3 Simple, Healthy Habits To Unlock Your Investing Potential

There’s no one-size-fits-all approach to investing, but certain strategies can boost your chances of success.

Habits are patterns of behavior that become ingrained over time. Warren Buffett aptly explains, “Chains of habits are too light to be felt until they are too heavy to be broken.”

We all develop habits throughout our lives, some beneficial and others detrimental. Think about your routine for starting a car or getting out of bed in the morning. These activities likely follow a consistent procedure.

However, when it comes to investing and managing our finances, we often neglect to establish healthy habits. Many people push investing to the back of their minds while focusing on day-to-day living.

Yet, we need to prioritize investing habits, as they significantly impact our quality of life, especially in later years.

So, what are some healthy habits to unlock our investing potential? Instead of leaving it to chance, here are three tips to enhance your investing habits.

Investing Habits #1 – The Checklist Approach

The checklist approach is a simple yet often overlooked method. When I first started investing, I lacked a solid system that I could use from researching to buying a stock.

It felt like I was running around like a headless chicken, hoping to get somewhere. My process lacked the finesse needed for selecting, researching, and valuing stocks. While I did get to the finish line, the process was not elegant to say the least.

Consider a pilot flying an aircraft with hundreds of passengers. Despite their extensive experience and familiarity with the controls, they always run through a checklist before takeoff to ensure everything is in order.

Investing works similarly. We should all use a checklist to navigate our process in an orderly fashion.

Using a checklist early in your investing journey helps form good investing habits that will benefit you in the future.

From stock selection to valuation, a checklist ensures you cover all bases of your investment thesis systematically. Building a system in an orderly fashion eliminates the risk that you overlook an important part in your research process.

Over time, these habits you gain from following your checklist will allow you to be able to assess a business quickly and mentally because you’ve built a reliable process.

This is equally beneficial when you find a new business you are interested in. The ability to quickly filter businesses you are interested in the beginning will save you a lot of time.

Investing Habits #2 – The Diary Of Confessions

Keeping a diary may sound a bit odd, but it’s become an essential part of my investing habits. It’s a new tool I’ve been trying to incorporate into my strategy.

You don’t need to use a traditional notebook and stash it away in a drawer. Think of the diary as a concept; you can use a note app on your phone or a document on your laptop.

The goal is to jot down your ideas in writing before making any investment decisions. This process forces you to articulate your thoughts clearly, helping you visualize and better understand the company.

While you might think you can just do this mentally, the impact isn’t the same. Writing down your thoughts helps you retain information more effectively than just thinking it through in your head.

This approach not only helps you formulate your ideas but also serves as a record to track your investment. The diary acts as a kind of confession about why you think a business is worth investing in. You can include:

• How the business generates revenue and its sources
• Its potential moats
• Future growth trajectory
• Advantages and disadvantages
• Potential risks
• Valuation targets
• Your reasons for wanting to invest

By the end of this process, you might even realize the business isn’t as promising as you initially thought. And if you do invest, this initial diary entry serves as a valuable reference to check if your original thesis still holds or if it’s been broken.

Doing this mentally often leads to forgetting the core reasons for your investment, which is why writing it down is so beneficial.

Investing Habits #3 – The Bookworm

Being a bookworm might not have been the most popular thing in school, thanks to the sometimes unkind nature of kids. I didn’t read much growing up, just the occasional fiction book here and there.

But as I’ve grown older, that has changed significantly. I’ve been reading daily for the past six years, focusing mainly on non-fiction and finance. It’s astounding how much knowledge you can gain from a $15 book—lessons they often don’t teach in school.

Financial literacy isn’t emphasized as much as it should be, probably because most teachers aren’t well-versed in the subject either. But the good news is that if you’re interested, there’s a wealth of free and paid information available to teach yourself.

The late Charlie Munger, often described as a complete bookworm, had this to say about reading: “I have said that in my whole life, I’ve known no wise person over a broad subject matter area who didn’t read all the time,” adding, “If you think you’re going to be good at it and not read all the time, you have a different idea than I do.”

Reading is crucial, especially in broad subjects like investing. The more you know about various topics, the better your investing habits will become, as it allows you to approach investments from multiple angles.

But don’t read just for the sake of investing. The world benefits from people with a wide range of knowledge and intellect. As the saying goes, to a man with a hammer, every problem looks like a nail. You can’t approach investing with a one-size-fits-all mentality.

With thousands of businesses worldwide, each operating differently, we need to be flexible in our thinking when it comes to investing habits.

Key Takeaways

• A checklist approach instills good investing habits, ensuring thorough research and systematic evaluation. This leads to a reliable process for assessing potential investments efficiently and accurately.
• Keeping an investment diary helps clarify and document your investing habits, ultimately leading to more informed and consistent decisions.
• Develop a habit of daily reading that fosters flexible, well-rounded investing habits. This allows for more informed and versatile investment decisions.

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