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11 Habits of Successful Investors

Let us learn the secrets of successful investors. Here we'll understand the 11 habits to follow to strategically manage your assets and get good return on investment.

There is nothing trivial when it comes to accumulating wealth and investing especially, if the investors are confused between desired results and avoiding risk factors.

11 simple yet effective habits that can actually help investors to accumulate capital in a better and composed way.

1) Make A Binding Commitment

Binding Commitment 

There are three options that every investor can use to make binding commitment

  1. Strategic Asset Allocation (also known as long term characteristics) should rule the part to various asset classes
  2. The common rule that every investor should follow is to make sure that he should not put all his eggs in same basket (which means he needs to diversify his investment)
  3. Invest regularly

1. Put Strategy before the Tactics:

  • It is important that one should put the strategy before the tactics, which means invest in the strategy.
  • Investors should decide on the basis of strategy if he wants to invest in equities or in bonds, depending on what suits his risk profile.
  • Strategic Asset Allocation can be implemented easily with the balanced portfolios.
  • If everything is managed actively, it is easy for portfolio managers to make the tactical adjustments that too, without letting the investors to worry about anything at all.

2. Diversification:

  • Every investor must have come across the term "Never Put All Your Eggs in One Basket". However, only few investors actually follow this term.
  • Usually, there is not a huge point to get hold of perfect investment every time and to make continues changes in your portfolio.
  • However, you should not put all your investment in one single bond, equity or asset.

3. Invest regularly:

When it comes to saving plans, the rule is same i.e. to earn the risk premiums, it is important to take risks, it can be in terms of market risk premium, equity market risk premium or inflation risk premium. Though there is no guarantee of the specific performance, there are three effects that can be tactically combined.

  • Diversification Effect: Making investment regularly will give you the chance to diversify in a basket of bonds or equities. The savings can go in different infinite multi asset solutions. Investment Diversification Strategy is the key to earning high returns from your capital and is preferred by successful investors.
  • Average Cost Effect: When it comes to paying exact amount on regular basis in the saving plans, basically means that the shares are bought for different amount as they continue to change with the changing trends in capital market.
  • Compound Interest Effect: If you want to earn benefits from compound interest effect by re-investing distributions then you should save for long period of time.

2. Know "What You Want" and "Challenge Yourself"

Challenge Yourself 

If you analyze the lessons that behavioral economics taught over the period of time, you will realize everything comes down to one thing i.e. the functionality of the brain is the result of development process that has been taking place since forever.

This is the reason that our brain sometimes shows certain behavioral patterns that were part of historic period and are not easy to be explained rationally.

To break things down, let's take a simple example: you as an investor often use a certain frame to view the world of investments.

You see whatever you desire to see, keeping a close eye on the loss rather than looking at better alternatives for better results.

You prefer to go with the flow, by following the crowd around you, or lean on certain sentiments that keep you torn between the greed and fear of loss.

Before making any decisions, put yourself in a test: if you are playing head or tails and you are at risk of losing 50 CHF every time on tails, before actually willing to start playing this game, how bad would you want the chance of the winning, definitely more than 50 CHF.

This desire more is neither wrong nor right, as the only thing that it reflects is your preferences.

If you prefer to leave whatever savings you have in a savings account and eliminate the factor of getting returns or simply back off from something just because you fear loss, this can be something very dangerous for an investor.

If The Horse Is Dead, Dismount:

It is a great thing for you to pay attention to Dakota Indians and their wisdom.

They believe in the term "If The Horse Is Dead, Dismount." There are still a lot of investors who back in time bought some equities for not more than 60 CHF and even today after decades they are still hoping that prices would return to same type of level.

However, if they had decided to sold those equities and switch to a huge variety of European or German Equities, they might have end up with good return on investment, instead they preferred to hold on to their idea of gaining from their equities for a long time.

3) The Fundamental Law of Capital Investment

Fundamental Law 

A successful investor is well aware of the fact that he cannot simply enjoy the risk premiums, if he continues to ignore the risk. This is one of the fundamental laws, when it comes to capital investment.

In order to explain this concept logically let's use simpler terms.

To understand the importance of investments in the riskier assets, one should think about the high returns that will be generated from these investments. While on the other hand, investments with low risks does not bring in high returns.

To understand the above factor, it is important to dig into history:

According to the historical time series, which is available for US equity market, indicates when it comes to the risk premiums, there is no disappointment, despite the fact that the return for US equity market has not been exactly same all the time.

On comparing the risk premium that are on American stock market to 30-year US Treasuries for over 30 years right from the beginning of given time period i.e. 1801 to almost end of the 2015, it can be seen that 3.7% pointer were generated from the risk premium for over 30 years.

If you look further you will see that the weakest performance period was from 1981 to 2011, has the risk premium of almost -0.85%. Upon analyzing the entire series you will see the effects of the equity premiums from 1901 to 2015.

If the investors had been wise and invested only $1 in the Treasuries back in 1801, they will have earned almost $1550 or even more at the end of 2015, which means that if your ancestor had invested some capital at that time then you would have achieved 155000% returns on that invested capital.

US Stocks vs. US Treasuries

If you look further you will see that the weakest performance period was from 1981 to 2011, has the risk premium of almost -0.85%. Upon analyzing the entire series you will see the effects of the equity premiums from 1901 to 2015.

If the investors had been wise and invested only $1 in the Treasuries back in 1801, they will have earned almost $1550 or even more at the end of the 2015, which means that if your ancestor had invested some capital at that time then you would have achieved 155000% returns on that invested capital.

Formula for Calculating Market Risk Premium:

Market Risk Premium can be calculated by subtracting the risk-free rate from the expected equity market return, which provides a quantitative measure of the extra return demanded by investors for increased risk.

4) Invest, Don't Speculate!

Don't Speculate To Invest 

There is no need to track price movements as well as market, in order to find out what is the perfect timing to go in or out. There is no one who will call you and explain you when you should invest and when you should not.

However, if you are serious about accumulating the capital for a longer period of time, you would stop speculating and start investing.

When it comes to speculation, it is like betting on the price movements but in short terms. On the other hand, investing is all about putting your capital in some work that could give you benefits on the long run.

The chart given below shows distinction that is based on the different equity market segments:

Equity Market Segments

If you take the example of European equities, you will see that the diversified investments has been made if investments are made in a diversified manner for 25 years, on average you would have earned 8% returns on investment.

However, if you sit back and just wait for the better prices, and wasted 20 best days then you have gained only 2% or less. On missing 40 best days, the loss will be of 2.3%.

It's better to make your money do the work. Moreover, when it comes to missing some of the best days, it is extremely of high risk.

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5) Investment Solutions governed by "Purchasing Power Preservation" but not "Security"


Your investment decisions should be governed by "purchasing power preservation" rather than "security".

The world seems to move around the idea of security and the term "security" is mostly used as a safe world when there is no price fluctuation.

During the past few years, equity market is the one that has sent investors on the roller coaster ride. In the circumstances, it is understandable that investors prefer to avoid the price fluctuations.

However, they are so busy with being safe in terms of price fluctuation that they almost overlook risk of losing purchasing power that happens to be very unpleasant given the fact that currently the interest rate on the saving is 0.

You cannot take government bonds as solution to everything.

During the mid of 2016, almost half of the government bonds were giving negative yields especially the ones that are in Euro zone.

The only so called "security" that the investors have with them is knowledge about the fact that the return is going to be less than the invested amount.

This is the reason that if you aim to preserve the capital, then you need to make sure that you are not focusing only on absence of the price fluctuations. "Purchasing power preservation" should be minimum requirement for the investments.

To explain how quickly inflation can destroy the purchasing power, let us take an example:

Inflation Rate

Let's say you had 50 CHF under the pillow. As per the rate of inflation i.e., in Europe of only 2% per year, in 10 years' time you will be likely to buy goods that are worth just over 30 CHF and less than 20 CHF after 20 years.

Furthermore, if this hypothetical rate of inflation goes to 4% then in almost 10 years, the worth of your money will be less than 30 CHF and for next 20 years, you won't be able to buy any goods that cost 25 CHF.

6) Don't Put Off Till Tomorrow, What You Can Do Today

There are millions of CHF that are sleeping in saving books while you are waiting for another day to go by. For long term saving plan, there is different perspective of the compound interest effect.

Let's take an example:

An investor aims to have almost 100,000 CHF with them during their retirement.

If they decide to have an early start, aiming to get closer to their goal in next 36 years, saving almost 50 CHF every month is enough with average return of almost 7.50%.

However, if the investor has only 12 years to reach their goal then they need to save almost 400 CHF every month.

Waiting for tomorrow and assuming that the market will go according to your plans is a waste of time and resources.

7) Go for Passive Investment:

Another habit that most of the successful investors have is that they prefer to go for passive investment strategy. Passive investment is all about long term benefits.

Investors prefer to keep their investment minimum and earn high returns in the long run. With passive management no investor wants to pay extra money in the name of extra fees or any additional charges.

Passive investments have no hidden fees involved with them. A wise investor knows that relying on value of gold can be tricky. However, passive investing has nothing to with the price of gold going up or down.

While going for passive investment, investors does not have to waste their time evaluating the company reports; instead they can focus on their decision about making better investments.

Furthermore, passive investment is all about transparency. The investors have a clear vision of what their funds are holding, which makes it very predictable. The predictable nature of passive investment makes it easy for investors to make their decisions.

8) Look For Cost


If you want to be a successful investor then you need to adopt the habits of successful investors i.e. look for the cost.

You might have decided that you want to buy certain equity or government bonds, may be the best option for you and you are all set to buy them.

However, before you put a seal to your decision, what you need to do is look for the cost.

A lot of immature investors' think that looking for the cost is waste of time, and will cause delay in making their decision which is true sometimes.

However, there are a lot of times when peaking into cost of different equities or bonds can actually be of help.

There is no denial in the fact that the stock market is always fluctuating which means that the cost might go up and down after different intervals.

Looking at the cost of equities, might help you to save money and make a better decision that can bring in high returns in the long run.

9) Research and Check your Investment Decision and then stick to it:

Research Before Investing

Taking risks while making investments is one of the common thing that a successful investors do. However, what they don't do is go in blind.

A successful investor prefers to do his research before he is ready to make an investment decision.

Investing itself is a tricky thing in which you are expecting for some benefits in the long run.

It will be complete disappointment if you don't end up with best return on investments as you expected it to be. This is the reason that you need to research a lot.

If you are investing in a company's stock, start with evaluating its performance report. Check how many ups and downs the company has been through.

Before signing any investment deal, make sure you have read all the terms and conditions, and there is no hidden charges that might pop-up when you start enjoying the benefits that were promised.

The next thing that you need to do, once you have done your decision, you should stick to it.

Your research means nothing if you are double minded person and do not have any ability to stick to your decisions.

The investment is all about firm decision making skills which is why you need to stick to your decision.

10) Invest Your Money in the Right Team

A perfect leader is the one who has the best team and knows how to manage it.

A lot of new investors do not understand the importance of a good team, when it comes to investment. Whereas, a successful investor knows how important it is to have the right team.

To explain it in a better way, let's take a simple example.

You have a task to paint an apartment in 30 days and you know it is an extremely difficult to do. However, if you manage to gather 10 people who are dedicated towards their work and do not give up easily, then you can pull off this task with a lot of efforts put in by each and every member of your team.

On the other hand, if you are asked to paint the same apartment and you have 20 people with you, but they are neither dedicated nor experienced enough, then even if you complete painting the house within given time there will be hardly any finesse in the work done.

Thus, a good investor always prefer to have experienced and professional members in his team. Having experts in your team is the key to staying your life without constant worrying and frustration.

You have to do monthly researches, check market rates, evaluate reports or worry about the fluctuating prices, as his team will be there for him to carry out all these task.

11) Invest In Approaches

Invest in Approaches 

A successful investor aims on moving forward in life instead of going backwards.

Have you ever seen a car moving in reverse and still winning the race?

The answer is no, because it is not logical.

Investment is more about taking in consideration what will happen in future and focusing less on what happened in the past.

There is no doubt about the fact that the research about performance of any company or stock helps you to make decision about your investment.

However, you need to make sure that your decisions are not based solely on history.

Let's take an example:

50 years back your grandfather invested in a company which ended up with high returns. Now you finally have enough capital to think about re-investment and looking for investment options and other capital management solutions.

Just because 50 years back your grandfather has earned success by investing in that company doesn't mean that you owe it to the company or you need to follow his steps.

Your decision about that investment should be based on the current performance of the company but not on your sentiments or emotional attachment.

Moreover, you should focus more on long term benefits rather than focusing on company that offers one time quick profits to you, like it did for your grandfather in the past.

For example a long term investment or commodity trading approach and not in historic statements as history might not repeat the same itself.


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