Here are another four good habits which investors should adopt, and these are taken from the best-selling book “The Winning Investment Habits of Warren Buffett and George Soros” by Mark Tier. This article follows the previous four habits which I discussed earlier here.
5. Believes That Diversification Is For The Birds
If an investor knows what he is doing, and has the knowledge, expertise and capabilities to analyse and invest in great companies, then diversification is not necessary. By diversifying too much, the investor spreads out his capital over many companies, such that even if one does very well, it would have a negligible impact on the overall portfolio. By focusing his capital on high-conviction ideas with low risk and good potential returns, the investor is thus able to optimise his portfolio.
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6. Hates To Pay Taxes
This factor is not a big issue in Singapore where capital gains and dividends are both not taxed, but is a factor to consider if one is investing in overseas companies. An example would be withholding taxes of 30% levied on dividends received from USA companies. An investor should do their best to avoid paying unnecessary taxes, so as to minimise their overall costs of investment.
7. Only Invests In What He Understands
A master investor would only invest in a company or security which he understands well. A simple rule to follow in the stock market would be — if you do not understand it, then avoid it. Recall the case of the Lehman Brothers Minibonds which were sold by banks prior to the Global Financial Crisis — many investors bought these complex products without fully understanding what they were getting into, and ended up losing their money when Lehman Brothers collapsed.
8. Refuses To Make Investments Which Do Not Meet His Criteria
Great investors are extremely disciplined when it comes to selecting investments, and they have a strict set of criteria which has to be met before they allow themselves to commit their capital. Many investors make the mistake of easing up on their stock selection criteria because of either social pressure or because they do not have a proper investment filtering system. By refusing to invest unless all his criteria are met, the master investor ensures that he invests within his circle of competence and is aware of the risks and rewards which the investment could bring.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.