Building the right investment habits

SUCCESSFUL INVESTORS’ INVESTING HABITS

The local market condition is very hard to predict since it is affected by both global and local factors. As an investor, it may not be possible to predict what is going to happen next, but there are certainly ways to learn from people who have succeeded in riding the waves of good and bad times throughout the years.

In the book ‘The Winning Investment Habits of Warren Buffett & George Soros’, Mark Tier listed out 23 winning habits, based on these two world’s richest and most successful investors. Summarized below, are four main key habits that may be adopted as the fundamentals to successful investing.

Successful Investors’ Habit #1:
Preserve your capital and minimise risk taking

Capital preservation is the foundation used by all successful investors and they do this through risk minimization. Most investors have the perception that, in order to make profits in the market, there is a need to take big risks and it is right to say that risk and return come hand in hand. However, in order to ensure long term success, you should not just simply take any risk, but calculated risk. This requires you to analyse the situation and acquire confidence that the chances of having favor on your side is high. With that in mind, you would only end up investing in what Buffett calls ‘high probability events’, where the risk of loss is at the lowest and you are almost certain to make money. Always remember Warren Buffett’s ‘Investing Rule No. 1: Never Lose Money, Investing Rule No. 2: Never Forget Rule No. 1’!


Warren Buffet Investing Rules:

Rule #1: never loss money!
Rule #2: never forget rule no. 1




Successful Investors’ Habit #2:
Do your homework before you invest

There are thousands of companies listed in our stock market. Which one should you invest in? Having Habit No.1 as the foundation, you will know that the safest companies to invest in should be companies or industries that you are most familiar with, as you can only make good judgment if you have in-depth knowledge and understanding of it. You will have to do your own homework and research through all available sources, such as company annual reports, industry reports or public announcements, to obtain the facts on the industry, the company of your interest and its competitors. This is necessary to ensure that you can draw good conclusions on the company’s performance and future prospects. Therefore, time and hard work are the two essential elements in turning yourself into an informed and knowledgeable investor. In practicing this, you will also need to be selective and focused on certain industries that you the have most interest and experience in.

Successful Investors’ Habit #3:
Have your own investment philosophy and system

An investment philosophy is a set of beliefs that you use as the foundation in developing your personal investment system for buying and selling investments. This ensures that you are fully aware of the reasons behind every investment decision you make. As a beginner in the investing world, you could probably start by following the investment philosophies and systems of some of the great investors that come closest to your heart. However, along the way, you should tailor your investment system to suit your personality, goal and unique circumstance so that you can practice this entire system with ease and without any doubts. If you have the discipline to practice your system religiously, you will not be easily influenced by the voices or rumours in the market and would not be tempted to simply follow the crowd. As such, the chances of you making the wrong decisions will be minimised.

Successful Investors’ Habit #4:

Be Patient!

There is a Spanish proverb that says “The secret of patience is doing something else in the meantime”. If you somehow managed to inculcate the above 3 habits, you should know exactly what you are looking for and as such, should be well equipped with the patience to wait for the right moment to buy or sell your stocks. Both Buffett and Soros stressed the fact that the secret of their success is having the patience to wait. Use the free time to explore and strategise other new opportunities as there are so many companies listed in the market. Always remember that identifying the right candidates does require time and patience.

On the last note, try to adopt the above habits now! Remember, good strategies will only be successful with the right mindset in execution!