Acquire some great financial habits.
The most obvious of questions -- "What is investing all about, anyway?" -- rarely has one obvious answer, though there's much to be gleaned by pursuing wealth of another kind: wisdom. Solid investor skills predate computer models and breathless pundits and survive for a reason, namely that successful stock market mavens have put the principles to the test. It also highlights that going it alone is hardly advisable. Just as today's investing gurus had gurus of their own, or Main Street investors have smart financial advisors, novices hoping to become experts have plenty to learn in the company of others.
Become a lifelong student.
It's said a younger Warren Buffett, visiting the estate of a tycoon, told the tour guide, "Don't tell us how he spent his money, tell us how he made money." Though a billionaire, Buffett continues to study investing. "I have found that most successful investors consider themselves students of investing, meaning that they have not and perhaps never will achieve mastery of the subject," says Adam N. Phillips, director of portfolio strategy at EP Wealth Advisors in Los Angeles. "No matter the experience level, there's much to be gained from reading books about topics such as long-term investing and behavioral finance."
Place value on value investing.
Buffett also bases his wealth philosophy on value investing, where underpriced assets are bought for the long haul. "It has long since been a strategy used by investors for finding growth," says Kurt M. Westfield, director of WC Equity Group in Tampa, Florida. Westfield looks for undervalued commercial properties "that increase both real and intrinsic value through redevelopment, strategic management and market analysis. Many are either unable to create a vision for success while walking a muddy trail or unwilling to take on risk for higher capital returns."
Employ healthy skepticism.
Robert R. Johnson, president and CEO of the American College of Financial Services, calls healthy skepticism one of the best skills for an investor to have. Note he didn't say cynicism -- rather, Johnson means "the ability to analyze what could go wrong with a company and not simply what should go right." It's not easy to ignore herd mentality. "Most people find comfort when others agree with their views. This was evident in the dot-com bubble as people bought stocks of unprofitable internet companies because others were doing so."
Follow the news, but don't be a follower.
News junkies who double as market junkies don't always make for the smartest of investors. But keeping an eye out for new government policies and actions, for example, can tip the hand for would-be shareholders of stocks that stand to reap the benefits. Here's a current example: rising interest rates. When the Federal Reserve hikes interest rates, stocks in sectors such as banking could rise. And for the savvy investor, that would be good news indeed.
Have a vacation plan.
No, that doesn't mean investing for vacation, but investing while on vacation, as in having someone watch your investments if you're going to be off the grid for some time. "For DIY investors who trade daily, it is usually smart to have an action plan in place," says Dan McElwee, executive vice president of Ventura Wealth Management in Ewing, New Jersey. "Whether it's a friend, family member or a financial planner, make sure there is someone you can trust to handle your money while you're away."
Sharpen your analytical ability.
"An adept investor needs to be able to process and analyze standard financial data and, perhaps more importantly, have a discriminatory attitude toward financial news and information," says Richard Kaufman, chief investment officer at American Dream Investing. One saving grace of knowing your numbers is that you can discern "what is a sales pitch versus what is solid financial advice." It also nurtures a contrarian streak that agrees with anyone's portfolio: "A skilled investor could be buying while others are selling and reaping huge rewards on discounted prices."
Find and follow a plan.
So tech stocks are hot and it's time to bet the ranch and the dog? Don't put Bowser on the block so fast. It's one thing to have a hunch about a certain stock, but winning investors don't join the battle for wealth without a sound strategy to connect the dots. "The most successful investors design a plan, perhaps with the help of an advisor," says Larry Miles, principal at AdvicePeriod, based in Los Angeles. "They then implement that plan -- and stick with it in good times and bad."
What's true for NFL quarterbacks also applies to investors who avoid the Hail Mary throw. "There's no substitute for hard work and intellect," says Larry Lockwood, the Stan Block Endowed Chair in Finance at Texas Christian University's Neeley School of Business. "Good investors don't make major decisions based on tips they read on message boards or overhear in the hallway. They examine publicly available information about companies, listen carefully to conference calls and ignore market noise. In other words, good investors conduct their own due diligence."
Persistence is a much underrated skill, says David Twibell, president of the Custom Portfolio Group in Englewood, Colorado. "Good investors show up every day ready to grind away at their craft -- whether it's reading obscure trade journal articles, pouring over charts or listening to endless quarterly conference calls. And when they mess up, as we all do from time to time, they dust themselves off and start all over again." Compare that to also-rans, "who when they invariably make mistakes they get discouraged and move on to another interest."
So what ties all the habits of great investors together? "Discipline is perhaps the most important skill required to be a successful investor," Phillips says. "There's no shortage of research available to investors today, and it's easy to be influenced by research that claims the next recession is imminent or stock ABC is set to rise 40 percent." That research may warrant attention, but not necessarily knee-jerk action. "It's important for investors to make calculated decisions based on their own individual long-term strategy."
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