To invest well, you need to adopt habits that both maximise your returns while minimising your risks.
When I first began investing, I sought help from investment books to inculcate good habits and practices.
One of these books was called “The Winning Investment Habits of Warren Buffett and George Soros” by Mark Tier.
The book distilled many principles of good investment habits to its readers.
Buffett and Soros couldn’t be more different.
However, you will be surprised to learn that there were similarities between these two investors.
Here are four habits that investors can adopt to improve their investment acumen.
1. Preservation of Capital
All great investors focus on preserving their capital.
And this means minimizing the risk of losses.
As an investor, we should not blindly chase profits without properly understanding the risks.
This reckless behaviour can result in heavy losses if we are not careful..
It is therefore of paramount importance for an investor to focus on preserving his capital first before aiming for a decent return.
2. Risk aversion
Investing is not about avoiding risks, but rather about managing them.
Of course, you completely avoid risks by not investing at all.
However, you’d soon see your money eroded away by inflation.
Great investors such as Warren Buffett are averse to risk and try their best to look for high-return, low-risk investments.
As investors, you should also be aware of the kinds of risks you face when investing in a company.
The key is to manage your risks well, either by buying at a cheap enough valuation or to size your position smaller as a proportion of your investment portfolio.
3. Developing an investment philosophy
An investment philosophy is a set of principles that form the foundation of your investment choices.
It should also contain a list of criteria for stock selection, purchase, retention, and sale.
You should take time to sit down and work out a coherent philosophy that acts as guiding principles during both good and bad times.
With a robust philosophy in place, you would be in a better position to know how you should behave, react, analyze and respond to various market and business situations.
4. A personal system for selecting, buying and selling investments
Armed with the philosophy discussed in my previous point, you should also develop a system for selecting, purchasing and selling investments.
As investing is an intensely personal activity, only you know what works best for you.
Crucially, this system should be tested repeatedly and should not just be a thought exercise.
Through these experiences, you can then learn from mistakes and continually refine your investment system to ensure optimal performance.
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Disclaimer: Royston Yang does not own any of the companies mentioned.