6 Stock Investment Habits for Effective Investing

I have been investing in the stock market for years now, but that wasn’t always the case: in my early days, I lost a lot of money (over 50%) as I trial to figure out how to build wealth through the stock market.

Although I read books, watched videos and listened to numerous audios on how to analyse stocks and pick winners, it all came together for me when I was able to control my emotions, and optimise my habits.

In theory, markets should be completely rational (number based) but in practices various psychological factors can affect financial markets.

Players like you and I needs to keep our emotions in check so we can make objective move.

As William Durrant puts it “Excellence is not an act but a habit“, here are 6 habits that made me a successful stock investor:

1. Look beyond short-term volatility

Over time, I realised that one of the greatest advantage of being a retail investors is time, time in the market.

Unlike institutional investors, we are not bound by the need to meet quarterly/annual targets.

We report to no one but ourselves, and can afford to absorb short-term pullback; look beyond short-term short-term volatility.

This is an incredible advantage and once I realised this, everything changed.

Think about it, the survivability of institutional players, like hedge funds, depends on their ability to consistently report positive returns for their clients and out perform their peers.

This creates the toxic culture in Wall Street, they can’t stomach short-term paper losses and are pressured to make money today.

As a retail investor and long-term player, I wouldn’t be too concerned if Tesla’s or Nvidia’s stock goes down 10% today, as long as their ability to deliver on their long-term growth projections remain intact.

In 2022, when almost everybody were busy offloading growth names like NVDA, TSLA, and META, I was buying more shares at bargain prices, NVDA at $180 – $160 and META at $189 – $139.

2. Buy within your Area of Competence

You most likely have heard the famous Warren Buffett quote “invest in what you understand”, I have made it a habit to avoid stocks that are outside my area of competence.

I love Vital Farms, I love what they’re doing with eggs but because traditional farming businesses are not within my area of competence, I simply admire the company without buying their shares.

And this might mean that I miss out on promising stocks that are outside my area of competence, which I’m completely okay with.

As the stock market entered deep into bear territory in 2022, growth stocks like most of the stocks in my portfolio suffered huge pullbacks and at the same time, energy stocks like Exxon Mobil and Occidental Petroleum prospered.

But my portfolio recovered impressively in 2023, with stocks like NVDA and TSLA more than double YTD, because I stuck with what I know.

I don’t run around chasing what’s trending, I stick to what I know and understand primarily, and so does legendary investor Warren Buffett.

3. Avoid Timing the Market

It goes without saying, it’s practically impossible to time the market.

Yet, many institutional players and retail investors are constantly trying to time the market basing their trading on such predictions.

Historical, no one has been able to beat the market over a sustained period while ‘timing the market’.

Even in the famous ‘Big Short’ scenario, where it seemed as though players like Michael Burry timed the market, history recorded that he didn’t time his trade well enough to maximise profits; he liquidated his CDS short positions by April 2008 and did not benefit from the bailouts of 2008 and 2009.

In December 2020, Burry shorted more than 1 million shares of Tesla, claiming it will collapse like the housing bubble. By October 2021, Tesla’s shares had doubled and Burry revealed he was no longer shorting it. Obviously after losing millions of dollars.

Why bother trying to time the practically ‘un-timable’, just play.

Over time drawing from my personal experience, I avoid playing the time game and this is a major reason why I don’t day-trade, buy options or trade with leverage.

I simply go long on companies with a business that I understand that have significant and practical growth potential.

4. Digest the News, Ignore the Noise

Being a long-term player should not excuse you from staying in touch with the happenings in the financial markets.

For long-term success, it’s imperative you consume the news, with a caveat: Ignore the noise.

Staying up to date can enable you course-correct. But feeding on noises from influencers and whales can derail you and lead to making reckless/biased financial decisions.

In 2021, the r/wallstreetbets popularised meme stocks and how retail investors can make loads of money buying GameStop and AMC, holding them to the ‘moon’.

Well, we all know how that ended, the few (promoters of the noise) made millions and the everyday retail investors were wiped out.

Perhaps I should go on and remind you about SPACs that were heavily promoted by Whales between 2020 – 2022.

Retail investors who bought into the SPAC noise lost tons of capital while the promoting whales got fatter purses.

I consume factual financial news to understand how happenings are affecting the long-term positioning of companies in my portfolio, within my watchlist and the entire market at large. Using these information, I strive to make informed/unbiased financial decisions.

5. Crunch the Numbers

A company’s financials can say a lot about its capacity to deliver on expectations. Going through financial statements can help determine stocks to invest in, place on watchlists or avoid lists.

This is possibly the most impactful habit in my stock investing journey so far.

Ultimately, I anchor my investment decisions on data and facts. When the numbers don’t add up, I stay clear.

This habit carries me deep into a company’s financials, following the money trail beyond public statements of intent.

As soon as a company picks my interest, I quickly dive into its financial statements to better understand the business’s financial health.

Many disastrous stocks can be spotted by simply looking up basic financial information like revenue/sales, operating costs, and gross profits. And digging deeper can reveal a whole lot more.

6. Invest Regularly

Every month I sit down with my wife, calculate our income for the month, and allocate 25% (at least) to our stock portfolio. This mean we’re habitually investing in stocks month after month.

We’ve a unique arrangement that allows us do what we do best: I manage our stock portfolio and she manages our real estate holdings.

For our stock portfolio, I DCA across the stocks in our portfolio, usually minimum of 22 stocks and a maximum of 30 stocks, and we keep about 5% – 15% in cash.

Our cash reserve allows me to seize opportunities in the market whenever they present themselves.

Nonetheless, we are okay with leaving our cash reserve inactive for long if no new opportunity presents itself.