22 Things you could do, to become a better investor

2012-08-27 07:08 -  , Value Investing

How can I become a better investor? I think all of us think about that sometimes. First I must admit: I have no definitive answer to this question. But I thought about this quite often myself. Today I will share some ideas with you, that could make you a better investor. These ideas may only be small things. But I hope they deliver some good ideas.

1. Read as much Annual Reports as possible.

There are many sources for information about companies. But none of them is as important as the annual report. Read many of them and you should be able to gain a deep knowledge about many companies over time.

2. Invest much time in your investments

Do you think you can spent 1 hour per week on your investments and become an outstanding investor? Unless you were born overly talented, that won’t be possible. I would even say, talent is much overrated, not only in investment. Do you know anybody in any field, who is one of the best and did not practise more than nearly everyone else? I don’t. What sometimes seems to be talent, is mostly the result of many many hours of practise.

3. Read Warren Buffetts Letters to his Partners from Buffett Partnership

You can find these letters here. For me they were maybe the most valueable thing on investing I have ever read.

4. Read Warren Buffetts Letters to Berkshire Hathaway Shareholders

You can find these letters here. After Buffett closed his partnership in 1970, Berkshire Hathaway became the home for his holdings. And he continued his letters. Be thankful for that! Also they are really worth reading.

5. Read what Buffett said on BuffettFaq.com

Buffett Buffett Buffett… I know it is the third point about Buffett in a row. But you can’t deny that Buffett is likely the person, you can learn the most of as a value investor. Why? I am very sure, that he is the person who spent more than anyone else on value investing. You can find a huge compilation on what Buffett said about many things on BuffetFaq.com. Happy Reading!

6. Write a blog about investing

Writing your own blog gives you the opportunity, to write down your thoughts. That forces you, to think more in detail, because without that, you won’t be able to explain your thoughts to others. Additionally you can connect with others, get ideas, and most important critisism, when you are wrong.

7. Sit down, alone, and think

The principles of value investing are easy. But it does take time to understand these things in detail. Reading alone will not teach you to be a good investor. Think about why things are as they are. Try to find connections, between different things. Try to find out, which things are important and which are not.

8. Interact with people, who are as passionate about investing as you are

Getting in contact with people, who have the same interest as you have, can be highly motivating. That may be not as easy in investing as it is with other hobbies. But thanks to the internet it is maybe easier than in earlier days. But still not that easy at all, I am still searching for some people, who sit with me reading annual reports and discuss about stocks all night long.

9. Focus on small caps

Professional investors have large amounts of money to manage generally. So they have to focus on larger companies. You will face intense competition, if you do so also. Focus on small caps instead and turn the relatively low amount of money you have to invest into your biggest advantage. (At least I think most of my readers don’t have many millions or even billions to invest).

10. Write down why you bought a stock…

…and read that later again. When you are in doubt about one of your holdings, that will remind you of your buying reasons.

11. Always think long-term

You want to achieve above-average long-term results, don’t you? So what advantage should short-term thinking have?

12. make a list with buy prices, for stocks you feel confident about

In a world of ten thousands of stocks, it is easy to get lost. So if you find a stock, you feel confident, that you can determine a price, where that stock begins to become definitely interesting, write it with your buy price on a list. Review this list from time to time. Somewhere in time a stock you researched years ago and have forgotten a long time ago, may fall under your treshold.

13. read good books about investing

Unless you know everything about investing (congratulations in that case!), read every good book about investing you can find. I don’t know any “Investing Bible”, you must just read and know everything important thereafter. Instead I found, that every good book I read, contributes its part to an overall understanding. Some more, some less.
Don’t know where to start? Three very valuable books in my mind are:

14. Question everything

You are in danger to make other people crazy with that (just ask my girlfriend!). But try to question everything you hear, read and think. Is this really true? Could there be another possibility? If you think through it in another way, do you come to the same conclusions?
This approach helps you to avoid mistakes. Not only in investing, but in every aspect of live.

15. Write a book about investing

This is even more advanced, than writing you own blog. But it may help you to think deeper about certain topics and understand them better.

16. Read investing blogs

There are many good blogs, written by outstanding people on the internet. I can’t count the ideas I found through them and how much I have learnt by reading them. You can find some of them in my blogroll in the sidebar on the right. Is some outstanding blog missing? Please leave a comment!

17. Study the behaviour of outstanding investors

What do successful investors do, that unsuccessful don’t do? What is the difference? It may not be unwise, to copy some aspects of the behaviour of successful investors.

18. Stop checking stock prices too often

Checking stock prices too often just costs too much of your time and makes you nervous. Checking the current price of your holdings makes only sense, if you intend to sell or to buy more.

19. Teach investing to a beginner

Explaining things helps you to understand them better yourself. So teaching may be as useful to yourself, as to your student.

20. Face the fact, that you will never know everything

You can’t know everything about any investment. So avoid to only draw your conclusions from the things you know. Always try to ask yourself: are there things you don’t know but that are important?

21. Learn to say NO

Undervalued securities, where you can be very certain that you are right, are a very rare thing. So learn to say no, if you don’t feel certain enough. I know everyone likes it to find undervalued securities, myself included. But don’t make the mistake to overlook warning signs, just because you would like to find undervalued stocks.

22. Have fun!

The last and certainly most important point you should do. Unfortunately you will never be able to learn, to have fun as an investor. Either you have fun, then you will eventually succeed, or you don’t have. In that case: find out, what you are really passionate about and devote as much time as you can to that. Everyone on earth should try that, but most don’t even try. I don’t think it is a good idea to be an investor just because of the money.

now it’s your turn!

Do you have more ideas? I am sure you have! Please feel free to add more ideas as a comment. Or maybe you write a similar article on your own blog? If you do, please let us know by leaving the link as a comment here!


Comments [3]

  1. Student · 2012-08-28 22:23 · #

    Nice points, Stefan. Glad I have covered some :)

  2. Levi Blackman · 2012-12-15 21:39 · #

    I really like the idea behind #10: writing down why you bought a stock. This is a great way to make sure your investing is staying on track. It is important to have a valid reason to invest in something, and the data to back that up. Keeping an investing journal will help you remember why you did something, what worked well and what you can change in the future.

  3. — Michelle Blackmore · 2013-03-21 11:22 · #

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