“We are what we repeatedly do. Success is not an action but a habit.”
A great habit is what keeps successful investors winning in their investments. It is the discipline with which they carry out their investment plan systematically, 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 dictates we should not enter into something we do not understand, yet time and time again you will hear people say they got scammed or burned from a stock tip they read from a blog. The lure of quick money keeps people from doing their own homework, which is a sure recipe for losing hard-earned money in the stock market. Successful investors keep on studying and learning, no matter how attractive the opportunity seems to be. They treat themselves as partners in the companies they invest in and diligently scrutinize these potential partners.
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 on the PSE 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, as people say, 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 of the emotions that can cloud our judgment 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 amount of 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 identify 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 in 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 condition because they did their homework, they know their time horizon and understand that sizeable returns manifest over time.
4. They regularly update and replenish their emergency funds. One thing that successful investors accept is the inevitability of financial emergencies in our lives and no one holds any certainty as to when these emergencies will occur. Thus, they plan and prepare well ahead of time. They understand that even a solid portfolio is not immune to the impact of financial emergencies. Emergencies such as one’s hospitalization may prompt a decision to sell stock positions prematurely to pay for the hospital bills.
The point of having a safety net, such as an emergency fund, in an investment plan is to avoid having to worry about an untimely liquidation of your stocks to pay for the bills. An emergency fund will serve as your cushion during financial disasters.
Knowing the habits that work for successful investors can help us with our personal investment journey, but the most crucial part is to start practicing them and developing them into our own habits.
Best of luck!
Jesi Bondoc is a registered financial planner of RFP Philippines. He is the director of My Wealth MD and Partners, Inc. specializing in investment advisory. You can send your money questions at firstname.lastname@example.org and they’ll be answered on his next article. For more info about Registered Financial Planner program, e-mail to email@example.com or text <name><e-mail> <RFP> at 0917-9689774.