BookSummary: 25 Habits of Highly Successful Investors

BookSummary: 25 Habits of Highly Successful Investors

• Book Information
  • Title: 25 Habits of Highly Successful Investors
    • ~ http://www.amazon.com/The-Habits-Highly-Successful-Investors/dp/1440556628
  • Author: Peter Sander
  • Pages: 273
  • ISBN: 978-1440556623
  • DateRead: 20140920
  • Rating: 5 Stars
• Part 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 over diversifying, 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.

    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.

• Part 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

    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?

    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.

• Part 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.

• 25 Habits-Shortlist
  • Habit 1:Know Yourself—and Know What to Expect
  • Habit 2:Know and Use Basic Investing Math
  • Habit 3: Get the Right—and Right Amount of—Information
  • Habit 4:Find Your Diversification Sweet Spot
  • Habit 5:Segment, or “Tier,” Your Portfolio
  • Habit 6: Work Hard and Work Smart
  • Habit 7: Buy Like You’re Buying a Business
  • Habit 8: Buy What You Understand, Understand What You Buy
  • Habit 9: Appraise Funds Realistically
  • Habit 10: Value Thy Fundamentals
  • Habit 11: Look for Cash in All the Right Places
  • Habit 12: Don’t Forget the Intangibles
  • Habit 13: Put on Your Marketing Hat
  • Habit 14: Put on Your Street Shoes
  • Habit 15: Sense the Management Style
  • Habit 16: Look for Signs of Value, Signs of Unvalue
  • Habit 17: Do Your Threes—Three Pros, Three Cons
  • Habit 18: Buy with a Margin of Safety
  • Habit 19:Buy Smart—When You Decide to Buy
  • Habit 20: Keep Your Finger on the Pulse:
  • Habit 21: React, But Don’t Overreact, to News
  • Habit 22: Pay Yourself
  • Habit 23: Don’t Marry Your Investments
  • Habit 24: Sell When There’s Something Better to Buy
  • Habit 25: Measure Your Results
• 25 Habits Drilldown
  • 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

      A. Know what you’re trying to accomplish. Say it out loud, discuss it with your family, and write it down.

      B. Know what’s realistic to expect.

      C. Decide if you are happy meeting, exceeding, or staying slightly under market returns, given the risk and energy involved.

      D. Invest what you can afford to lose.

      E. Make sure everyone in your family is on board.

  • Habit 2: Know and Use Basic Investing Math
    • Like it or not, a few basic math principles, like compounding, can be really handy.
    • A. Always remember the power of compounding.
    • B. Strive to make “just a few dollars more.”
    • C. Know the true cost of professional management and fund fees.
    • D. Practice your “Rule of 72” shorthand. It comes in handy, and you can impress your friends too!
    • E. Think in terms of compounded rates of return—it’s more conservative and more realistic.
  • 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)

      A. Decide how much time you have, and want to spend, staying informed.

      B. Think about what you need or want among the five categories: Economic Trends, Industry Trends, Financial Stuff, Soft Stuff, and Analysis.

      C. Review sources in each category and select based on their value.

      D. Review your choices occasionally; drop the ones that aren’t adding much; try others on for size.

      E. Tap into informal networks—friends, family, and industry insiders.

      F. Share information sources with other investors or friends, to cut cost or leverage each other’s time.

  • Habit 4: Find Your Diversification Sweet Spot
    • Diversify to reduce risk without over diversifying, which will compromise returns.

      A. Realize the myths and costs of diversification.

      B. Avoid overlapping funds and other forms of overdiversification.

      C. Diversify “deeper” than simple asset allocation. Realize that the mix of stocks versus bonds versus cash versus other doesn’t go far enough without knowing what’s beneath the surface.

      D. Diversify across multiple “smart” dimensions—industry, risk profile, time horizon and funds vs. individual company stocks.

      E. Set yourself up to choose and manage between five and ten companies as your primary “focus” investments.

  • 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.

      A. Divide your investments into tiers—either by specifically segmenting accounts or dividing simply in your mind (a written list will help you keep track).

      B. Decide how much of your portfolio should be in each tier, and set expectations for each tier.

      C. Spend more time managing the more active tiers—the most time devoted to the Opportunistic portfolio, the less to the Rotational, then the least to the Foundation portfolio.

      D. When considering a new investment, think about what tier it should reside in.

      E. Shop for the best investments for each tier.

  • 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.

      A. Do the homework, just as if you’re buying and owning the whole business.

      B. Set aside the time to do it right, both initially and ongoing.

      C. Get help where you need it—in the form of professional advisers and in the form of fund investments.

      E. Turn it into a routine

  • 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.

      A. Think of buying a stock like you’re buying 100 percent of the business.

      B. Always think about the business, and then look at the price.

      C. Don’t fall for something just because it sounds like a good idea.

  • 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.

      A. Make sure you understand a company you’re thinking about owning.

      B. Be able to state the company’s business in a few simple statements to—say—a family member.

      C. Make sure you have the background and the connections to find out what you need to know about a company.

      D. If you don’t understand it, don’t buy it. Move on. There are plenty of companies out there.

  • 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

      A. Understand the advantages of funds vs. individual stocks, know where funds may better meet your needs, and act accordingly. Map out a strategy for using funds in your portfolio—e.g., to achieve international diversification, exposure to commodities, exposure to small-cap stocks, etc.

      B. Know how traditional mutual funds and ETFs compare; be prepared to shop the assortment of mutual funds and ETFs to fill the gaps in your portfolio.

      C. Evaluate funds by objective congruence, holdings, performance, and cost. Test the fund to see if it really does what it says it does, and what you want it to do.

      D. Avoid buying overlapping funds—too much diversification.

      E. Don’t assume that just because the fund comes from a famous Wall Street firm and is wrapped up in a nice package, that it is right for you. It is like any other product and should be evaluated accordingly.

  • Habit 10: Value Thy Fundamentals
    • Understand the financials and what drives the company’s success, and whether they’re improving or not.

      A. Remember that fundamentals are the scorecard of the past, while intangibles such as brand and marketplace, and management excellence foretell the scorecard of the future.

      B. Keep in mind that fundamentals measure absolute business performance, relative performance over time (trends), and efficiency.

      C. Use fundamentals as a measure of (1) how strong a company is in the marketplace and (2) how effectively management converts that strength into profits.

      D. Develop your own list of “strategic fundamentals” (starting with the one provided, if you want). Use that list as an “acid test” for companies you own or evaluate to buy.

  • Habit 11: Look for Cash in All the Right Places
    • Cash is king; learn how to evaluate cash inflows and outflows.
    • A. Make the Statement of Cash Flows part of your normal review process.
    • B. Determine whether the company is producing or consuming cash (capital).
    • C. Determine if cash flows are well managed and in control.
    • D. Check to see that the company is returning cash to investors on a regular basis.
  • 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.

      A. Recognize and realize that intangibles are about the future, while financials are about the past.

      B. Look for “moats”—sustainable competitive advantages.

      C. Examine, one by one, the following (some may be more elusive than others):

      • 1. Brand
      • 2. Market leadership and position
      • 3. Customer loyalty
      • 4. Innovation excellence
      • 5. Channel excellence
      • 6. Supply chain excellence
      • 7. Management excellence

      D.Absorb intangible information by regularly reading about the company in the news, visits to the company and/or its websites, and listening to what others—personal or professional—have to say about the company.

  • 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?

      A. Think about companies you own—or want to buy—as a marketer would.

      B. Decide where the company positions itself (Walmart–Target–Nordstrom as an example), and decide whether the company is succeeding with this positioning.

      C. Look for solid niche players and signs of niche leadership.

      D. Look at a company’s product portfolio—and the company itself—to seek out Stars and Cash Cows.

      E. Determine if the company is gaining share—and share (mindshare) of customer.

      F. Decide whether the company presents itself clearly and effectively in the marketplace. Does it convey value to its customers?

      G. Identify three strengths, weaknesses, opportunities, and threats for each company. Decide if any of the weaknesses or threats are showstoppers.

  • 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?

      A. Spend at least a little time, preferably each week, checking out businesses you own or might want to invest in. Do it locally, when you travel, and through friends, family, and acquaintances.

      B. Pay attention to your own interactions, purchases, and experiences with a company. Could it have been better? Does someone else do it better?

      C. Look at the level of customer activity, appearance of facilities, and the attitude and helpfulness of employees.

      D. Check out websites. Give a “plus” to companies with clear, accessible, helpful messages about their products and how they benefit you.

      E. Watch the ads. Are they effective? What are they really telling you?

      F. Get into the “buzz” network through friends, employers, employees of other companies, and through financial, industry, and trade media.

  • 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?

      A. Realize from the beginning that understanding management and leadership effectiveness is a “read between the lines” exercise.

      B. Look for signs of achievement, not signs of power. As Bill Clinton once said, “power by example, not examples of power.”

      C. Look for signs of customer focus, solid and rational vision, winning culture, winning products, clear, crisp, useful messages, and a solid reputation and management “brand.”

      D. Again remember—you’re acquiring a sense. If you think you’d like to work for the company, you’re on the right track.

  • 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.
    • A. Create a checklist (or use the one described in Habit 16).
    • B. Check it twice.
    • C. Find out who is naughty or nice.
    • D. If Santa never comes, consider adjusting the checklist.
  • 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.

      A. Think in terms of threes—three strengths, three weaknesses, or three pros and three cons.

      B. Write them down, especially for the “final analysis” of a company.

      C. Amend and adjust as necessary.

      D. Try it. You’ll like it. It works.

  • 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.

      A. Look at a business value as the sum of all future cash flows.

      B. Look at the ratios. Use them as a guide to future returns and to compare alternatives.

      C. Pretend you’re buying the whole business—still want to buy it?

      D. Give yourself an extra margin of safety, by buying at a price dip, just in case.

  • 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.

      A. Be patient. Watch the stock for a few days at least before jumping in.

      B. Buy when you decide to buy; use market orders; don’t play games to try to save a few cents.

      C. Add to your investments regularly; take advantage of dollar cost averaging.

      D. If so inclined, sell >put options to earn a little more from your buying decisions.

  • 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.

      A. Make regular time to scan the news, get quotes, and check the progress of companies you own.

      B. Observe quarterly financial reports carefully and listen to the conference calls.

      C. Put your street shoes on. Wander around, sense the business, sense the customers, and make sure the business is still on track.

      D. Keep tabs on the competition.

      E. Keep in touch with industry experts.

  • 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.

      A. Stop, look, and listen to new news announcements. Don’t ignore them.

      B. React by digging further.

      C Think of yourself as the owner.

      D. Don’t overreact with an ill-considered sell (or buy) reflex.

  • Habit 22: Pay Yourself
    • Get some current cash out of your investments, through dividends, short-term rotational plays, or covered call options.

      A. Look for solid dividend paying stocks to build a current cash return.

      B. Look for companies with a steady track record of dividend increases.

      C. If you’re a more active investor, capitalize on swing trading opportunities when they present themselves.

      D. Learn how to sell covered calls to produce or enhance current income.

  • 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.

      A. Do not become emotionally attached to your investments.

      B Do not become emotionally attached to your investments.

      C. Do not become emotionally attached to your investments

  • Habit 24: Sell When There’s Something Better to Buy
    • Even cash can be something better to buy.

      A. Only sell if there’s something better to buy.

      B. Remember—cash can be “something better to buy.”

      C. Use limits only within the sell-when-there’s-something-better-to-buy principle, not for their own sake or for a stab-in-the-dark price level.

      D. If you aren’t sure, try selling half.

  • 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.

      A. Keep a diary of your successes and failures.

      B. Learn from your mistakes.

      C. Now go make a million bucks.

• Compiled By: blindcaveman, 20140920