3 Things That Make Me A Better Investor

Sharemarket investing has a steep learning curve. But once you’ve committed to investing in yourself, it’s really exciting — and it can be exceptionally rewarding.

Here are three reasons or rules that make me a better investor today.

1. Don’t lose money.

Imagine you have $10,000 and your investment drops 20% in the first month. You sell. You’re left with $8,000.

So what?

To get back to your initial $10,000 you need to make a 25% return on your reduced amount – even though you lost just 20% of your money.

What that means is, percentages work against you on the downside. In the book, Value Investing, each of the successful investors had one simple rule: they analysed how they might lose money before focusing on the gains.

One way I do this is by doing a ‘worst case’ valuation before I commit to an investment. My forecasts for cash flow growth are often highly conservative.

It’s only after I model my ‘worst case’ that I focus on how much I might gain from an investment.

But it need not be that technical.

In the long run, I think good investing performance is anything more than 8% per year. To get to that, you don’t need to swing for the fences. But you will need to avoid blow-ups.

8% per year compounded can have an incredible impact on your wealth over many years.

2. Learning is the key to success.

I think continuous learning is key to investing success. Reading, writing, watching, debating, learning from the success and failure of yourself and others.

There are many ways to learn, acquire knowledge and invest better. But mastery of investing takes time and effort.

As I wrote recently, investors call this their ‘circle of competence‘. Growing our circle of competence is vitally important.

3. Patience is our greatest advantage.

If investors do the average thing they’ll get average results. Good investors must have an advantage over other people.

Broadly, I think there are three common types of advantages: better information, superior analytical ability, and temperament.

It’s the last one (temperament/behaviour) that you and I can master. It’s one that professional advisers, who have investors to please, can’t do as easily.

One of my favourite Australian investors, Wayne Peters of Peters MacGregor in Sydney, calls this ‘timeframe arbitrage’.

It’s the ability to buy and plan to hold an investment for five or ten years.

If I could go back to my younger self and tell him one thing about investing it would be this: buy shares in great businesses only — and let them grow over decades.

To do so means investors must ignore the short-term gyrations of the share market and focus on the business.

For example, Commonwealth Bank of Australia (ASX: CBA) shares have fallen since the beginning of 2017. But for long-term investors, CBA has been an absolute delight.

Takeaway

If all investors avoid losing money before focusing on the gains, invest in themselves and aim for the long term, I think our returns are sure to improve. However, that’s easier said than done and requires us to invest in ourselves.

Do you want to know the exact steps I follow to find an ASX investment? Download my free Aussie investing ebook, “What Buffett’s Investing Checklist Can Teach Aussie Investors“ when you join the free Rask Group Investor Club Newsletter. You’ll get insights into the 4 steps Buffett uses to pick his investments (hint: it’s the same steps I follow)

Disclaimer: This article contains general information only and should not be relied upon. It does not take in account your needs or objectives. Therefore you should consult a trusted and licensed financial adviser before acting on the information. Owen Raszkiewicz does not have a financial interest in the companies mentioned in this article.