What Can You Learn From Well Behaved Investors

Movement in the markets depend on 2 factors – One is the actual numbers like growth rate, company performance, prices of commodities and local and global economic conditions. The second is the behaviour of the market participants that is the people and their beliefs, sentiment, fears, optimism and pessimism. We think second factor is more important & that’s the reason we keep repeating… Investing is not a number game, it is a “Mind Game”.

InfographicsIt’s a bull run when….

It is not enough to have only technical and financial knowledge if you want to be a successful investor. You should also manage your emotional quotient properly. Some investors do better than others in investing. One of the main reasons is that they behave appropriately in different market conditions and while taking investment decisions.

What Can You Learn From Well Behaved Investors

What these investors do different to be more successful –

1) Sometimes it is okay to not make any investment decisions –

There are a lot of news items on the economy, prices, markets all over the place. Many investors constantly want to keep doing something. They want to buy or sell else they feel left out even if they do not understand where the markets are heading. well behaved investors  take a step back and take time to assess the situation. It might be profitable in terms of time, money and mental peace to not react to market movements and wait till the markets are more steady or make more sense.

Read: Keep Away from too much news

2) Loss Aversion –

Sometimes as investors, we do make the wrong purchase decisions. Sometimes, due to economic conditions or company performance the stocks/sectors that we thought would perform well do not perform as expected. It’s important to keep asking a simple question to ourselves – If I weren’t already invested in this ……, how much would I invest in it now?” It is difficult for most of us to admit that we made a loss or sell and accept the loss.

Read: Sunk Cost fallacy – throwing good money after bad

3) Overconfidence –

Many investors tend to be overconfident and estimate their ability to pick investments that can give very high returns to be very good. This can backfire as the investments picked may not give the most optimum returns or even run into losses. It is even worse if the investors overlook the mistakes they have made due to overconfidence. Well behaved investors estimate their investing capabilities realistically. They try to improve their skills in different ways and also take the help of professionals to make the right investments

ReadDon’t believe PREDICTIONS

4) Understand the difference between skill and luck –

Sometimes we make profits or get high returns from our investments because we have made the right investment decisions and sometimes it is because of a little luck. Well behaved investors know and acknowledge the difference. If we attribute all profits to our skills and capabilities and all losses to bad luck, we may not be interpreting correctly. This will impair our rational behaviour and we will not take steps to improve our investing skills.

ReadHerd Mentality

5) Keep emotions out while investing  –

Humans have a range of emotions – greed, humility, impatience, fear, self-confidence levels, frustration, anger etc. These emotions can play into an investor’s mind and bias the investment decisions. Some people are scared of making any decisions which might make them lose opportunities to make money. well behaved investors keep emotions and intellect required for investing separate. They do not let emotions cloud their mind while deciding on their next move. They may not watch the market closely but learn and assess rationally. Just as professional investment managers behave rationally while taking investment decisions. Well behaved investors also do not have extreme reactions for profits and losses. They continue with the right strategies and change the wrong ones.

Read3 Principles to generate superior returns

6) Well behaved Investors are disciplined and persistent –

Well behaved investors are disciplined when it comes to investments. They stick to investing rules. They have a well-thought-out investment strategy in place and follow it even if there are sudden changes in the market. They update their strategy only if it is required. They have certain standards and make sure they follow them. For example, a well behaved investor might have kept a target to sell a stock that he owns when he gets a  return of X%. Now if the market swings wildly and the stock keeps going up, he will not get greedy and wait for the stock to go Y% higher to sell. Chances are that the stock might drop to much lower levels and he will end up getting less profits or even make losses. Of course it might happen that after he sells as per his target, the stock price goes higher. But if there are no indicators of the same earlier as per his analysis, he would stand by his strategy.

Read7 types of investors

7) Well behaved investors are also persistent –

They work hard and persistently follow their investment strategy. They keep updating their knowledge and look for opportunities. They review the investment strategy and update it  as required. They will not succumb to market tips and rumours. They would have set their financial goals and work towards achieving them.

Read: Instant Gratification is Hazardous for your wealth

Many of our investment decisions are clouded by behavioural aspects. We should emulate well-behaved investors to be successful investors. To begin with, we should find out which emotional aspects affect our investing capability and then work on each of them so that they do not affect investment decisions negatively.

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{ 4 comments… add one }
  • Anil Kumar Kapila March 12, 2016, 9:39 AM

    Hi Hemant
    Presently I am following- Sometimes it is okay to not make any investment decisions.You have mentioned persistent twice obviously due to its importance.

  • Rajiv Ahuja April 10, 2016, 10:09 AM

    What are your views on Birla MNC fund ?

  • KUMAR May 3, 2016, 4:33 PM

    Thank you for your valuable articles. I wanted to know if you have heard about the company called SmartOwner and how is the company for investment into real estate.


  • Raj Mehta May 14, 2016, 11:56 AM

    You may come across news related to the economy, prices and market on a regular basis. Buying and selling on a frequent basis many people make. Well behaved investors take more time to understand the situation. It would be wiser for you not to react to market movements both in terms of money and time till the market becomes ready.

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