Five simple moves that could put you in the top 10% of investors

• About 90% of retail investors end up losing money over the long term, and it’s important to figure out what they do wrong so you can do it right.

• So set the right expectations, focus on execution, and establish a process, largely by writing down checklists and keeping notes in a journal.

• Don’t get cocky and don’t underestimate the importance of psychology: you can be your own worst enemy.

Roughly 90% of investors lose money in the long run, which means – and I’ve personally crunched the numbers on this – that only 10% make money. The good news is that there are a few simple things you can do to make sure you’re alongside the best of them.

1. Set the right expectations.

A lot of investors say they want to make a lot of money – and they want to make it fast. But making a lot of money requires either a lot of time or a lot of risk. And even if you manage to triple one of your investments in just a few weeks, that doesn't mean you’re likely to repeat that success over the course of years.

Over the long haul, you can be fairly certain about two things: you’ll probably make less than 10%-15% a year (and that's true even if you're a superstar hedge fund manager), and you’ll probably see a loss of more than 50% at some point. Exceptional performance is possible, but it’ll require either luck (or grit), commitment, and skill.

So write down your financial objectives (the range of returns you’re aiming to achieve), your constraints (like the maximum loss you can handle), your edge (anything in your favor that will allow you to produce superior returns), and your timeframe (how long you can realistically devote to managing your portfolio). Then, make sure your objective is realistic given your constraints, and that you’re prepared to handle the losses that will undoubtedly come your way.

2. Establish a process.

When professional investors are assessed by prospective clients, they’re judged as much on their process as on their past performance. If their process is strong, the thinking goes, the results should eventually match up.An investment process is just as important for retail traders: it reduces the impact of your emotions, allows you to learn from your mistakes, and helps keep you on track when times are tough. By focusing more on the process than the outcome, you’ll also deal better with the inherent randomness of the markets.

Your investment process should (at a minimum) include a written description of your objectives and constraints, how you’ll generate investment ideas, how you’ll enter and exit your investments, how much you’ll risk on each position, how you’ll manage the risk in your portfolio, and how you’ll analyze your performance and learn from your mistakes. At least once a year, make time to review your process and take steps to improve it.

3. Don’t get cocky.

Overconfidence will lead you to underestimate your risks, generate sub-par ideas, take bigger positions than you should, and significantly increase the risk that you’ll bust your account. That matters because losses have an asymmetric impact on your profit and loss (P&L): a 50% loss will require you to make a 100% gain, just to break even.

Overconfidence could also lead you to overtrade, which will negatively impact your performance: trading, after all, is a negative-sum game once you account for transaction costs and the bid-ask spread. You never want to invest solely for the fun of it.

So start an investment journal where you can document your rationale for each investment, along with key risks and a clearly defined plan on how and when you’ll exit the position. You can also regularly write down your market thoughts, quantifying your views as much as possible (e.g. “I’m expecting the Fed to cut rates three times in 2025 for reasons X and Y”).

Every month or so, make sure you review your journal and assess your performance objectively: how often were you right? Were you right for the wrong reasons? What can you improve next time? Actively try to poke holes in your own thesis: this will either reinforce it or lead you to reassess it. Either way, you’ll be in a better place than when you started.

4. Focus on execution more than ideas.

Sure, identifying new investment ideas is what makes investing so exciting. But what really separates the average investor from the best is better execution.

Execution will drive how big your gains are relative to your losses (your “profit/loss ratio”), and your profit/loss ratio will drive your P&L. If you assume you’re right 50% of the time, improving your profit/loss ratio from 2:1 to 3:1 will boost your expected P&L by 50%. With a profit/loss ratio of 2:1, you’d need to increase the number of times you’re right by more than 75% to achieve the same results. The latter is arguably a lot harder to do than the former.

So if you want to improve your execution, list all the potential ways of profiting from an investment view, and go with the one that minimizes costs and maximizes the potential profit/loss. That includes selecting the best asset to express a view (you could, for example, go long either oil or stocks to express a bullish view on an economic recovery), the best instrument (you could buy the asset itself or play it via options), the best time to enter the trade (you could buy on weakness or based on a specific catalyst), the best amount to risk on the trade, and the best time to exit.

5. Don’t underestimate the importance of psychology.

The biggest enemy to your long-term success isn’t the market environment or the lack of investment ideas: it’s you.As humans, we suffer from many behavioral biases, which will push us to make the worst decisions at the worst possible times – namely buying an asset at the very top or selling at the bottom. A game plan might be the first step toward investment success, but the second is to make sure you respect your rules. That means not only identifying your behavioral strengths and weaknesses, but also implementing a process to curb their impact.

Start by familiarizing yourself with the main behavioral biases that affect investors. Some of my favorite books on the subject include Daniel Kahneman’s Thinking, Fast And Slow, Brent Donnelly’s Alpha Trader, and James Montier’s Behavioral Investing. Then, try to assess which biases you’re most subject to – reviewing your investment journal entries should help. That way, you’ll know what to watch out for, when to take a step back, and how to determine whether you’re making too hasty a move.

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