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The 7 Habits of Highly Effective Investors

An investor is an individual who promises wealth with the prospect of financial returns in future. Effective investors make use of their investments with an intention to grow their money and have sufficient income in the course of retirement, such as with an endowment.

People think of the investors as people who find out on a lot of ways to get success: sometimes by picking up individual stocks in the share market, sometimes by choosing on to the best of the mutual funds available and few do it in some other ways too.

The art of investment to create wealth and accomplish long-term objectives has been recognized time and again. But not everyone avails full advantage of it. What distinguishes the most prosperous investors from the rest are HABITS.

Well it is quite appropriately said by someone that there are lot many ways to do something, and same philosophy applies among investors as well. When we see lives of some successful investors, we would always come across some similarities in all of them and that is what we are going to talk about in this article further on.

At first, I would like to talk about who is a Successful Investor? An investor who is successful does not mean that he/she is beating the share market every day or trying to beat Sir Warren Buffett or surpassing the returns that are higher than their friends/neighbors.

The prime thing that should be looked upon at while considering a person being successful investor is how well they have been able to reach their financial goals. You can also learn about how to become a Good Investor here.

Though driven by dissimilar objectives, every investor has somethings in common. We’ll try summarizing them up here for you:

1. Start Early:

If you are a working employee and retirement savings plan sponsored by your employer, you are already making the savings automatically. Few companies do involve their employees in retirement savings plans for their future. The prime point here is just to get into a habit of savings as early as one can.

Start with a very little money but start, since seeing your money grow is a very motivating factor to invest more and more in it. And when you do investment do not speculate since speculating is gambling on the movements of share’s prices in the short term; on the other hand, Investing is placing your wealth to work for you over the medium or elongated term.

Always make a binding commitment with your investments made, by following these below thumb rules:

  1. Strategic thinking should drive your wealth allocation in the various asset classes available
  2. Never put all your eggs in just one basket, bring diversification in your investment portfolio
  3. Make investing a habit on a regular basis

2. Invest Regularly:

Investing smaller amounts on a regular basis instead of investing a large sum in one go, is always advisable. One can choose from the varied options available as in investing a fixed sum of money, monthly or quarterly basis, in different funds & this particularly is termed as Systematic Investment Plan (SIP). If you have chosen to invest in a Mutual Fund, do it by the means of SIP; eventually you’ll see that you end up investing more amount than you would have ever thought of investing if done in just one go.

Sometimes investing a lump sum amount can cause you some hazard effects because in case the stock market drops suddenly after you make the investment, a big portion of your capital gets wrinkled completely. However, if this investment is done on a regular basis the likelihood of suffering a considerable loss is reduced. The reason is very simple, as over a period of long time the invested cost gets averaged; because while buying regularly you sometimes buy at higher price and sometimes at lower price.

3. Think Long Term:

Investment is a long-term process, many people do invest in market by trading on a daily basis as per the speculation floating in the market. It is a risky business, and one must understand what exactly are you doing while making any short term investment decision.

Long-term investments will repay to you over a number of years. Before making an investment one should define the rate of return one wants and looks for a mutual fund that averages this return over a five or ten years’ time period. One should not panic when they are decided to invest for a long term of period and they should not make selling of stocks or mutual funds bought when the price drops or when the market looks bad because of the anticipation and sentiments attached with the market. The market always recovers from these drops, although time taken for it has been different all the time. On the other hand, if you pull out your money when the stock prices are low, you lose the money that you put in initially. If you leave your investments on their own, then they should pull through over the time. 

4. Have patience:

It has been even quoted that patience is a more important factor than intelligence when it comes to investments. One should be getting advice based on their requirements and goals and the time horizon of the market not on someone’s gut feeling on the market forecast.

Return on someone’s investment is determined primarily on the basis of their asset allocation and the type of investment made. Those who are the wise investors they know that for wealth accumulation the key is possessing a long term view and letting your investments grow without touching them often.

I had read a line somewhere I don’t recall as of now which said,

“Patience is an Investor’s Virtue”.

Whenever I personally panic seeing the market condition being bad or dipping down considerably, I just keep my fingers crossed and almost chant on to this line above. Dennis Gartman, a popular trader and publisher of The Gartman Letter has said the following about the value of patience:

“Proper patience is needed throughout the life-cycle of the trade, at entry, while holding and exit.”

It’s really very important to be born in mind that when have identified your entry points for a promising stock; how are you going to treat it further while holding and exiting through the same.

5. Ignore Volatility:

One who has a hang of the stock market knows about people’s sentiments attached with the market that people are more concerned on the 10% dip in the prices that to 10% rise in the prices of the stocks because it’s a general tendency of people to be fearful about the downward movement in prices. Over a long term of period the volatility level smooths out and comes to an average; you’ll see on a long term note the average level itself may vary. That is why a moving average is always taken as a benchmark in place of the simple average. Sir Warren Buffet, who is considered the master of investment also suggests that market volatility must be ignored at all cost or people may fall victim of their own shortcoming.

6. Ignore Noise:

Stock market is full of noise and the investors worry the most about making their money decisions when it is a lot noisy all around. The equity market gets buzzing on to an event of a merger or few successful IPOs launch or a series of higher closing points on the market index. Seeing this buzz people panic and those who do not panic on to the market situation they do so seeing the people’s sentiments towards the buzz created so that they do not stay left behind by others.

7. Stay the Course:

In my little investment journey that I have traveled so far, I have learnt this very important message that in Stock Markets what matter is patience to hold your good stocks for long time rather than best time of the market. I understand that getting a good deal and good price is very important, but for a long term investor like me being in the market is important. The market is divided into two parts:

Short Term: Investment to this market is basically driven by emotions like fear, greed, panic some artificial news etc.

Long Term: Investment to this market is brought in by fundamentals like returns, profits, cash flow, a competitive backdrop, invention and the overall path of the economy.

Market is never stagnant & keeps on fluctuating; investors need to grasp this fact at the earliest. Equities propagate and multiply over time because economies grow in a course of time. Continuing investment in the same stocks allows you to take benefits of compounded returns. This I suppose is one of the most incredible ways to create recreating wealth. If you want to read more about the power of Compounding please read this: Compound Interest Power

Investment no doubt involves risk, but one shouldn’t let instability scare them out of the market. Stay Positive; Stay the Course!

The Financial World may seem a bit complex but the habits investors carry within them to make the most of this financial world is pretty simple. So, create a smart plan and stick with it, save plentiful, make sensible investment choices, and watch out of your taxes, you would by the time have embraced some of the key habits that lead to success in investing.

Wish You a Great Investment Journey Ahead!!

About Vikas Agarwal

Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering.

He is the Founder and CEO of Finaacle.com – an investment advisory website.

He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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