If you’re trying to be one of the best, you need to study the best. What makes them tick, what drives them to succeed, and more importantly what they do time and time again that makes them successful.
Well here are the top 5 habits of professional investors that routinely make them money. By emulating these behaviors you can very quickly learn in months what has taken many people decades to learn.
As always if you like content like this then you should share on social media and subscribe to the newsletter! I put out stock research, tips, and generally help people increase their wealth in the stock market.
Without further ado, let’s jump right in.
Reading Regulated Investor Reports
This goes without saying…if you don’t know what you’re investing in then chances are you will lose money. This is because you are investing off of hope, hope that the stock’s price will increase in the future.
Fortunately for you we live in the era of the internet. You can download everything you need to research a stock from trusted and verified sources.
One of the best ways to perform research on a potential investment is by reading their regulatory investor reports. For U.S stocks and investors you can easily navigate to the Securities Exchange Commission to read every published report made by a company.
Here is their website: https://www.sec.gov/
Here is AAPL’s 2020 10-k form (source)
I highly recommend looking through the SEC site and learning about the different types of reports. For example a 10-k is a company’s annual report and 10-q is a quarterly report.
Practice going through these reports to gather the information you need to make an accurate judgment on a stock. If you simply perform this step you will be a better investor than 90% of other investors in the market…..
Letting their Investments Grow
Once you find a good company you absolutely need to let your investment grow over time. To many novice investors sell their stock as soon as they start making money.
Over time this will drastically cut into profits and potentially cause you to lose money. Remember that you need to let your investments grow in the market. All great investors use time to their advantage and let stock in good companies and ETFs grow over time.
USE TIME TO YOUR ADVANTAGE AND LET A GOOD INVESTMENT GROW OVER TIME!
This is because of the effect that compounding returns has on the risk profile of your investment. Every year that you hold onto a good investment like AAPL, GOOGL, MSFT, or SPY is another year that your overall risk in the stock market goes down and your economic potential increases.
Professional investors understand how powerful this can be. Essentially overtime your investment will grow and the likelihood that you will lose money will be reduced.
In the above image we see a stock that steadily gains a 10% return per month. Over time you can see that as the stock price increases not only does your theoretical ‘reward’ to make money increase but more importantly your theoretical ‘risk’ to lose money starts to decrease.
The longer you hold this stock, assuming it continues on the same trend, the lower your risk becomes. This is why holding an asset over a longer period of time is so vital to becoming a professional investor.
When you sell a well performing investment you stop this risk reduction to start over. This is why ‘traders’ over time lose money while investors over time return higher and higher profits.
Let your good investments ride.
Hedging their Investment
No investor or investment is perfect. Even the best such as Warren Buffet lose money.
As such good investors also invest in stocks/assets that will increase in price as their first investment fails. Yes they will lose money because their main investment failed but since they properly hedged their investment they can take advantage of compounding returns on the new investment.
Hedging is an amazing tool to help to better understand how a portfolio works. For example, let’s say that you’re extremely bullish on the U.S stock market increasing in value over the next 20 years. If this is the case you might buy major index funds such as the SPY.
20 year chart on the SPY
The above image is of a 20 year chart on the SPY. The SPY tracks the top 500 largest U.S companies by market cap. As such it’s a pretty good benchmark to judge the overall health of the U.S economy.
So if our first investment is that we think that the U.S market will increase we should buy the SPY. The next step that a professional investor would make is to ask themselves “what happens if I’m completely wrong?” In this case if the U.S market crashes and as a result the SPY plummets then what will go up?
Well one of the most common things that goes up when the SPY goes down is gold. The reason behind this is that in the 1970’s the U.S took their currency off the gold standard. Without going into the history and repercussions of this decision you only need to know that when the U.S dollar goes up, gold goes down.
As such our professional investor will take a smaller position in gold. A great way to do this is through the gold miners ETF GLD.
Notice how in 2020 when the SPY tanked due to the pandemic GLD hit an all time high. This opposite motion is why GLD makes a great hedge on our SPY investment. We should buy some to hedge.
Professional investors hedge all the time to make sure that even if they are wrong they still can generate revenue. In fact hedging’s whole purpose is to make sure you can still stay in the market even when your primary investment is going against you.
Learn to hedge, learn to invest, profit. Three steps to success.
Removing Emotions from their Investments
This is absolutely vital to success. Never marry yourself to an investment, nor stay in an investment longer then you should because you ‘like the stock.’
Professional investors are only in stocks for one reason, to make or secure money for themselves or their clients. This is the same mentality that you need to adopt to transition from a retail investor to a professional investor in the markets.
As such learning how to manage stress and walk away from the market is vital to success. I play guitar, my co-workers paint, play video games, read, and play sports. Don’t sit in front of the markets longer than you need to. Once you have a good investment opportunity, invest and remove yourself from the market.
By doing this you will reduce the chance of over thinking and selling your investment before it can actually make you money. Worse yet you might FOMO (Fear of Missing Out) into a fast moving stock thinking you can generate huge returns.
Chasing stocks and emotionally investing will lead to ruin. There are entire industries built around convincing you that you can become filthy rich by investing off ‘professional’ advice.
They don’t want you to walk away from the market, they want you to instead constantly buy and sell stocks so that you provide liquidity to the market. Don’t be these guys, they are retail traders and often they lose everything in a couple weeks.
Instead find a good investment, invest, and let it ride. Sit back and check back to see your wealth passively growing over time. Understand that Rome was not built in a day and that it takes time to grow your ‘Rome’/portfolio.
It takes time but learn to walk away from the market and trust in your investment thesis and the company. If its a good company they want their profits and stock price to increase just as much as you do. Trust that they will do what they do best.
Learn to Constantly Learn
Ok, here is the dirty secret of professional investors….9 out of 10 investment gurus hate me for telling you this.
In order to be a professional investor and actually do this for a living you need to be constantly learning. Learning new trading strategies, new corporate business models, new financial reports, new everything.
When you are reading a report you should be constantly asking yourself “what the hell is this?” I can’t tell you how many times I had to Google something that I found in a 10-k. Just the other day I encountered a weird industry regulation that I had to Google when I was writing up the research report on Coinbase.
It goes without saying that professional investors are always learning. It’s a never ending tunnel of knowledge that you will be going down for the rest of your life. That being said, it’s extremely rewarding both financially and intrinsically if the markets interest you.
I read way to much about the markets.
You are never going to know everything about capital markets. There is always another theory to learn, another methodology to employ, and another company/sector to research
Learn to constantly learn and you eventually find yourself being a subject matter expert in investing.
These are the top 5 habits that routinely make professional investors money. Learning and practicing them will significantly help you generate wealth in the markets.
Further, since investing is a skill set it becomes easier and easier to do overtime. Give it a couple months and before you know it you will be generating significant amounts of wealth in the market.
As always if you like content like this then you should share on social media and subscribe to the newsletter! Every share helps me help others generate wealth in the market.
Further, you can check out some of our other posts below.
Here is how long it really takes to learn how to trade options. Most people think they can jump right in however that’s dangerous.
There are 3 things that could happen if nobody buys the company’s stock. Make sure you are aware of these effects so that you can be ready.
Global Macro is far from dead. Here are 5 tricks to help you generate above average returns in your global positions.
Until next time, I wish you the best of luck in your investments!