10 Common Sense Ways to Be a Better Investor in 2016
It’s that time of year when the media is filled with all manner of terrible investing advice, like: "Give up lattes to get your budget in order!" Instead, we're going to share 10 ideas with you. Follow them, and you will be a better all-around investor. Read more here: http://wapo.st/1J9uqto
- •Write out your investment philosophyHow can you put your money at risk in the capital markets if you do not have a philosophy you can articulate? It should be short and easily understood. You would be surprised at how many investors don’t have one.
- •History teaches us:hat has the market done? How long do bull and bear markets usually last? How far can they go? How do they begin and end? We spend a lot of time around the office looking at historical data, running regression analyses to see what the past has looked like: What happened when rates rose from very low levels with low inflation? What is the actual average valuation across time? What happens when markets become narrow with fewer stocks participating?
- •How can you better understand money?"Over the years I have come to think of money as a tool; it allows me to buy the necessities, as well as security, comfort, memories and the occasional toy. I obtain money by trading for it with my time, which is a (very) finite resource. Many people do not seem to understand what money can and cannot buy for you. Some do not realize how expensive it is to buy money with their time." -- Columnist Barry Ritholtz
- •What am I getting wrong?Simple fact: You will be wrong, quite often and, occasionally, quite spectacularly. The key to being wrong well is to not waste it. Ask yourself three questions: What do I not realize I am wrong about? What ways can I identify errors and avoid blind spots in the future? And, perhaps most important of all: What can I learn from my mistakes? Do these three things and you will be smarter than 90 percent of the people you meet over the next year.
- •Become comfortable with basic math and statisticsYou cannot be an investor and not have a basic facility with numbers. You have to be able to review your own investment returns, understand what is owed to you via dividends and bonds, review your quarterly statements, and be able to discern how well or poorly you are doing.
- •How many books did I read last year? Which books should I read?Think about the 10 people you would like to learn from; then go read their books in 2016. Or, alternatively, try this: Ask 10 people you admire what the best book they read last year was, and that’s your annual reading list.
- •Understand human psychologySpeaking of which, the myriad ways in which people react to external and internal stimuli help to explain why the markets have been topsy-turvy. When thinking about psychology, there are only two things you need to learn: Crowd behavior and your own. Master those two and you will become an extraordinarily successful investor.
- •How can I eliminate noise and distractions?You want less of the distracting nonsense that interferes with letting your portfolios work for you. Most people spend too much time on irrelevant noise. They end up with too much information, but it is all of the wrong kind. They rely on anecdotes and narratives instead of data. And they easily confuse short-term concerns of traders with their much longer term investing goals.
- •How can I be more productive and efficient?How can you do the things that have to be done as quickly and correctly as possible, so you can spend time doing what you really want to do? Some people are fortunate to be able to work in a field that they truly enjoy. Still, it does matter if you want to get things done and focus on the most important things.
- •How am I spending my time? How do I want to spend my time?Time is an extremely limited resource, one that you should use appropriately. Are you spending this finite resource doing things you dislike, or are you pursuing that which gives you the most satisfaction? Remember, everybody gets the same 24 hours each day. What differentiates some people from others is how they spend that precious resource.