Three Ways To Be A Better Investor

It’s not easy being a perfect investor. That’s unless your first name happens to be Warren and your surname, which begins with the letter “B”, rhymes with the name of the little girl who sat on a tuffet.

Although Buffett is about as close to the perfect investor as we will ever find even he has been known to make the occasional mistake. So, let’s accept the fact that perfection is unattainable but we can nevertheless strive to invest better. With that in mind, here are three simple things we can do today to make us better investors.

Start investing as soon as possible

It has almost become a cliché that the best time to start investing is now. But the sooner you start investing, the sooner you begin to reap the benefits of total return. This is the actual return you get from Investing that not only reflects the capital gains but also the dividends you receive. All too often investors focus only on the increase in the price of a share without considering the boost that dividends make, especially if you reinvest the dividends to buy even more shares.

Having too few or too many shares

If you happen to have all your eggs in one basket then you are probably exposing yourself to too much risk. But simply buying more shares for the sake of owning more companies is not diversifying. You can sometimes end up owning too many shares or too many companies in the same sector.

For instance, simply buying shares in Singapore’s three biggest banks, namely DBS Group Holdings (SGX: D05)), Overseas-Chinese Banking Corporation (SGX: O39) and United Overseas Bank (SGX: U11) is not diversifying. The recent banking crisis in the West has shown that when one bank suffers the rest can feel the pain too. Packing your portfolio with a bunch of REITs or agricultural shares is not diversifying either.

As a general rule of thumb, 15 different shares in different types of industries could provide sufficient diversification for any portfolio. But don’t overdo the diversifying. You can have too many shares, which means that your portfolio may be no better than a closet index tracker. It can also be quite time consuming to try to keep track of too many shares at once.

Keep an eye on costs

There is not a lot that we private investors can do about the gyration of the market. But we can control the cost of investing. If you trade too frequently then you are inevitably incurring brokerage fees, trading spreads and stamp duty costs. Every time you trade, the costs that you pay will eat into your returns.

As Warren Buffett said: “Since the basic game [of investing] is so favourable, Charlie [Munger] and I believe it’s a terrible mistake to try and dance in and out of it based upon the turn of the tarot cards, the predictions of ‘experts’, or the ebb and flow of business activity”. So don’t be driven by fear and greed, which can lead you to jump in and out of the market – often at the just the wrong time.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.