3 Principles to Live By to be a Better Investor in 2023!

There is no one-size-fits-all approach to investing. Some investors are more inclined to buy a meaningful dip for a better value proposition, while some are willing to pay a premium to capitalize on the potential growth. Others like me love cash machines or dividend-paying companies. Also, there are countless ways to go about even in these three primary approaches.

However, there are a few universal principles that can significantly make one’s investing journey less painful and more rewarding. Here are 3 of them that can have a profound impact on your journey in the financial markets.

Stick to Your Niche

If you look at any great investor in the world, one thing all of them have in common is they know the circle of their competence and stick to it. Warren Buffet is extremely skillful in picking up competitive businesses at a bargain, while Larry Hite is one of the best trend followers the world has ever seen. On the other hand, Martin Schwartz made a fortune doing day trading. 

Had they been influenced by someone’s success in the investing world and tried to copy them, do you think they would have done well? In my opinion, they probably would not have come even closer to the success they actually have today. Just like an F1 racing champion might be horrible in a NASCAR race, a value investor might not do good with a growth strategy. So, hone your skills, know your game and stick to it. 

Never Fall for Tips

There is no doubt that most of the analysts we come across on the business channels are highly skilled professionals. They are appearing in the media because they have a proven track record, although not all of them. However, at the end of the day, the reality is, absolutely no one can predict the market. 

They might be able to give you a good recommendation, but still, they are not telling you how to manage your risk. Your greed and fear, which are two destructive emotions in trading/investing are solely up to you to control them. In short, even the right recommendation can prove to be a loss-making one if you prematurely exit over fear or hold on for too long over your greed. Hence, just a tip from someone else is absolutely not sufficient to make you a better investor.

Focus on Your Risk, not Profit

If you are able to take care of your risks, the profits will eventually start to rack up. There are only 5 outcomes for any investment bet - a big loss or profit, a small loss of profit and a break even. One thing you have to make sure of is, never letting the outcome of a humongous loss materialize. 

One gigantic loss can easily take a few years to struggle to break even. That’s a massive loss of the most precious asset - Time, which is also a key to the magic of compounding. Therefore, focus more on capping the downside rather than trying to hit the ball out of the park. Once your losses are in control, a few big winners in a couple of years can take your portfolio to soaring highs.