Become a Successful Investor

Become a Successful Investor

04 Oct 2018

If you want to ensure that your investment decisions are rooted in sound knowledge, then it is imperative that you gather information from reputed, rich and diverse sources. The human brain has allowed us to survive for thousands of years, yet at times, we may think in certain ways that prevent us from making rational judgements. Many investors spread their investments among too many or multiple asset classes and thus they miss out on the opportunity to earn much higher returns. Investors actually hold assets they are familiar with or which they are emotionally fond of.

There are various ways of gathering information but the challenge lies in the way we process this information. For individual investors, cognitive biases have the potential to impair their ability to both gather information and make high quality investment decisions with that information.

Diversity in knowledge:

First and foremost, there must be diversity in knowledge. There area wide range of sources for you to search for information and you should always refer opinions as well as views. Nowadays, investors benefit from better investment decisions by accessing relevant insights and not just mere information. Diversity must also be applied in the makeup of the team, from each individual’s culture and nationality to their work experience and the way he or she thinks

Having a working knowledge of basic economics and knowing how to read a stock table is crucial to your success as a stock investor. The stock market and the economy are joined at the hip. The good or bad things that happen to one have a direct effect on the other.

Understanding basic economics can help you filter financial news to separate relevant information from the irrelevant informationin order to make better investment decisions. Here are a few important economic concepts to be aware of:

  • Supply and Demand: Supply and demand can be simply stated as the relationship between what’s available (the supply) and what people want and are willing to pay for (the demand). This equation is the main engine of economic activity and is extremely important for your stock investing analysis and decision-making process
  • Cause and Effect: Considering cause and effect is an exercise in logical thinking. If you were to pick up a prominent news report and read, “Companies in the table industry are expecting plummeting sales,” would you rush out and invest in companies that sell chairs or manufacture tablecloths? When you read business news, play it out in your mind. What good (or bad) can logically be expected given a certain event or situation?
  • Economic effects from government actions: Nothing has a greater effect — good or bad — on investing and economics than government, which controls the money supply, credit, and all public securities markets. Government actions usually manifest themselves as taxes, laws, or regulations. They also can take on a more ominous appearance, such as war or the threat of war. A single government action can have a far-reaching effect that can have a direct or indirect economic impact on your stock investments.

Over Confidence:

Secondly, Investors may fall prey to an overconfidence bias whilemaking investment decisions. This overconfidence is because of a tendency to overestimate their ability to precisely value companies or predict earnings and growth potential. Theoverconfidence bias comes to the fore when investors ignore the risks in the segments entirely.

Overconfidence in our abilities may, in some ways, be a healthy attribute. It makes us feel good about ourselves, creating a positive framework with which to get through life's experiences. Unfortunately, being overconfident of our investment skills can lead to investment mistakes. Among those mistakes are:

  • Concentrating assets and failing to diversify because diversification is only for those who cannot foresee the future
  • Buying risky investments because of the belief that they aren't really risky
  • Trading too much because they believe they can successfully time the market
  • Using active fund managers because they believe they can identify the few future outperformers

The great irony is that the more incompetent the investor, the less qualified he is to assess anyone's skill in that space, including his own. Exacerbating the problem is that the incompetent often don't even know they are doing poorly because they often don't know their returns, let alone measure them against appropriate risk-adjusted benchmarks.

Better investing doesn't happen accidentally. Good investors work at it relentlessly or tirelessly. They study. They learn.Old economic theory thought that humans were like Spock, always making rational decisions that would lead to maximizing wealth. The newer field of behavioral finance tells us otherwise.Year after year, research shows that average investors underperform the market, earning half of the returns they could have all because of their poor timing abilities. For better than average investing, when you move money, it needs to be part of a well-designed investment plan, not a last-minute reaction.Smart savers automate their savings plans and let them run for years and years at a time.

Be a smart saver and ultimately a smart investor!

Founded in 2005 by new–age entrepreneur Abhishek Bansal, the Abans Group has evolved into a globally diversified conglomerate, providing expertise in Broking Services, Non-Banking Financial Dealings, Financial Services, Agri-Commodity Services, Warehousing, Realty & Infrastructure, Gold Dore Refinery & Manufacturing, Trading in Metal Products, Pharmaceuticals, Software Development & Wealth Management. The Group is a comprehensive financial and non-financial services and solutions provider, aiming to provide end-to-end solutions to its clients.