Investors are the ones who work at the longer end of the market if traders are at the short end. Usually, they purchase inexpensive and underappreciated equities and are prepared to wait several years for the narrative to conclude. When it comes to stocks, the general rule is that you have a higher chance of making money if you purchase high-quality stocks and keep them for the long run. So why is it so hard to profit from the markets as an investor? The rationale is that investing is likewise subject to some predetermined guidelines, which must be progressively ingrained as habits. These are the seven behaviors that will set a successful stock market investor apart.
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1. Have patience and follow through on your long-term goal.
Every investor needs to follow a plan. A futuristic invention cannot be purchased for a ridiculously low price and expected to yield supernormal profits in a year. Companies in India that have consolidated for a long period before making extraordinary gains for investors include Infosys, Bharti, Hero Honda, and HDFC Bank. That’s where having a well-defined long-term strategy becomes important. You can’t be too narrow-minded while investing. “As an investor, your holding period has to be forever,” as stated by Warren Buffet.
2. Diversify your portfolio to reduce risk
Regardless of the opinions held by well-known investors on the benefits of a focused portfolio, prudent investors always diversify their risks. Investing successfully is possible only if you spread your risk. Placing all your eggs in one basket amounts to playing the stock market like a gambler, placing all your money on a stock whose success is out of your control. You are in charge of risk, and the investor who achieves the highest risk-adjusted returns over the longest time horizon is the one who succeeds.
3. Pay attention to expenses, fees, and perfect execution
Many investors have a tendency to think that execution and expenses are not very important when making long-term investments. That is not at all how it is. Making the pennies work for you is what a shrewd investor should strive for; the pound will take care of itself. Aim for the best execution at the most affordable cost. It is totally feasible in a market where there is competition. Before investing money in a hedge fund when the profits have not been commensurate with the expenses, give it some thought. Concentrate on carrying out. Your long-term investment results will be greatly influenced by how you handle statutory fees, slice your order, and handle churn.
4. Pay attention to post-tax returns
The taxman is not the only one who has to worry about taxes. You have to pay close attention to post-tax returns as a wise investor. Your post-tax return will only be 34% if you sell it for a 40% profit and do so before a year has passed. Should you retain it for an extended duration beyond a year, you will ultimately pay no taxes. Tax efficiency is a priority for long-term investors since it may eliminate a significant portion of their profits. The trade-off between buybacks and dividends is that the former will result in lower effective post-tax earnings due to its many layers of taxation. Repurchases are more tax-effective.
5. Research and patience work together deadly well.
The golden rule is this. Whether you are a long-term investor or a short-term trader, patience is a must. Big money is never simple to get by and it seldom happens quickly. You should include that into your trading strategy as a responsible investor. Second, without doing extensive study before making any investments, you cannot be a competent investor. Get specific with the details. Is the company’s increase in sales slowing down? What new risks to competition are there? Has the business put up any strong hurdles to entry? What steps can the business take to enhance its ROI and growth? Exist any disruptive forces in the industry? These are the type of thoughtful questions you should be asking yourself on a regular basis. The list is not limited.
6. Pay more attention to the company than the stock.
As Peter Lynch correctly observed, “There is a business behind every stock.” Try to comprehend the business first. Focusing only on short-term trends, reversals, supports, and resistances will not help you become a successful investor. They can help you make large investment stories, but they can also produce trading gains. With shorter product life cycles and more competitive marketplaces, this industry is growing more and more complicated. Never stop asking yourself what unique selling point your business is attempting to present.
7. Always give your mind precedence over your feelings.
It’s definitely simpler to experience than to articulate something like this. Ultimately, an astute investor should never get overly sentimental. Avoid falling in love with your investments or marrying your portfolio. Take an unbiased look at your portfolio. Allow the brain to always prevail in situations where the heart and the head disagree. The finest financial judgments are always made by analytical reasoning and cold calculation. Letting your rationality guide you reduces the likelihood of making emotional snap judgments on investments and withdrawals. That has the power to change everything!