Good investment doesn’t happen accidentally. Successful investors consistently work at it. Throughout our lives, we come across a handful of great investors and plenty of not-so-good ones. It’s pretty obvious why the good ones are doing well — they all have certain things in common. The first, without a doubt, is intelligence. They study, observe, and learn. If the thought of not having what it takes to become a successful investor bothers you, know more about the habits and traits that help people build wealth through investing. Moreover, don’t be concerned if you don’t possess all or majority of them. Instead, look for ways to address your weaknesses and build on your strengths. After all, it’s rightly said, half the battle can be won if one gets into the right mindset. Not for nothing did a renowned investor say, “The fault, dear investors, is never in our stars — nor stocks — but in ourselves!”So, start with these ways to become a better investor and when you finally learn the tricks of the trade, never stop.
We have all heard the phrase “patience is a virtue”. And, it makes sense when you are focusing on growing your wealth through investment. A lot of people invest for more than several decades to fulfil their long-term financial goals. What’s important here is being able to consistently invest money, which sometimes requires you to wait for years to see significant results. And during such times, those who stay the course get rewarded with big profits.
Tip: If you think you lack patience, consider the option of automating your investments so that you do not have to think about them or track how they are performing now and then. Stick to your investment strategies and re-look at your financial plans at a set time every year.
Treat your money like sand
As Eugene Fama, a popular academic in the area of finance, once said, “The more you handle your money, the less you have it.” Moving money involves transaction costs or even tax consequences, and sometimes, you may move it at the wrong time. Backed by the fact that, year after year, reports suggest that average investors underachieve the market primarily due to their poor timing abilities.
If you want to fare better than an average investor, the time when you move money, make sure it is a part of a well-designed investment plan and not an impromptu, last-minute reaction.
Seek help when needed
Taking time to learn by yourself is important and a great act of self-dependency, but savvy investors also understand when it is time to learn from others. If you lack the specific skills of successful investors or have made mistakes that ended up costing you huge losses, you might want to seek guidance and the help of a financial coach. Attending a conference or workshop or taking a course can offer the information, as well as interaction, you require to move forward.
Play it safe
Stocks are not meant for everyone. You can design a solid financial plan using only safe and guaranteed investments. If you lack knowledge of what a mutual fund is or don’t understand the stock market well, it’s probably wise to avoid these investments completely until you educate yourself more.
Similarly, if you do understand the tricks of the trade but get too nervous, then do not step into the market. Even the most experienced investors encounter failures due to investing mistakes they regret in the near future. The world’s richest man, Warrant Buffet, too, has spoken about the errors he’s made on behalf of his company, Berkshire Hathaway.
A great example would be from 1998 when the said company purchased General Reinsurance (Gen Re), which turned things around and didn’t prove to be a great investment strategy. Close to 2,72,200 shares of Berkshire were issued to buy Gen Re, a step that increased the former’s outstanding shares by a whopping 21.8%. Buffet, in a statement to the media, had said, “My incorrect move caused Berkshire shareholders to give way more than they receive.”
ALSO READFPJ-Ed: JBIMS organises mentorship and investment programs to boost young founders, start-ups
The lesson here is to cross-check the decision and run it by several trusted advisors. You should be conscious of what a worst-case scenario could cost you.
Avoid distractions, stay focused
Your friend just doubled his money because he bought HUL stock at the right time. Does it indicate he was lucky or smart? What’s important to understand is slow and steady savings, backed by a disciplined plan, can deliver results. You may bet on skills or luck and it may work in your favour, or on the other hand, you may land up getting an unpleasant surprise.
Be willing to take risks
To meet your financial goals and become a successful investor, you have to consider some exposure to investments involving higher risks due to inflation. But at the same time, you also need to know yourself, as well as your level of risk tolerance. Bigger potential returns bring with them higher risk. And some investments are riskier than the rest. Those who are hesitant to take risks might shy away from volatile investments, but such investors need to understand they are curtailing opportunities to earn considerable returns when they do.
Successful investors, over time, get familiar with the risk-return relationship and accordingly build a diversified portfolio that aligns with their long-term financial objectives.
We all invest money to have it multiplied and build wealth. And the best you can do to get better and wiser at investing is to reflect on your habits and traits and compare them with those of successful investors. Just remember, you need to take that step forward to learn to invest. And the sooner you learn and understand concepts like compound interest, the longer time your money will have to grow!
(The writer is the Founder of Money Mantra, a personal finance solutions firm)
(To receive our E-paper on whatsapp daily, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)