The 25 Habits of Highly Successful Investors: How to Invest for Profit in Today's Changing Markets

pt. I STYLE FOR SUCCESS: CRAFTING YOUR INDIVIDUAL INVESTING STYLE HABIT 1 Know Yourself -and Know What to Expect: Know what's reasonable to expect over the long term, being realistic, patient, and prudent within your level of risk tolerance HABIT 2 Know and Use Basic Investing Math: Like it or not, a few basic math principles, like compounding, can be really handy HABIT 3 Get the Right -and Right Amount of -Information: Too much information can be as bad as not enough; how to get the right amount of the right stuff (and some suggestions) HABIT 4 Find Your Diversification Sweet Spot: Diversify to reduce risk without overdiversifying, which will compromise returns HABIT 5 Segment, or "Tier," Your Portfolio: Think of your portfolio not as a single entity but as a tiered pyramid of investments with each tier receiving different amounts of attention and designed to achieve different objectives Contents note continued: HABIT 6 Work Hard and Work Smart: Contrary to what many think, investing is hard work; how to pull it off when it isn't your full-time occupation pt. II APPRAISE FOR SUCCESS: FINDING YOUR VERY BEST INVESTMENTS HABIT 7 Buy Like You're Buying a Business: Even if you can only afford a few shares, pretend you're buying the whole thing. Learn to buy good BUSINESSES, not just good ideas HABIT 8 Buy What You Understand, Understand What You Buy: Use a combination of life experience, skills, learning, and just plain looking around to really grasp a business and understand its underlying fundamentals and what makes it tick. If you don't understand it, don't buy it HABIT 9 Appraise Funds Realistically: Know the costs and benefits of funds and their role in your portfolio, evaluate them objectively; don't assume that just because it's a fund it's a good investment Contents note continued: HABIT 10 Value Thy Fundamentals: Understand the financials and what drives the company's success, and whether they're improving or not HABIT 11 Look for Cash in All the Right Places: Cash is king; learn how to evaluate cash inflows and outflows HABIT 12 Don't Forget the Intangibles: Financials are results; they are lagging indicators. Make sure you read the LEADING indicators -brand, channel strength, customer loyalty, management strength, and others HABIT 13 Put on Your Marketing Hat: Pretend you're the CMO for the business. How is your company doing in the marketplace? Is it gaining share or losing it? Are you competing on price alone or on some other value add? Is the company positioned for success? Contents note continued: HABIT 14 Put on Your Street Shoes: As you think like a marketer, also think like a marketee -a customer. How is the company perceived by the customer? Look around at its facilities, online presence, etc. Does the experience "click"? Could it be improved? HABIT 15 Sense the Management Style: Are managers achievement oriented and all-in for the shareholders, or are they power oriented and all-in for themselves? HABIT 16 Look for Signs of Value, Signs of Unvalue: Assess each company for its ten signs of value and unvalue as per the list HABIT 17 Do Your Threes -Three Pros, Three Cons: When you have your facts and impressions together, list the three strongest reasons to buy the investment and the three strongest to avoid it HABIT 18 Buy with a Margin of Safety: Once you've decided that a company is good to own, now (and only now) decide if the price is right. Give yourself a margin of safety in case you're wrong Contents note continued: pt. III OWN FOR SUCCESS: GETTING THE MOST OUT OF YOUR PORTFOLIO HABIT 19 Buy Smart -When You Decide to Buy: Watch price behavior before you buy to try to find a good entry point, but don't shirk a good entry point just to save a few cents HABIT 20 Keep Your Finger on the Pulse: Watch your company as any absentee business owner might; check quotes and news stories at least once a week, read up on not just the company, but the industry. Read earnings announcements; attend investor conference calls, etc. HABIT 21 React, But Don't Overreact, to News: Be concerned if bad news surfaces (or if the markets sour), but avoid selling the day of the news; let things settle out. Learn to distinguish between a short-term bad news blip and fundamental changes in the business HABIT 22 Pay Yourself: Get some current cash out of your investments, through dividends, short-term rotational plays, or covered call options HABIT 23 Don't Marry Your Investments: Always buy, hold, and sell rationally, not emotionally. It's a business, not a personal relationship. Don't get angry, don't get too attached, and don't get infatuated in the first place HABIT 24 Sell When There's Something Better to Buy: Even cash can be something better to buy HABIT 25 Measure Your Results: Don't hide your head in the sand -check how you're performing at least once a year; once a quarter or once a month is better.