I am currently reading this book entitled, The Winning Investment Habits of Warren Buffett & George Soros: Harness the investment Genius of the World’s Richest Investors written by Mark Tier. I find it too good not to be shared with you here.
Below is the outline of The 23 Winning Investment Habits taken from Appendix I of the book. All words about the habits are from the author (ie. Mark Tier) except those notes that appear under Habits No. 5, 6, 7, 8, 9, 10, 11, 14, 15, 17, 20, 22 and 23 respectively.
The 23 Winning Investment Habits
1. Preservation of Capital is Always Priority No. 1
The Master Investor
First priority – to not lose the money
The Losing Investor
First priority – to make a lot of money
But always fail to keep it
2. Persistently Avoid Risk
The Master Investor
As a result (of Habit No. 1),
Is risk-averse
The Losing Investor
Thinks that big profits can only be made by taking big risks.
3. Develop Your Own Unique Investment Philosophy
The Master Investor
Has developed his own investment philosophy, which is an expression of his personality, abilities, knowledge, tastes, and objectives. As a result, no two highly successful investors have the same investment philosophy.
The Losing Investor
Has no investment philosophy – or uses someone else’s.
4. Develop your Own, Personal System for Selecting, Buying, and Selling Investments
The Master Investor
Has developed and tested his personal system for selecting, buying, and selling investments.
The Losing Investor
Has no system. Or adopted someone else’s without testing or adapting it to his own personality.
5. Buy As Much As You Can
The Master Investor
Does not believe in diversification; always buys as much as he can of an investment that meets his criteria.
The Losing Investor
Lacks the confidence to take a huge position on any one investment
Note: Even when the losing investor buys as much as he can, he was merely doing it as a gamble (usually following his friends) without basing his decision on any thorough personal research at all.
6. Focus on After-tax Return
The Master Investor
Hates to pay taxes (and other transaction costs) and arrange his affairs to legally minimize his tax bill.
The Losing Investor
Overlooks or neglects the burden that taxes and transaction costs place on long-term investment performance.
Note: We need to have a strong enough grasp of the policy of the tax system. Regularly refer to the latest tax guide and read the case studies presented so that both theories and applications can be better understood.
7. Only Invest in What You Understand
The Master Investor
Only invest in what he understands.
The Losing Investor
Doesn’t realize that a deep understanding of what he is doing is an essential prerequisite to success. Rarely realizes that profitable opportunities exist within his area of expertise.
Note: If we find that we have no expertise in any industry at all, we should zoom in on one and do as much research about it as possible. Also, talk to friends and relatives who are from that industry. If we don’t know anyone from that industry, make an effort to meet people from that industry and make friends with them.
8. Refuse to Make Investments That Do not Meet Your Criteria
The Master Investor
Refuses to make investments that do not meet his criteria, can effortlessly say “No!’ to everything else.
The Losing Investor
Has no criteria; or adopts someone else’s. Can’t say “No!” to his greed.
Note: Making a decision to not invest is just as important as making a decision to invest.
9. Do Your Own Research
The Master Investor
Is continually searching for new investment opportunities that meet his criteria and actively engages in his own research. Likely to listen only to other investors or analysts whom he has profound reasons to respect.
The Losing Investor
Is looking for the thousand-to-one shot that will put him on easy street. As a result, often follows the “hot tip of the month.” Always listening to anyone styled as an “expert.” Rarely makes a deep study of any investment before buying. His research consists of getting the latest “hot” tip from a broker, an advisor – or yesterday’s newspaper.
Note: Learn the basics of doing an investment research. Just because an investor has been investing for twenty years does not necessarily mean he/she is well-versed with the research basics already. A beginner investor who understands the basics is more likely to make money than an “advanced” investor who does not understand the basics. Deep down inside we all know how well we understands the basics. We can fool the world but not ourselves.
10. Has Infinite Patience
The Master Investor
Can wait infinitely until he finds an investment that meets his criteria.
The Losing Investor
Feels that he has to be doing something in the market at all times.
Note: Patience is a quality that will make us better in whatever we do. The most powerful P-word is not POWER but patience. Without patience, we can never see things clearly enough to navigate successfully all the way to the end of every project we undertake. Daily meditation is actually one good way to cultivate patience even if it does not bring us any peace, mindfulness or enlightenment.
11. Act Instantly
The Master Investor
Act instantly when he has made a decision.
The Losing Investor
Procrastinate.
Note: A stitch in time saves nine.
12. Hold a Winning Investment Until There is a Predetermined Reason to Sell
The Master Investor
Holds a winning investment until a predetermined reason to exit arises.
The Losing Investor
Rarely has a predetermined rule for taking profits. Often sacred a small profit will turn into a loss, so he cashes it in – and regularly misses giant gains.
13. Follow Your System Religiously
The Master Investor
Follows his own system religiously.
The Losing Investor
Continually “second-guesses” his system – if he has one. Shifts criteria and “goalposts” to justify his actions.
14. Admit Your Mistakes and Correct Them Immediately
The Master Investor
Is aware of his own fallibility. Corrects mistakes the moment they become evident. As a result, rarely suffers more than small losses.
The Losing Investor
Hangs on to losing investments in the hope he’ll be able to break even. As a result, often suffers huge losses.
Note: When we find ourselves in the wrong hole, the only way out is to get back out of it and not dig deeper into it.
15. Turn Mistakes into Learning Experiences
The Master Investor
Always treat mistakes as learning experiences.
The Losing Investor
Never strays with any one approach long enough to learn how to improve it. Always looks for an “instant fix.”
Note: The only time mistakes are costly is when we don’t learn from them. When we learn from our mistakes, we are actually realizing their true ‘intrinsic’ value!
16. Pay Your Dues
The Master Investor
His returns increase with experience; now seems to spend less time to make more money. Has “paid his dues.”
The Losing Investor
Not aware it’s necessary to “pay your dues.” Rarely learns from experience,,, and tends to repeat the same mistake until he’s cleaned out.
17. Never Talk About What You’re Doing
The Master Investor
Almost never talks to anyone about what he’s doing. Not interested or concerned with what others think about his investment decisions.
The Losing Investor
Is always talking about his current investments, “testing” his decisions against others’ opinions rather than against reality.
Note: We must not let our ego get in the way of our investment process. In fact, nothing good ever comes out of any ego trip.
18. Know How to Delegate
The Master Investor
Has successfully delegated most if not all of his responsibilities to others.
The Losing Investor
Selects investment advisors and managers the same way he makes investment decisions.
Note: That means, first and foremost, we must have a clear set of investment criteria, research methodology, a comprehensive game plan and an over-arching investment philosophy (ie. Habits No. 3 & 4). Otherwise, what to delegate and how to delegate effectively, right?
19. Live Far Below Your Means
The Master Investor
Lives far below his means.
The Losing Investor
Probably lives beyond his means (most people do).
Note: This habit applies to anyone, including those who are not keen on becoming investors. Living far below our means is the only way to protect our freedom that is constantly being squandered by the ever-rising inflation under the current global monetary system!
20. It’s Not About the Money
The Master Investor
Invests for stimulation and self-fulfilment – not for money.
The Losing Investor
Is motivated by money; thinks investing is the way to easy riches.
Note: It’s about testing one’s overall investment strategy in the real world. If the strategy works, money will come in sooner or later – if not sooner and later. Getting our satisfaction from the fact that our system works is more important, or rather, more profitable, than getting our satisfaction from making money.
21. Love What You Do, Not What You Own
The Master Investor
Is emotionally involved with (and gets his satisfaction from) the process of investing; can walk away from any individual investment.
The Losing Investor
Falls in love with his investments.
22. Live and Breathe Investing 24 Hours a Day
The Master Investor
Lives and breathes investing twenty-four hours a day.
The Losing Investor
Is not fully dedicated to achieving his investment goals (even if he knows what they are).
Note: Life is all about investing. Invest wisely, we get our health, happiness and wealth. Reading KC Lau Dot Com is one of the best investments of the minutes of my day.
23. Put Your Net Worth on the Line
The Master Investor
Puts his money where his mouth is. For example, Warren Buffett has 99 percent of his net worth in shares of Berkshire Hathaway; George Soros, similarly, keeps most of his money in his Quantum Fund, For both, the destiny of their personal wealth is identical to that of the people who have entrusted money in their management.
The Losing Investor
Adds little to his net worth through investments – indeed, his investment activities are often hazardous to his wealth, funds his investments (and makes up his losses) from somewhere else – business profits, salary, pension funds, company bonus plans, etc.
Note: Say things we truly mean and mean the things we sincerely say.
This article is contributed by Ken who currently lives in Australia. He has been a college lecturer and an occasional university tutor in strategic management and marketing subjects since 2006. He enjoys reading, writing blog posts and spending time at home. Some of people Ken follows on the internet are Jim Rogers, Marc Faber, Dambisa Moyo, Seth Godin, Kishore Mahbubani, KC Lau and Danny Quah.
Ken, along with his brother Michael, wrote Migrating to Australia: Good Meh??? to help Malaysians maker a more informed decision in the subject matter of migration to Australia. In early 2016, he set up www.australiagoodmeh.com to further his cause and practising his personal belief that knowledge is power.
