Investing well requires not just knowledge, but also the right habits and mindset. By studying the timeless wisdom and insights of investment masters like Warren Buffett, George Soros and others, retail investors can learn important lessons on cultivating good investment habits for long-term success. Key habits include always putting safety of capital first, managing risks prudently, avoiding market timing, focusing on business fundamentals, controlling emotions, and living below one’s means. With early and consistent investing, reasonable spending, proper diversification and a disciplined process, ordinary investors can also achieve extraordinary long-term returns.
Start early and be consistent in investing for compound growth
The power of compounding is immense for long-term wealth creation, but it requires investors to start early and stay invested. As Warren Buffett famously said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” Moreover, by developing the habit of regular investing, one takes advantage of dollar cost averaging to smooth out market volatility. Small, consistent investments in quality assets over long periods of time can grow to surprising sums.
Always prioritize safety of capital above all else
As Buffett highlights, the first rule of investing is “Don’t lose money” and the second rule is “Don’t forget rule number one!” While seeking returns is important, risk management to avoid permanent loss of capital is paramount. One habit of successful investors is to always evaluate if potential gains justify the risks involved, and to build appropriate margins of safety.
Master emotions and avoid impulsive decisions
Soros emphasizes the role of fallibility in his investment philosophy. Investor psychology and crowd behavior contribute greatly to market manias and panics. By controlling fear, greed and bias, and focusing on facts and fundamentals over opinions and emotions, investors can avoid impulsive trading decisions.
Adopt reasonable spending habits
Living below one’s means frees up capital to invest for the future. As highlighted in the book Millionaire Next Door, building wealth has more to do with diligent saving and spending habits than one’s income level. Prioritizing needs over wants, and avoiding reckless spending and splurging, helps create a strong financial foundation.
Stay disciplined, diversified and stick to process
Having a sound long-term investment process and philosophy helps investors stay the course during challenging times. Diversification across asset classes and market sectors reduces portfolio volatility. Reviewing results periodically while avoiding unnecessary tinkering minimizes mistakes and builds conviction.
By learning from the time-tested insights of investment masters like Buffett and Soros, retail investors can cultivate the habits and mindset required for long-term investment success. Key habits include starting early, controlling risks, mastering emotions, reasonable spending, proper diversification and having a disciplined process.