How to become a Good Investor

We usually observe the difference between rich and poor. Lot of people talk about it but do we ever think what creates this difference??

Rich invests their money and manages expenses with what is left with them after investing. The poor spends first and invests what is left.

Now, I would request you to analyze your behavior about spending & investing; figure out which way you follow. Do you first invest and then spend; then you are on the right path to become rich or I must say a wealthy man. One Quote of T.Hary Eker is pretty famous in this context:

“The only way to permanently change the temperature in the room is to reset the thermostat. In the same way, the only way to change your level of financial success ‘permanently’ is to reset your financial thermostat. But it is your choice whether you choose to change”

Lets see what are the characteristics which helps a common man to be value investor:

1.) Discipline: From the school time, we hear that discipline is the key to success; it’s must to be successful. And I believe its the very basic characteristic which decides what kind of investor you want to be. If you apply discipline in your investing; then surely it will pay good results in long term. But people most of the time become impatient and lose their path. Compounding is the greatest toll which needs time to show result; but if you don’t give time to it then your results are gone. So, keep discipline at top most priority in investing. Manage all your expenses after investing the pre-determined amount.

2.) Risk and Persistence: Another basic difference between average and good investor is their risk appetite. I believe risk appetite is related with their long term goals and vision. Good investor will never look for short term fluctuation as he will be more keen towards longer picture whereas average investor will get worried in short term fluctuation. Average investors usually fear making losses and losing capital. Hence, when they earn marginal profits they redeem the investments. A good investor has strong belief on  magic of compound interest so he will stick with it and make his or her money to give better results in longer period.

3.) Timing: Many value investor say don’t try to time the market and its absolutely correct. Like last year lot of new people entered into the market after seeing good return from the market. This type of timing can be very harmful to your money. If you want to use the equity for wealth creation then follow discipline and invest regularly. But surely in a particular share you have to see at which price point you want to enter; you have to read its fundamental and annual reports before investing. Personally I closely follow the one point which Warren Buffett emphasizes – Margin of Safety. I try to get the share at very low price so that losses are limited and gains are unlimited. Am trying to get more hands on this philosophy.

Many people are also unaware about the reason why they are holding particular share. Probably they believe in herd mentality. Therefore these people will never come to know when and why to sell a share. And they will sell their golden shares which are giving them good returns and will keep the losers in the hope it will surely rise.

4.) Investing Philosophy: I personally believe every investor- good or bad or average; has its own investing philosophy. One needs to identify that. If you are blindly following some one’s philosophy without knowing the reason then you will be lost in the lot. Therefore give your self time and read different peoples investing philosophy; implement them and then try to figure it out which philosophy is best suitable to you. It is must for every investor to know his investing philosophy so he can become a great value investor. However, once you find Investing Philosophy that has continuously produced positive results, it is ideal to stick to it.

Always remember a good value investor does not need every share which become 10 bagger or 100 bagger; he just needs his 10 shares which can be 10 or 100 bagger. So don’t run for every share which you hear or read in news or from friends. Just stick with your portfolio and keep investing in your portfolio regularly.

If you have something to add, Please post your thoughts in comments. I would love to hear from you.

Happy Investing!!