7 Smart Habits of Great Investors

The stock market takes from the impatient and gives to the patient.

Putting your money into the stock market should not feel like gambling if you do it correctly. I know so many people who are losing money when the market has had a full recovery ever since the COVID news broke out in February.

There is absolutely no reason to be down money because of the given circumstances, but you won’t have to worry about losing money with this investing guide.

After reading books and watching the film on Warren Buffett, Charlie Munger, and more investors, I have comprised seven pieces of investing advice that has helped me double my portfolio in the span of a year.

1.They Invest in Great Companies

It goes without saying that you should only invest in good companies.

A lot of people waste their time playing penny stocks and praying for them to skyrocket. Every once in a blue moon, a penny stock jumps up, but that’s it.

Some of the top companies I own are Tesla, Apple, Amazon, and ARK ETFs.

There are a ton of great companies out there that are underpriced. On the flip side, there are a ton of companies out there that are grossly overpriced.

Don’t think too much about the price, but rather understand that you’ll be investing for the long-run.

2. They Know When to Take a Loss

From time to time, you may choose a company that is either replaced by another or has a massive decline ahead. In cases like these, cut your losses.

The best traders and investors understand when to cut a losing position and replace it with a winning position.

Some people think that if they hold long enough, their company will bounce back, but this isn’t always the case, as we saw with Hertz this year.

In cases where you’re down more than 40%, it may be in your best interest to either take a loss or try and break-even.

Smart investors own up to their losing trades and understand that there is opportunity elsewhere.

3. They Don’t “YOLO” Trade

If you are putting money into a company you have no idea about simply because someone recommended it, you’re making a “Yolo” trade.

You’re putting all of your eggs into one basket without doing your due diligence.

It’s much better to be well-diversified in a few companies rather than all-in on one. Your risk management will determine the way your portfolio looks in future years.

Understand that some people win these “YOLO trades” on WallStreetBets, but others lose all their money and give up on the stock market.

4. Their Dollar-Cost Average

When Tesla dropped down from $1,000 to under $500 at the start of the Pandemic, I averaged down my position to get a better average price. This was an excellent strategy instead of selling for a loss.

An example of dollar-cost averaging goes as so:

You buy one share of Tesla for $500.

It dips down to $400, and you see a buying opportunity.

You buy one share at $400 and now own two shares of Tesla.

The dollar-cost average is $450 because $400+$500=$900/2=$450

By not selling and instead of buying more, you strengthen your long-term hold and guarantee more profits further down the line.

Companies have dips and, sometimes, massive drops. It’s important to remain calm and understand that corrections or world news change everything, and there’s a huge selloff.

You can’t lose unless you sell.

So hold on tight to great companies and buy more. There’s never anything wrong with buying more and improving your position.

5. They Have Cash on Hand

It’s never a bad idea to have cash on hand if stocks go on sale, and there are tons of amazing buying opportunities.

When you have cash on hand, you’re in the driver’s seat and can always withdraw money if you need it.

There are flash sales on good companies here and there that you never want to miss out on.

A good rule of thumb is to have at least 10% of your total portfolio in cash.

As someone who follows the rule of having cash on hand, I’ve been able to capitalize on swing-trading stocks that have given me excellent returns that I was able to contribute to my long-term investments.

Holding cash counts as a position too!

6. They Do Their Own Due-Diligence

Due diligence is the research and effort you put into understanding everything about the company you’re investing in.

Cover your assets by reading up on earnings reports, stock outlooks, it’s recent pricing, and so much more.

The more time and energy you put into researching, the more confident an investor or trader you will be.

The biggest risks you take in investing often lie in the things you don’t know, so be sure to do your due diligence.

7. Less Trades, More Profits

LTMP is a popular acronym that has to do with the idea of over-trading.

Would you rather risk $1,000 of your money and turn it into $2,000 or perform 100 $20 risks to make that $2,000?

Easily you’d take the option where you make big money on just one trade. There are times when we can get overly-emotional and lose tons of money.

At that point, we are treating the stock market like a casino, which is just not the case.

Think out your trades thoroughly and understand your exit strategy and when it’s time to cash out and take profits.

Final Thought

There is a lot of money to be made in the stock market with patience and due diligence.

If you’re considering entering the stock market, don’t go into it blindly. Do your research, watch videos, and educate yourself before putting your money out on the frontlines.

As one of the world's greatest opportunities, investing is a tool that you can use long into your life and come out victorious.

Take care and happy trading and investing!