10 Habits Of Happy Investors

​An investor without investment objectives is like a traveler without a destination.

An investor's worst enemy is not the stock market but his own emotions. To be a successful investor, you have to be emotionally neutral to winning and losing. Winning and losing are just part of the game. Learn the habits of happy investors.

So, what are the 10 Habits of Happy Investors? Keep on reading!

Habit 1: Invest Consistently
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When 25-year-olds today reach 60.

Remember this, a High Paying Job ≠ Financial Security

Don't get me wrong but someone with a higher-paying job is not necessarily better off.

How Much Should I Set Aside?
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Remember the 50|20|30 Rule

Invest at least 20% of what you earn!

Tips On How To Stay Disciplined
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• Open a separate bank account from your payroll account.
• Schedule an automatic fund transfer every payday.
• Invest the money (Buy stocks, bonds, funds, etc.)

​Invest Continuously

When getting a bonus or pay increase

• Strive to set aside 50% as investments.
• Resist the temptation to upgrade your lifestyle when you get a pay increases.

​​Differentiate between needs and wants

​Buy what you want, only when you have set aside enough for your investments.

​​Habit 2: Avoid Timing The Market
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When the market corrects, investors usually sell their positions with intention of buying back when the market recovers.

Danger of Trying to Time the Market (1994 - 2013, S&P500)

Danger of Trying to Time the Market (1996 - 2016, PSEi)

​​Habit 3: Avoid Being Emotional
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Looks familiar?

Average Stock Fund Return Vs. Average Stock Fund Investor Return (1994 - 2013)

​​Habit 4: Accept Volatility
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There are so many reasons why stocks can go down in value. We can choose to react positively or negatively.

​Habit 5: Buy When The Market Goes On Sale

Normal human behavior

The happy investor's behavior.

Be fearful when others are greedy.
Be greedy when others are fearful.

Warren Buffett

When there is blood on the street, I am buying.

Baron Rothschil

Habit 6: Do Your Homework
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Sustainable share price drivers.

Profits

Where are profits headed?

Valuations

What is being reflected in the price?

An example, ALI (Ayala Land, Inc.)

Another example, CEB (Cebu Pacific)

Do your homework!
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• Buy stocks with strong earnings growth potential trading at reasonable valuations.
• Avoid buying penny stocks based on tips.

Danger of buying Penny Stocks
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• Reason for share price appreciation does not materialize.
• Price falls significantly.
• Volume dries up.
• Your investment becomes worthless.

Case Study: CAL (CALATA Corporation)

Habit 7: Be Cost Conscious
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​Active trading is very costly.

Total Transaction Cost (Buy and Sell) = 1.09%!

Beware of high cost financial products!

Examples of Fees:
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• Front Load
• Back Load
• Management Fee (0.25% to 2.15%)
• Other Costs (Up to 2.25%)
• Penalties

​Value of Php 100,000 invested today yielding 10% p.a

Habit 8: Diversify
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​Diversification helps manage risks!

Basic types of diversification

• Asset class (Stocks, Bonds, Real Estate, etc.)
• Sector (Property, Banking, Consumer, etc.)
• Maturities (1-year, 5-years, 10-years, etc.)
• Location (Philippines, U.S., China, etc.)

Habit 9: Think Long Term
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​The importance of Time Horizon

​The Turtle Investor beats the Rabbit Investor by a wide margin!

​Risk of losses diminishes in the long run.

Maximum and Minimum Nominal Holding Period Returns (PSEi, 87 - 16)

Habit 10: Review Your Invesment Portfolio
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Example of an annual review check list:
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• Can you afford to increase your monthly investment budget?
• Is your portfolio allocation (between asset classes) still appropriate given your current situation?
• Is your allocation (per stock) still balanced?
• Are there funds/stocks in your portfolio that you would like to replace?