- The world’s most successful investors have all stuck with one strategy throughout the good times and the bad
- Investing can get emotional, and it does not help that you can see how you are doing by constantly checking
- Investors should never stop learning and they should always seek to improve existing skills
We study some of the successful investors’ habits to help improve our chances at investment.
Regardless of whether you are investing in shares or trading stocks, these tips will bring you closer to being the next Warren Buffett.
Have a strategy and stick to it
In his book, The Ultimate Framework for Success in Shares, Peter Wambu says that the most important trait of great investors is the ability to set out and stick to a clear strategy. They understand that they cannot achieve this goal if they do not have a method and the discipline to follow it through.
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It does not matter which approach you choose —growth, value, income, deep value, distressed investing, momentum investing or day trading, whichever route you go down, it is key that you stick with the strategy. Almost all of the world’s most successful investors have all stuck with one strategy throughout the good times and the bad.
Take the emotion out of it
For any of the strategies you have chosen, you need to stick to it and ignore any other noise telling you otherwise. This is because, investing can get emotional, and it does not help that you can see how you are doing by constantly checking a stock ticker throughout the day.
No one can be certain which way the financial markets are going to move.
In an interview with CNBC in 2016, investor par excellence Warren Buffett said, “I don’t pay any attention to what economists say, frankly. If you look at the whole history of [economists], they don’t make a lot of money buying and selling stocks, but people who buy and sell stocks listen to them. I have a little trouble with that.”
Author Ryan Holiday, in an interview on grow.com says that feelings, both good and bad, can cause investors to make rash decisions. The goal is not being jerked around by your emotions and having some semblance of self-control.”
In practice, Holiday equates the sway of emotion to panicking. “Don’t panic if the markets start to fall — and don’t get giddy if they continue to climb. You try to keep your head down and stick to your plan, no matter what,” he adds.
Examine the motivation
Speaking of emotions, Jonathan Gifford in his book Blindsided: How Business and Society Are Shaped by Our Unpredictable and Irrational Behaviour observes that while we are perfectly capable of making rational decisions, listing pros and cons and weighing potential benefits, but in everyday life, we rarely do this. “Emotion and instinct rule. If a hunch is telling you to take action that’s risky or counterintuitive, examine why you’re feeling that’s the way to go,” Gifford says. If your decision to invest is based on negative emotions like fear, anger, or others, it is best to wait and see if you still feel the same way after the emotion has passed.
Never stop learning
Research has shown that for anyone to truly become an expert at something, it takes 10,000 hours of practice. The only way to reach this goal is to continually seek out new information. Investors should never stop learning and they should always seek to improve existing skills. Fear of the stock market is a product of ignorance, lack of knowledge and understanding. Learning will eliminate these fears. As Warren Buffett’s partner, Charlie Munger says, “If you stop learning, the world rushes right by you.”
Resist the Fear of Missing Out (FOMO)
It is inherently human to feel pressure to follow the crowd and do things just because others are doing them. However, allowing FOMO to drive your decision-making could land you in losses, or worse.
If you feel pressure to follow a new way of doing business, just so you do not miss out, do your due diligence on why that is the best strategy for you before joining the crowd. If the evidence supports your strategy, then join the crowd otherwise bask in the Joy Of Missing Out (JOMO).
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Invest in things you know
Real estate broker Ryan Serhant, star of the Bravo series “Million Dollar Listing”, knows a thing or two about money. After all, he spends his time selling real estate to some of the richest people in the world. In an interview published on grow.com, he says that the best piece of investing advice he ever got was to invest in things he knows. “Invest in things you use. Things you could see yourself using; things you actually like. Don’t invest in stuff that doesn’t interest you, because then you’re not going to follow up on it. You’re not going to be as active an investor,” he says.
Wambu seconds this point by saying, “Investing in your circle of competence limits your investment to what you know and prevents you from straying into the risky unknown. There is no faster way to lose money than investing in something you don’t understand. If you can’t figure out what a company does or how it makes money, it is often best to stay away, no matter how lucrative the opportunity might be.”
An article on Yahoo Finance quotes mental models guru Share Parrish saying; “You have to be willing to look like an idiot in the short run to outperform in the long run. While copying what others already do helps achieve average results quickly, common approaches never outperform…What ends as better, starts as different.”
This he said while advising investors to think different; to be a contrarian. “After finding the strategy that suits your psychological and financial qualities, you must then be willing to act against the grain.
Understanding and (perhaps, more importantly) developing comfort with what it takes to go against the grain is crucial. Following the ‘common knowledge’ of the market will, at best, allow you to do as well as everyone else. Oftentimes, it can mean doing considerably worse.”