out!

The Level One Investor

You’re in good company here. This is where all of us start. A Level One investor relies on stock tips from others for their trades.

Level Ones scroll Google, YouTube, and other places looking for the next hot stock. They watch videos with titles like Top 5 Stocks To Buy Today. They don’t really understand what a company does, and may even ‘invest’ their money in a company with zero due diligence. (Why the inverted commas? This way of ‘investing’ isn’t really different from gambling.) 

When the market volatility hits – and it most certainly will – the stock price drops by 10% or more, here’s what happens:  

Level Ones boast about their gains… and never discuss losses (not that they don’t lose) when the market is down. With little or no understanding why the stock price has fallen, Level Ones blame the company, the economy, or whatever else is making the news at the moment.

Level One thinking tends to be driven by emotion, and has little to do with doing their own research or studying a company’s business model.

Level One investors rarely look within their own circle of competence, and find themselves maintaining several positions. It’s not uncommon for Level Ones to hold twenty stocks or more. 

Is this you? If it is, let me help you to determine where you stand. Don’t worry about what others say or think. If you acknowledge you are at this level, resolve to improve and get better once and for all. Your future self will be grateful you did. 

The Level Two Investor

Level Twos are one step ahead. They focus and fixate primarily on the quantitative – i.e., business financials and numbers. They don’t really see the need to research deeper, understand business models, or discover what drives the company’s management. 

Level Twos may attempt to work out their own valuations for the companies they are interested in, with varying degrees of success. They may have learned from some experience that mistakes do slightly better over time. From time to time, Level Twos can’t resist dipping their toes into highly speculative stocks. 

Some Twos may try to ‘time the market’. On average, they can make about 15% returns. Sure, it beats inflation, and is better than money languishing in the bank. 

One thing separates Level Ones and Twos from the higher levels. It keeps people from making the next rank. 

The Level Three Investor

What distinguishes Level Twos from the Threes and the Fours? Higher-level investors realise and acknowledge it’s better and smarter to study and analyse companies together as a group. Lower level investors obsess alone over forging their personal path to success. They work on their own. This can make them vulnerable to personal biases, and delay growth and the success that comes with growth.

Level Three investors look beyond numbers. They take the time to study the company’s business model, its value proposition, and what needs its products meet. They know that ultimately, a good business model translates to excellent financials. In other words, quality and depth of research are key traits of Level Three investors. 

If you’re a Level Three investor, you understand the need for huge growth in your companies so that your portfolio will also reflect these outsize gains.

You’re totally cool with upstream losses (e.g., increased marketing spend) if they are necessary for later growth. You have researched the company, and you have confidence that their unit economics are positive. You can wait a little for the massive gains that will come later on. 

Level Threes are happy to share their research with their network or community. They work together and learn from one another. FOMO is not a thing for them, because Level Threes can calmly ‘pass’ on other ‘opportunities’ because they continue to develop strong conviction in one or two companies and double down with deep focus. 

So when there’s a pullback, Level Threes get all excited because they get to average down and add more positions. (Yes, Level Threes can be extremely PATIENT.)

They may hold five to eight positions – compare this with lower level investors, who may hold more than twenty companies. I wonder how on earth they keep track of so many companies. (Here’s how: they don’t).

Level Three investors don’t mind looking silly or dumb in the short term. They know what they don’t know, and they have the courage to ask and seek to understand. They know this is how they win the long game. 

The Level Four Investor

Level Four investors conduct thorough due diligence – which includes reaching out to a company’s management, employees, and even its competitors. They are part of a strong network of competent investors, built over many years. 

There are no magic bullets or short cuts. 

Level Four investors have the peace of mind to sit on huge profits and do absolutely nothing. This sets them apart from the rest. If you think sitting on your butt is easy, you have yet to learn one of the key lessons of growth investing. 

Level Fours know that the biggest opportunity cost can come from selling a huge long-term winner too early. They ride out volatile periods. 

Level Fours stand out because they are rare. While two groups of investors can reach similar conclusions about a company and decide to sell (exit) after making 10X, a Level Four investor will sit tight in the confident knowledge that they are on to a 100-bagger. 

Experienced Level Fours recognize patterns early on. They know at a super early stage when a company is destined for greatness. They enjoy the low base effect.

Other investors, like Level Ones, see this as a risky bet and may not understand why Level Fours have the confidence to enter and wait. For Level Fours, this is the best strategy to grow their wealth.

The portfolio of a Level Four investor may have just four to five excellent companies which they know intimately. I know I’m not off the mark when I say some Level Fours may know company management on a first name basis.

If there are Level Fours reading this, please share a comment on your experience. We would love to learn how your experiences in the stock market have helped you develop your investing skills.

Once again, my intent with this post is to help you identify where you stand as an investor, and help you take the steps to improve your game. Understanding is the beginning of enlightenment. I completely understand that it is not easy to level up… some of us simply cannot imagine talking to a company CEO. 

So here’s my question again: What level do you think you are at? What challenges do you face at this level? Share a comment in our community! I want to grow a community where we help one another level up and form strong networks. 

OK…. So, there’s actually one more level. 

Like in video games where there’s a secret level to unlock, I have one to share as well. It’s being able to be level-headed enough to do additional research, and invest in loss-making companies.

Remember – Always Invest Safe! Study the facts and make your own decisions. Say no to lousy companies – only buy the best growth companies in the world.