There are a lot of factors that make a successful investor. Intelligence and analytical skill are important, but they’re not everything. The so-called “smartest guys in the room” can and do often get it wrong.

Emotional fortitude is important. Keeping calm during periods of both extreme greed and fear in the markets can make a huge difference.

There’s a third skill as well: conviction. There are always plenty of investment opportunities at any given time. But only a handful will hit all the right boxes. Conviction is about having the ability to focus your capital into those few opportunities. Indeed, those fewer opportunities should make up more of your portfolio.

Some of the most skilled investors of our time run portfolios where less than 10 positions make up more than half their wealth. They don’t try to average or spread out too much.

That’s something most amateur investors don’t even think about. After all, if a big position has a huge decline, it’ll have a massive impact on your portfolio.

While that’s a concern in the short-term, it tends to work out over the long-term. Warren Buffett bought shares of The Washington Post Company back in the brutal bear market of the 1970’s. Despite being down on paper over 40 percent at one point, he kept buying. It ended up becoming one of his biggest winners. But it took not only conviction, but the patience to sit through the losses as well.

I’ve often used the phrase: you make your money when you buy, not when you sell.

Conviction, in my mind, ties in with this concept. When you’re buying a great investment at a great price, sometimes Mr. Market disagrees. So what? Mr. Market can’t make up his mind. You can. Take advantage of that.

Now is the perfect time to think about your investment convictions. Markets are still near all-time highs, but we’re nearing the more volatile autumn trading season.

So ask yourself a few simple questions:

Where do you see the best value? What are your top investment ideas? How much are you putting into those ideas? Are you putting too much capital into lesser ideas that you don’t have as strong a feeling about?

When markets correct, it’s an opportunity to match your capital to your best opportunities. When you buy more shares of a position you own after it’s fallen, you’re going to improve your future investment results. That’s because your total cost basis will drop lower.

There are many companies I would like to own for the long term. A market correction will give me the chance to enter those positions. Companies that I already own, if they get cheap enough, will get more capital. That’s why investors should always look to use a market drop to their advantage.

This is a term known as “averaging down.” That’s why your cost basis per share drops.

Some investors don’t like the concept. They instead call it “catching a falling knife.” While it’s true that many companies with large share drops can be facing some kind of operational problem, we’re trying to look past that, and instead look at the post-drop environment to see if markets have overcorrected.

That kind of overcorrection happens all the time. Shares of Kinder Morgan (KMI) dropped massively late last year when the company cut their dividend. After getting as low as $12, shares have risen to over $21 today, a 75 percent gain off the low.

Yes, shares are still down over the past year. And that’s appropriate given the company’s dividend cut and the fear still in the energy sector. But at some point during that drop, averaging down tremendously helped the long-term investor willing to look beyond the short-term capital crunch.

Operationally, the company was still performing strong. They just wanted to free up capital to invest in rather than take on more debt and lose their credit rating. The “falling knife” didn’t materialize. It was just income investors heading for the exit, a trend that quickly ended.

That’s just one recent example. Every situation is different, of course. But if you’ve done your homework and know what you’re doing, moving away from investing the same amount of capital into every trade and into a portfolio where your higher conviction ideas get more capital will improve your returns over time.

For many investors, the power of conviction is the missing tool that can turn short-term losses into long-term winners. Start putting it to work in your portfolio for better investment returns.

Right now, that might mean shedding your portfolio of positions where you have little conviction.

With markets hitting new highs, there’s nothing wrong to take profits now so that you can invest more in higher conviction trades.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and is managing editor of Financial Intelligence Report. To read more of his work, GO HERE NOW.