October 21, 2020

Five habits of highly successful investors

Blog | Trading 101

Successful investing is more than just achieving financial goals by identifying the ideal stocks.

In a nutshell

Research is key to successful investing in the long term.

Make sure you understand the business of the companies you invest in.

It is always a good practice to diversify your investment portfolio.

When investing, have a long-term view to achieve sustainable growth.

Learn from mistakes you make to become a better investor.

No matter the age of a person, it is always a good time to invest. Accumulating wealth and growing it is imperative for everyone. However, as per a study, around 66% of people aged 18–29 years find investing in stocks quite intimidating. Many young investors and even the more experienced ones find it difficult to maintain the right approach towards investing. Successful investing is more than just achieving financial goals by identifying the ideal stocks.

There are articles on the Internet that say that more than 90% of investors face losses in the stock market. While this may seem scary to you, it is important to understand that this often happens because of the wrong approach of investors. A proper, systematic approach towards investing is crucial to reap good returns.

To be successful, an investor should start investing early, always stay up-to-date on the financial markets, generate good after-tax returns, build a robust risk management system and always make sure to read the fine print. While the stock market may seem scary at times, by thinking and acting like a successful investor, one can surely pave their way to optimal returns.

It is not luck that has made investors like Warren Buffett one of the richest people on earth, while others fail to even achieve ‘average’ results. It is vital that you understand the habits of such highly successful investors and incorporate them in your investing approach.

Here are the key habits highly successful investors:

Research: There is a wealth of information about investment trends, statistics, studies and analysts found on the TV, internet, magazines and newspapers. Seasoned and successful investors thoroughly research about a company prior to investing in their stocks. They always have a solid reason behind every investment transaction they make.
Understand the business: Warren Buffett does not invest in bitcoin or technology stocks, because he does not have adequate knowledge of these domains (4). While technology is a flourishing business, there is a reason why an accomplished investor like him will choose to stay away from it, right? There are numerous growing organizations and sectors that have the potential to be a profitable investment option, but that does not mean you must invest there. If the investor is detached about a company, its industry and offerings, it would invariably be harder for them to make well-informed and smart investment decisions. Successful investors always stick to the areas they are the most knowledgeable in.
Diversify: Successful investors lay emphasis on portfolio diversification. No one can really be successful in the long run if they are putting their money in just two or three companies. It is crucial for investors to smartly determine the amount they want to allocate to each investment class, and then try to diversify their investments as per their risk tolerance. Moderate investors typically invest a lower percentage on stocks and higher sum on bonds while diversifying their portfolio. Even Warren Buffet prefers a portfolio focused investment strategy.
Think long term: Short-term decision making is usually driven by emotions and instincts, and not backed by proper understanding and research. Such an approach is not prudent when it comes to making investments. Investors must be patient and think for the long term. Here, the long term does not imply a few days and weeks, but months and even years. A successful investor needs to be patient to reap the results of their well thought out decisions.
Learn from mistakes: Like all humans, investors also err from time to time. This fact is true for even the most accomplished and seasoned investors. No person can become a successful investor without facing some mistakes, miscalculations and erroneous conclusions in their way. These individuals, however, are not disheartened or dissuaded by these mistakes. They, in fact, consider it to be a learning experience, which provides them with the push they need to progress towards success.

Making incorrect investment decisions is not uncommon. However, by incorporating the habits mentioned above, a person can make their investment approach more systematic and avoid financial disasters. These traits can help investors build a healthy investment portfolio and take steps towards building a financially secure future.

Sources:

Disclaimer

The above article is purely academic in nature and aims to provide knowledge about basic trading concepts & should not be construed as an opinion or advice to invest or trade.

Investments in the securities market are subject to market risks; please read all the related documents and/or consult your investment advisor before investing.

Past performance of an investment asset does not guarantee future returns.

Companies mentioned in the article are purely for illustrative purposes and are not meant as a recommendation to buy or sell any security.