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The Top 3 Things Smart Investors Are Doing

Credit: Lali Masriera

Investing can be a frustrating topic for some because two equally-smart investors doing very different things can both be right. But, at the same time, there is also common ground amongst most smart investors in what they are doing. In the spirit of learning from success, these are 3 things, in no particular order, that smart investors almost always do.

Read

The following quote from investing great Charlie Munger says it all:

“In my whole life, I have known no wise people (over a broad subject area) who didn’t read all the time – none, zero. You’d be amazed at how much Warren [Buffett] reads – and how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”

All great investors love to read as the act of reading over time can help compound knowledge. If you want to get better in investing, start reading. And if you’re lost as to what to read, history might be a good place to start.

Spending less than you earn

No one gets rich by spending all you have. Before we can even invest, we’d actually need to make sure we have enough savings to invest. And, the only way to do that is to keep our finances under control by spending less than we earn.

As our savings increase, we can then invest them, generating more income for us. With the power of compounding, even a small amount of savings can amount to something substantial given enough time. As the familiar Malay proverb goes, “Sedikit demi sedikit, lama-lama menjadi bukit [if you accumulate things over time bit by bit, even a molehill can become a mountain].”

Think long term

Investing legend Warren Buffett wasn’t kidding when he said that “Our favourite holding period [for an investment] is forever.” This is because great returns really do occur when given time. For instance, if you had bought SembCorp Industries Limited’s (SGX: U96) shares at the beginning of 2003 and sold it one year later, you’d have earned a great return of 60.6%. But, if you had held onto SembCorp Industries’ shares till today, it would have delivered 489% in capital gains alone. If you include the effects of reinvested dividends throughout those 11-plus years since the start of 2011 2o03, the marine engineering and utilities conglomerate would have achieved total returns of 890%.

Smart investors see shares as part ownership of a business. They invest in companies with good businesses and management teams they like to be associated with and this gives them the comfort to be able to hold on to a share for very long periods of time.

Foolish Summary

There are tons of investing advice given on television or the internet. But, if we focus more on what great investors do, instead of what people say, we might just become better investors ourselves over 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 contributor Stanley Lim does not own any companies mentioned above