7 Habits of Successful Investors | Author: Mark Hack | The Capital | June 2021
TonIf you follow these habits, then these 7 habits of successful investors will help you make money. They don’t need a lot of effort, just a lot of will. To replicate these characteristics, you will almost certainly have to change your way of thinking. This is because investing requires skills that you would not normally follow in life.
Warren Buffett once told the story of how he learned to control his emotions. One of his friends told him, “Warren, you can always tell others to go to hell tomorrow. “This is the essence of what I am talking about. It means that you must control your emotions and develop these habits to get rich.
Here are 7 things you should do to follow a super successful investor:
- Yes flexible In your investment philosophy-value, growth, contrarian.
- Focus In some cases and study them-that is, horizontal investment.
- diversification Your investment income-multiple sources.
- use Leverage — The right amount is necessary and optimal.
- horizon — Long-term thinking and short-term thinking are carried out at the same time.
- Fundamentals, Not technology-track earnings, bargains, and opportunities.
- embrace risk — Seek upside risks while avoiding risks.
I will also provide specific examples of how to apply these ideas. Let us understand these 7 habits in depth.
1. Flexible investment philosophy
it It turns out that you don’t have to choose between following a value strategy or a growth strategy. You can do both. It took me a long time to learn.
The famous quote from Warren Buffett said,
The goal here is not to reject investment ideas because they do not meet certain criteria. Sometimes cheap stocks are cheap for good reasons. If the growth of expensive stocks exceeds everything, then they are usually a better investment than cheap stocks.
Another key concept of investment flexibility is to always buck the trend. I wrote this recently—”Always buck the trend. “If you follow the crowd, you will get the same reward as the crowd. If you think differently, you will get a different reward from the crowd.
This is an example of how to apply it.immediately Pfizer (PTFE) The stock is cheap. It has a price-to-earnings ratio of 10 times and a dividend yield of 4%. This is a typical value stock characteristic. But its growth is very small. In fact, analysts expect earnings per share (EPS) Decrease by 8.4% in 2022. Although earnings per share are expected to increase by 57%, from $2.22 in 2020 to $3.49 in 2022.
Therefore, this is the expected return (ER): -8.4% EPS growth plus 4% dividend yield, or -4.4% total ER. The only way for PFE stock to rise is to increase its price-to-earnings ratio (P/E) from 10 times to at least 12 times.
versus Microsoft (Microsoft Financial Services). Its P/E ratio is 31.4 times, which is much higher than PFE’s P/E ratio of 10 times. In addition, its earnings per share is expected to grow by 7.59%, including 45.1% from 2020 to 2022. However, its dividend yield is low at 0.84%. Therefore, one might assume that the ER of MSFT stock is 7.59% + 0.84%, or 8.43%. But this is not all.
A closer, more flexible observation of the situation can reveal this. Microsoft is buying back a lot of stock, while Pfizer is not.although Pfizer may consider restarting its repurchase program, MSFT stock is in a significant advantage.
For example, its $6.93 billion quarterly repurchase program has an annual operating rate of $27.72 billion, accounting for 1.414% of its huge market value of $1.96 trillion. Therefore, its total yield is 2.254% (div. yield plus repurchase yield). This makes MSFT stock a much higher ER of 9.84% (that is, 7.59% increase in earnings per share plus a total yield of 2.254%). Therefore, despite the cheap price, Pfizer’s expected return is much lower than growth stock Microsoft.
2. Focus on a few situations
You don’t need a lot of investment ideas to make a lot of money. You’d better focus on a few situations. I call it “horizontal investment”. This means that you keep track of some stocks or cryptocurrencies for a long time. When a stock or cryptocurrency falls from the bed, you pounce on it and buy a ton. You track it like a spy. Once you enter you wait and then sell a part when it is overvalued. This will provide some liquidity. Therefore, over time, you will get very used to the trend of stocks or cryptocurrencies.
Today, many of the greatest wealth are obtained by focusing on a few stocks. For example, I wrote about this in my article recently, “Stop. Stop diversification.Don’t diversify your investment. The article quoted Warren Buffett as saying that the risk of identifying three outstanding companies is less than the risk of identifying 50 well-known large companies.
3. Diversify your investment income
This sounds almost the opposite of the advice I just suggested not to diversify. but it is not the truth. This is what I mean. Don’t just rely on a source of income or a method of making money. Stocks, bonds, and cryptocurrencies are good for making money, but maybe they can do other things.
The following is an example of how to do this. One of the best alternatives to making money is out-of-offer (OTM) call options, including “guaranteed call options for the poor.” Look at that and see what it is. The best and safest method is to sell OTM put options. To do this, you must have at least $25,000 to $30,000 in your brokerage account. I don’t need to explain any of these, because it is very easy to find all of them. By the way, watching YouTube videos can do this, because this is the easiest way.
Other ways to make money include writing articles, making YouTube videos, selling online products, or conducting online consultations.
4. Use leverage
A small amount of leverage can help increase your returns. It can be done through a margin account, usually the cost is about 7%, or it can be done through loans or LOC funds. The key is that you can make a lot of money by investing in spreads.
Suppose you can find a stock with a reasonable yield that looks like it will rise or at least not be overvalued. By buying more stocks on margin, you can get additional income and potential upside potential by buying more stocks of 20% to 25% on margin.
By the way, this also applies to hedging transactions. This is also a form of margin. By shorting stocks or buying put options, you are actually using a form of leverage to increase your returns. Just don’t overdo it.
One of the best investors of all time is George Soros and his Quantum Fund.As Investment Encyclopedia Describe his operation, Soros uses leverage in his fund In order to improve the return of his fund. These returns exceed 30% every year, and his income exceeds 100% in two years.
5. Focus on the horizon
The idea here is to use both long-term and short-term thinking. In the long run, you must make a difference. Suppose its goal is to raise $100,000 for the down payment for the house. But in the short term, you need to have both savings and investment acumen to achieve intermediate goals.
For example, if you want to reach 50,000 U.S. dollars, you can save 1,000 U.S. dollars per month. But you also need to invest money in your work to set aside at least $15,000 per year. This means that the annualized rate of return is 25%. The following table shows how this works:
This shows that if you set a long-term goal of having $50,000 and saving $1,000 per month, and earning an average of 25% per year, it will only take 3 years and 4 months. (Actually, it will be a bit shorter than that because I excluded any investment returns in the fourth year.) The short-term goal is to average savings and accumulated balances of 25%. Therefore, your return will be slightly less than $10,000, and the balance you will save will be approximately $40,000.
Now you have set long-term and short-term goals. Set aside K USD every month and get 25% of the income from your investment every year.
6. Follow basic principles, not technology
To get rich, you need to focus on the fundamentals of any investment you make. This means that you will understand and track the valuation of the stock, the company’s earnings or at least its trend (higher or lower), and whether the stock is properly linked to its potential value.
For example, if you buy a stock when the stock price is falling, there may be some good reasons why it is cheap. However, if it pays dividends and the dividends seem to be safe for you (that is, the company has enough earnings to pay it), then it may be a good choice in the long run. The lower the stock price, the higher the dividend yield. Over time, stocks with above-average yields will return to average yields, unless the dividend is significantly reduced. This may be one of the best ways to choose stocks as a value investor.
Another example, although the situation is complicated, it is now American Telephone and Telegraph Company (Ton).The company stated on May 17, 2021 It will do three things: Spin off its Warner Media division and its DirectTV assets to shareholders to become a new public company, merge the company with Discovery, Inc., and use most of the $43 billion from the transaction Paying and cutting dividends are “close to 50%.” The transaction will not be completed until mid-2022.
This is very complicated. There is no detailed information on the spin-off ratio and the valuation of the New Warner Media/Discovery/Live TV company. The only thing that seems certain is that the dividend will be cut. So now the T stock yield is very high, more than 7.2% of investors are skeptical about what this means.I write A recent article Investor Plaza On how to play this very interesting spin-off transaction. The point is that a lot of money can be made here. But it revolves around the fundamentals, not the technical aspects of AT&T’s price.
7. Embrace the risk
This means that you have to seek upside risks while maintaining risk aversion at the same time—that is, you have to accept risks, not avoid them. There are good risks and bad risks. Measure potential investments, for example, through your assessment of the probability and probability of upside returns and downside returns.
This is an example.recent I wrote about a stock called Context logic (hope), an online mobile e-commerce company. I think the company is cheap for good reason, because its profit is not as good as Amazon (Amazon) Or eBay (EBay). But I also pointed out that analysts are unanimously optimistic about this stock. So I compiled a probability matrix to determine what to do. This is what I wrote:
“For example, if the analyst is very likely to be right, say 40%, it will rise by 50%. Assuming my opinion that the stock may stay near its current price, there is a 40% chance that it is correct Then suppose that the stock has a 20% chance of falling by 20% because it is still not profitable.
The calculation method is as follows: Scenario 1: This results in an expected return (ER) of +20% (ie 40% x 50%). Scenario 2: This results in an ER of 0% (ie 40% x 0% gain). Scenario 3: ER is -4% (ie 20% x -20%). Therefore, the total expected return is +16% (that is, +20%-0%-4%). “
This shows that through the use of risk analysis, I was able to determine that the stock is still a purchase with an expected return of 16%, even though my original argument was that it was cheap for good reason.
If you follow these 7 investment principles, which are practiced by very wealthy people today, you may get very high returns in the long run. These ideas may be contrary to what you have so far. However, moderate and serious practice can improve overall returns.