As someone who is still relatively early in his investing career, I often think about what qualities set successful investors apart from the rest. Good investing doesn’t just happen. And while luck may help at times, it’s not the answer. Here are few key ingredients that I consider important for being a great investor:

Live in the future

Paul Graham advised start-ups to “Live in the future, then build what’s missing.” Once you’re living at the leading edge of a rapidly changing field, you’ll see things that are missing…challenges or frustrations that need to be solved. And, once these problems are solved, they’ll seem very obvious in retrospect. This same advice applies to investors as well. You can only create above-average returns if you invest in companies that are ahead of the mainstream.

Have a well-defined investment thesis

Fred Wilson once wrote, “So many folks in the venture capital business are sheep that just want to follow the herd. They are momentum investors purchasing highly illiquid investments. That is a recipe for disaster.”

In order to not follow the herd, you need a strong set of convictions to serve as the foundation for making bets, and then following through on them. For Version One, I’ve created a map of what particular areas we should focus on and where they’re going over the next few years. Then, I can evaluate each potential investment within the context of this map/thesis.

Stick with it

Not every investment is going to be wildly successful right away and one of the hardest things to do in the venture capital is hence to stick with a struggling investment. However, if you’re going to be successful as an investor, you need to realize that once you are in, you’re in. There’s no turning back, or ignoring a flailing start-up until it just goes away. Of course, it’s much easier to stick with your guns, if you’ve made the initial investment based on your own core principles/investment thesis, rather than simply reacting to market trends and current momentum (point three).

Be both a cheerleader and a critic

There will be times when your portfolio teams need an enthusiastic backer and a quick pep talk. Then, there are other times when honest, sometimes even harsh, feedback is necessary. I think an investor needs to be a start-up’s biggest cheerleader and their most honest critic. You can’t just be one or the other: praise without honesty are just empty words. Yet, a constant focus on the negative won’t generate the results you want either.

Remember who runs the company

Successful investors are usually active investors; they show up at board meetings, respond to emails and phone calls from the founders, and constantly think about the company and the ways they can help. However, the exact level of participation is a delicate balance; an investor should never cross the boundary of getting too involved. At the end of the day, the entrepreneurs run the company; the investor is an active bystander. Founders make the ultimate decisions; investors can only advise.

Those are the five essential ingredients that I’ve been thinking about lately. If you have other thoughts, share them in the comments below…