Life long Lessons for Investors
Successful investors have a lot to share from their experiences which goes beyond just numbers. Almost every such person would agree that investment success is linked much more to investor behaviour and investment approach more than anything else in investing. It practically has nothing to do with choosing best performing products or market timing but everything to do with how you see and manage things over time. The following are a few of the priceless lessons that successful investors often share with others.
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Big picture:
You don’t want to look at one little piece of the pie. As an investor, you should always have a big picture in your mind whenever you are assessing your investments. The big picture is looking at your entire net-worth and cash flows. This takes into consideration all your assets and liabilities in mind, plus all your incomes and expenses. It should also take into consideration the risks that you are facing, both physical & monetary, and the protection (or insurance) you have to mitigate such risks. Any big financial decision should be contextual of this big picture.
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Self Investment:
Self-investment or steps to improve your skills, knowledge and capabilities should always be a life-long pursuit for most of us. Whether you are an entrepreneur, professional or a salaried individual, such an approach and self-development initiatives will enhance your opportunities for the future. Self-development should be on top of your agenda as technology and rapid changes are impacting almost every industry today and will impact your today or tomorrow. If one is ready and takes action keeping such things in mind, the financial future will likely be much more secure.
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Investment style /strategy:
Every good investor tends to develop his style and strategy over the years. Such a time-tested approach to investment brings more discipline, certainty in investments while removing bias and emotional reactions from decision making. If you are a new investor, we would urge you to learn from the experience of successful investors, personal experience and from financial experts to develop your style and strategy. It is also important that you remain flexible enough to change your ways based on new learnings and guidance from experts. Such an approach to your financials will hold you in good stead in your life.
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Keep good habits:
Developing good money habits is you should adopt very early on in life. There is a solid reason to develop basic habits of savings, avoiding excessive spending, have patience in financial decisions, living within a budget, avoiding bad debt and so on. The good habits go a very long way in strengthening the roots of your financial well-being over time. Good financial habits are directly responsible for your financial situation today and also for tomorrow.
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Avoiding big mistakes:
Just as important is to develop good financial habits, it is also important to avoid big financial mistakes in life. Even a single big financial decision gone wrong can ruin a lifetime of wealth created from good decisions and good habits. Hence, big financial decisions must be taken with care, patience and proper assessment. Needless to say, avoiding insurance or under-insurance is one of the big mistakes that people do. Another important mistake would be w.r.t. investments in unregulated investment firms like chit-funds, etc. Real estate investments is another area where decision making has to be proper to avoid long-term net negative impact on your portfolio, keeping in mind the other opportunities available in the market.
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Be decisive:
A lot many investors lose precious opportunities and time by avoiding decision making in time. Time is of great essence when it comes to investing. Being laid back or delaying your decisions carry a delay-cost for any new investment or even otherwise. Money anywhere is either earning or costing interest/capital gains or is at risk in some form. Being decisive means that you do not let things get delayed and cost you directly or indirectly.
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Take calculated risks:
Taking risks is one of the virtues appreciated today. There is a change in culture which is encouraging many to take risks in entrepreneurship. As investors, we too should be open to explore ideas and asset classes that offer better risk-return trade-offs in the long-term. Investors should not be too cautious to not take any risks in the portfolio and settle for interest income from traditional investments. Investors could do much better if they focus on real, inflation-adjusted, post-tax returns from their investment choices. A bit of risk for better returns in long-run is essential for wealth creation.
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True Happiness:
The most important thing in life would be peace and happiness. However, this is not something which is beyond the reach of us and is independent of your financial situation. If you are unhappy with one crore of net-worth, you will still be unhappy with even a hundred crore of net-worth. One has no reason to be unhappy on the financial front if life's basic requirements like home, livelihood and financial goals like retirement, education & marriage for a child, etc have been adequately addressed /planned for with reasonable expectations. True happiness, beyond this level, is thus a state of mind and very subjective. Happiness beyond this would come from things like a loving family, good health, sharing, charity and having a good social standing. Focus on these things too to enjoy peace and true happiness beyond money.
