In a construction project for a huge mall, the foundation needs to be piled in first so that the structure is stable. Thereafter, the construction for the rest of the building can take place.
In investing, something similar should also occur. Investors need to lay their investment foundation first before embarking on the construction of their portfolio. A strong foundation would include a compelling and coherent investment philosophy and also guidelines on how to select companies. Armed with a proper foundation, investing would end up being smooth-sailing, rather than fraught with peril.
The first step in laying a good foundation involves asking a series of questions about past investments, a list of profits and losses made, as well as a complete history of investment behaviour. Use the 23 winning investment habits, that I’ve written on previously based on “The Winning Investment Habits of Warren Buffett and George Soros” book, as a guide to how you should be thinking about investing. The key is to identify how many of them are already put into practice, and how many have yet to factor into the investor’s process.
Winners and losers
Next is to draw up a laundry list of both past winners and losers, and to segregate them into two lists. This would immediately help the investor to pinpoint where he has gone wrong, or what he has done right. It is important to examine each investment and analyse the reasons for it performing well or poorly.
The next step is to look out for common themes within the winners, and for common mistakes among the losers. By doing this, the investor would be able to draw up a detailed picture of his strengths and weaknesses and have a better idea of which areas he can seek to improve on.
A mindset change required
If an investor discovers that most of his behaviour and habits had resulted in him losing money, he may start thinking that he is a perpetual loser. This is a dangerous road to take as it would end up being a self-fulfilling prophecy.
Instead, the investor should study where and how he went wrong and then adopt a mindset change so that his bad habits would turn into good habits. Though this obviously takes time and effort, it is worth it as it would improve the investor’s overall returns and also help him to mitigate risks better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.