We know and acknowledge that good habits such as eating right, sleeping enough, exercising, etc. help maintain good health and extend life span. In truth, being successful as an investor also need you to adopt ‘good habits’, which starts with planning. Nothing is more important in investing than solid, well-thought-out planning. But all the planning in the world fails without the right follow-through – the right habits to serve and feed those plans. Some of these habits that are most helpful and potentially profitable are:
Keep a Diary: Get a notebook (physical or digital) and before making or exiting any investment, write down the reason for doing it. The point of this exercise is twofold: to learn from past mistakes and to force yourself to collect your thoughts. By recording your views, you can judge them later, gaining important new insights.
Keep Score: It’s important to know how you’re performing as an investor. It isn’t as simple as it sounds. Take the following steps: (1) Pick the right time frame: Depending on the size of your portfolio and your investing style (active or passive), periodically review your investments. The period could be as short as daily but should not be longer than a quarter. (2) Be brutally honest: Evaluate all your investments as a whole. Human nature being such we bask in our successes and ignore our failures. The name of the game is appreciation. It’s not good enough to see that five of your seven stocks have gained this quarter. If the other two performed poorly enough, you may have lost money overall. (3) Pick the right yardstick: How do you decide whether you’re winning or losing? Follow two rules. Rule No. 1: Don’t lose money. Rule No. 2: Earn real returns. (For me real returns are returns in excess of taxes and inflation, otherwise you are losing capital). (4) Start keeping score: With the right time frame, honestly evaluating your performance and the right yardstick in place, you can begin keeping score in your notebook.
Read extensively but selectively: Every investor needs an orderly, rational and consistent reading routine. Set aside a consistent amount of time each day for reading, and consciously decide on what’s most important for you to read. Read enough to know where the market is going in general. At the very least, you’ll need to know how the market is performing in order to measure your own portfolio’s performance. Read about your own investments. You need to know the big changes to manage your investments smartly. Don’t waste time on the small stuff. A big up or down day in the markets shouldn’t distract you. Investing is a long-term process.
Take stock once a year: Once every year, set aside a significant amount of time to evaluate your investment strategies. This isn’t about keeping score. It’s about examining the big picture. Be forewarned: This approach can be really humbling.
As Aristotle, the Greek philosopher said, “Good habits formed at youth make all the difference”. This is particularly true for successful investing.
Milan is a veteran stock market investor and educator on equity investing. Connect with him on firstname.lastname@example.org