How do You Become an Excellent Investor?
You don’t just wake up one day to find that you have become a great investor. It takes time, dedication, and deliberate effort in order to gain the experience needed to call yourself a great well-rounded investor. This then begs the question, aside from innate intellectual capacity and willingness to learn what does it take to become a great investor nipping at the heels of the greats such as Warren Buffet, Benjamin Graham, and Peter Lynch? The question isn’t so simple since these legends all lived lifetimes working in finance, wealth-management, intense collaborations, and spent decades upon decades learning from these experiences and learning from their mistakes along the way. However, you can boil down their efforts and pick out a few habits and strategies that make the most sense for us mortals. Here I have detailed 5 habits/strategies great investors, like the ones mentioned above and many others, utilize in an effort to maximize efficiency in their investing as well as their day to day lives. As we all know efficiency saves money, but most importantly efficiency saves time. Time is the single most valuable resource we have, as it is the only resource that we cannot purchase more of no matter how vast one's wealth becomes.
1. Set Clear and Actionable Goals
The very first step you MUST take is to be critically truthful with yourself and set extremely clear goals. These goals must be attainable and must have a clear path to completion. If you have no way of taking action towards your grand goals, then you simply will not. For example, if your goal is to make one billion dollars in the next 5 years you will not have success. There are not any actions available for you to take in order to meet this goal. That is why your goal must be attainable by small actionable steps. Let’s take that same goal except make it reasonable. Let’s say a more reasonable goal is to make one million dollars in the next 5 years. Your small actionable steps might look something like this: Step 1 - Develop a product. Step 2 - Start a company around that product. Step 3 - Market your company and your product. Step 4 - Manage the pricing, cost of production, marketing, and other areas of your company in order to make your company profitable. Step 5 - Scale your company and develop more products. Step 6 - Hire more employees and automate as much as possible. Step 7 - Maintain good customer relations. Starting with a smaller more realistic goal allows you to map out what needs to be done in order to achieve your goals. Don’t take this step lightly, this is the most important habit to learn in order to be a successful investor and entrepreneur. Once you have this habit down then setting clearcut and realistic goals that are accompanied by relatively simple actions to take in order to achieve those goals becomes secondhand. Like any true habit it will also reduce the cognitive load needed to formulate and will subsequently take less time. Not only will this save time during the goal setting processes, it will also set you up to achieve your goals faster!
2. Develop a Routine Based Around Your Detailed Goals
All a routine is, is an ordered list of habits tucked in neatly around the more unpredictable parts of your day, such as work, creative thinking, research, business development and other forms of productivity. As James Clear, author of Atomic Habits, puts it, “Your life today is essentially the sum of your habits”. The more you repeat positive decisions and actions the more habitual they will become until you have formed long-term habits. Keeping up habits allows your body, mind, and spiritual connection to thrive. Once you have laid out your clear actionable goals you can then start forming a habitual routine around them. Let’s say for example you want to start a company. A daily routine could look something like this: Wake up at 5 am, immediately get out of bed and brush your teeth, go to the gym, work for 1-hour increments with 10-15 minute breaks, eat lunch, continue working in 1-hour increments, take a walk, eat dinner, brush your teeth, get into bed and read for 1 hour. The more you repeat these actions the more second nature they become. Eventually you will get to the point where when you hear your alarm clock you are already out of bed and at the bathroom sink putting toothpaste on your toothbrush before you can even think to do it consciously. That is where the beauty of habits lies. Habits take the cognitive strain away from mundane daily tasks that need to be done regardless of how we are feeling. The more daily habits you can form the more you open up your mind to focus on and tackle the true meaningful tasks of the day, like figuring out exactly how you are going to build this business from the ground up.
3. Expand Your Knowledge
Great investors are always expanding their knowledge and learning more about the businesses that strike their interest. It is not only important to continuously broaden your individual skillsets, but it is also imperative that you develop deep rooted knowledge in areas that you are not yet an expert in. Having a well-rounded knowledge base allows you to have a wider scope when it comes to choosing what companies to invest in. The best investors the world has ever seen will tell you to never invest in anything you do not completely and fully understand. If you cannot read everything about a company and fully grasp what it is that they are doing and how exactly their business makes money, then you have no business buying stock or options of/on that company. That is how investors get burned and lose significant sums of capital. You also need to be able to understand and estimate the current actual value that the company has. Many times, this intrinsic value is different from what the current stock price is and is one way great investors make money on stocks. They find, through their enormous repertoire of knowledge, undervalued companies and purchase stock in those companies. They then hold the stock long-term and only cash out when a significant profit can be made, or the company is overvalued and/or capital is needed for other investments. It is also important to read as much as you can on as many subjects as you can, not only about the companies in which you hold interest. Warren Buffett famously reads 500-600 pages per day! He contributes much of his wealth to his passion to read and to learn. Find books you enjoy reading and books that will expand your perspective. They do not have to be strictly nonfiction; however, it is better to read more nonfiction than fiction as they are more pertinent to real life.
4. Have a Bias Towards Action
Another key characteristic great investors possess is having a bias towards action! I’m sure everyone can understand that if you do not take action things will not get done. You can take action by setting clear goals, routines around them, and learning more and more about your passions and business interests. However, if you stopped there you would be stuck in the same spot you started. You must take action. In order to finish a race, it is not enough to take just a single step. You must continuously and consistently take steps towards the finish line if you ever want a chance of finishing the race. The same is true for investing and entrepreneurship. Stating clear goals, developing daily routines to strengthen your mind, body, and soul, expanding your knowledge. These are all single steps, ones that must be taken consistently in order to make progress towards your grand goal(s). Get up each and every day and take actions toward your goals.
5. Learn From Your Mistakes
Every human has made and will continue to make mistakes. Benjamin Graham, Warren Buffett, Peter Lynch, every great investor and entrepreneur has made countless mistakes throughout their careers. The difference between someone who is able to achieve their goals and someone who is not able to achieve their goals is the ability and capacity to first notice and understand your mistakes once they arise, then analyze and determine why the mistakes were made and why they were so detrimental. You store this information away and recognize and recall them the next time you are in the same or similar position. You now have the knowledge and experience to make a change so that you do not keep repeating the same mistakes over and over again. Mistakes are an inevitability and because of that, mistakes are a beautiful phenomenon. They are life’s way of teaching you through experience, arguably the best way to learn. So, when you make your mistakes, learn from them, adapt your strategy and soar to higher heights.
In the end everyone’s path to success will be different and paved in many types of hardships, knowledge learned, mistakes made, routines set and destroyed. The point being paths to success are dynamic and no one path will be exactly the same. Due to this reality, you cannot simply read about someone’s life you wish to portray and follow their daily lives and routines to a tee and get the same results. You can however, develop your own strategy based on what others who are successful have done. Through this exercise you can see what actually works and most importantly you can formulate a path that makes the most sense for you and your current life. For a start you can try setting clearcut and actionable goals, develop a daily routine around those goals, continuously expand on your knowledge, consistently have a bias towards taking action, and always learn from your mistakes. These 5 habits/strategies will set you apart from the rest and above all else they will help shape you and direct you towards who you truly want to be in this life.
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