All investors have one common goal – get better returns or performance out of their portfolio. While not all investors can be successful, all successful investors do display some characteristics which can be followed by other investors. Mind you, these characteristics are easier said than followed. In this article, we will talk about the most common characteristics and approaches to be successful at investing.
Set realistic goals and investment objectives:
Having a fair and reasonable expectation from your investment is the first thing that investors should learn about. The investment objective should be aligned to the investment asset class, risk appetite and your expectations from the portfolio. Any imbalance in these key elements is bound to find friction and conflicts. If one is unreasonable, he/she will probably end up making the wrong decisions. While working with an advisor, it also becomes important that you share your expectations and investment objectives and then arrive at mutually acceptable details of the same. Having the right expectations from your advisor is also an important element of successful investing for investors.
Be disciplined and patient:
As investors, we should understand that not doing anything in the markets is also counts as a decision or strategy. There have been many studies which have showcased that rather than attempting to time the markets, just spending time in the markets is much more beneficial to the investors. Making steady but low returns is much more preferred in the long run than making random high and low returns over the long term. This patience becomes very important if you consider yourself as a long term investor. Discipline in your investment approach or strategy is another very key success factor. If you are investing in a disciplined fashion, market movement and levels will no longer be important for you over time. Small investments, made regularly can deliver exemplary returns as compared to unplanned, random lumpsum investments. Being disciplined and patient also involves ignoring market distractions and noises.
Look at diversification and asset allocation
Diversification and asset allocation are a couple of investment strategies which have proved themselves to be indispensable to the investors. Having the right asset allocation on your total portfolio is perhaps the most critical factor for deciding your portfolio performance. How would a 15% returns on your equity portfolio matter if it is only 10% of your portfolio? The right mix of asset allocation – say into equities, debt and real estate or other physical assets should be appropriately managed in accordance with your risk appetite. Similarly, diversification is also important but one should be careful as to not to over-diversify into too many asset classes, products or AMCs or schemes. Only a reasonable amount of diversification would be beneficial for your portfolio. An investor should periodically review his/her portfolio asset allocation and diversification with the advisor.
Minimise the number and intensity of your mistakes
Warren Buffet strongly advocated making fewer investing mistakes to be successful at investing. While some of your investment decisions will surely help you reap good returns, it is often the mistakes that you do that destroy your returns. A good investment portfolio in quality mutual fund schemes will definitely help you create wealth. However, if you make some financial mistakes, that will surely eat up all your progress. Hence, it pays if you play it safe and not make mistakes. Also, the quantum of money put at stake for risky financial decisions bears huge significance. Make sure that any risk you are taking is only with money which you could afford to lose without any significant impact on your portfolio. By rule, know that any investment “guaranteeing” high returns is too good to be true and is not possible in the market. If you want high returns with risk, equities should be your go-to asset class.
Know your expertise and your limits
The great Sachin Tendulkar once realised that his cover drive was not working against the Australians. He decided to not play that shot, a very common one, in his entire innings in that one match and ended up making a very good score. The point being, one has to know one's areas of expertise and your limits and work accordingly. If you are good in your profession, business and making money out of it, stay focussed and continue doing that with all passion. If you are not so good at identifying stocks, leave that work to the fund managers, don't try to become one. The idea is not to stretch ourselves and try and become experts at everything. Managing wealth or money requires a certain amount of time, knowledge, efforts, market awareness, product familiarity and freedom from personal bias. It would be great if you have everything, but it would not be so great if you are overconfident of your skills and expertise. You will only end up hurting your wealth.
Being responsible for your investments would mean a certain level of seriousness and commitment to your financial plans and investment strategies. It would also mean that you value your money and would not take undue risks or decisions which are not in line with your stated objectives or contrary to the advice from your advisor. Being responsible would also mean that you are professional and adopt an unbiased, ego-free, open attitude and approach to managing investments. Being responsible would also mean that you share the important things with your advisor that directly or indirectly may impact your finances. Lastly, being responsible would also mean that you listen and follow the mutually decided decisions with your financial advisor, in a time bound manner, giving it the priority it deserves.