The path to investment success
AGREAT habit is what keeps successful investors winning in their investments. It is their discipline to systematically implement their investment plan, not a streak of luck that enables them to make money even during bad times.
For most of my adult life, I’ve been dealing with different investors on a daily basis both novice and seasoned ones, bearing witness to their investment failures, triumphs and most importantly the habits that successful investors have in common.
Here are four things they repeatedly do with their investments.
1. They investigate before they invest.
It might be common sense that one should not enter into something you do not understand, yet time and time again you will hear people saying they got scammed or got burned from a stock tip they read in a blog. The lure of quick money keeps people from doing their own homework and that is a sure recipe to lose hard-earned money in the stock market. Successful investors keep on studying no matter how attractive the opportunity seems like. They treat themselves as partners in the companies they invest in and diligently scrutinize these companies they want to partner with.
Start building your learning habits by reading and studying the companies you want to invest in. Listed companies are required to provide timely information on what’s happening with their companies. You may check their disclosures in the Philippine Stock Exchange website or get in touch with their Investor Relations department. There is a ton of information available, soak in as much knowledge as you can.
2. They have an exit strategy.
It is true when they say that the market is emotional because ultimately it is we, the people and our actions that make the market move. People are emotional and tend to have biases. Fear, greed and pride are some emotions that can cloud our judgments and lead to costly investment decisions. Successful investors understand this and that’s the reason why they always have an exit strategy that comes with their investment plan. Exit strategies can be their desired investment return or their cut loss method. Such exit strategies help successful investors weed out emotional biases and make logical investment decisions.
Having a specific investment return in mind can help you in identifying when to get out of the market. Without a goal, greed can easily take over, especially in an uptrend market thinking it will continually move up. Stock prices fluctuate and never move in a single direction. Stocks trading beyond their fair values will eventually correct, and successful investors know this and have the mental discipline to get out when they hit their investment goals. Consequently, they also impose a cut loss method whenever their stock picks do not pan out as planned and move on to the next one. They do not let pride get into their way of carrying out their investment decisions.
3. They are patient.
Hitting investment goals overnight rarely happens. Successful investors are patient enough to wait for their investment plan to work out. They are unfazed even during unfavorable market conditions because they did their homework, they know their time horizon and understand that sizable returns manifest over time.
4. They regularly update and replenish their emergency funds.
One thing that successful investors accept is that financial emergencies can happen to anyone, and the certainty of when these emergencies will happen is unpredictable. Thus, they plan and prepare ahead. They understand even a solid portfolio is not immune to financial emergencies. Such emergencies like hospitalization may trigger selling stock positions prematurely to pay for hospital bills.
The essence of having a safety net like an emergency fund in an investment plan is that you do not have to worry of untimely liquidation of your stocks to pay for the bills. Emergency funds will serve as your cushion during financial disasters.
Knowing the habits that work for successful investors can help us in our investment journey, but the most crucial part is we start practicing them and making them as our habits as well.