What are particular habits you see in successful investors? So often when markets become choppy, we get hyper-focused on the outcomes of our investment strategies. But successful investors focus much more on a system to guide their decisions, which limits the emotional whipsawing bound to occur in those times. In the book Atomic Habits, by James Clear, he describes stories and strategies of how to develop small habits that lead to success in your life, health and finances. We all have intentions of doing the right thing, but there is a big gap between intention and action. In fact, only about half of our intentions turn into actions. Listen to this episode to find out the habits successful investors implement to set them apart from the rest of us.
Small Habits Can Make a Lifetime of Difference
Successful investors bridge the knowledge and action gap. Successful investors understand delayed gratification and realize that small changes compound over time. The foundation of this motivation develops as what the author defines as the habit loop. It begins with a cue that starts a craving. This motivates a response that results in a reward. The most successful investors find ways to repeat this across their financial lives. Learning quickly that the cost of good habits is in the present and the cost of bad ones is in the future.
Successful investors minimize the valleys of disappointment. These are the times you don’t feel like you’re going anywhere. It’s a hallmark of any compounding process: the most powerful outcomes are delayed. Most people know that delaying gratification is the wise approach and all of us want the benefits of good habits, but those benefits are seldom top-of-mind at the decisive moment. For successful investors, that’s not the case. Successful investors don’t let emotions derail their strategy. In fact, successful investors find a way to wade through the boredom when consistency is hard, the precise time that most others choose to give up.
Successful investors possess the ability to implement their intentions. Successful investors emphasize making a plan beforehand about when and where to act. Meaning how they intend to implement a particular habit. They don’t just have a system of actions, it’s a system of beliefs that setting continual defined targets will bring better results.
Successful investors know how to track their habits. We all know that life is a balancing act. It is hard enough to balance work and family life. If you throw in exercise and fun then investing can quickly take a backseat. Tracking your habits can allow you to rebound quicker after temporary or perceived failure. We’ve all had periods of blindness to our own behavior. That’s where measuring specific emotions helps you notice your decision making during specific market environments. A good investor might compare their investing with planting a tree. You don’t go out and check on your tree daily to look for growth. Simply set up a system for care and watch it grow over time.
Successful investors practice self-control. Self-control can be challenging in times of uncertainty. A key to a successful investor’s secret, is to set up systems that don’t take heroic willpower to overcome each time. Luckily, investing provides a great antidote to this with the myriad of ways to automate your savings. Hiring a professional is another way to help you practice self-control. You don’t have to try and be an expert at everything, put your investments on autopilot or ask for help.
Successful investors refine and reflect on their strategy. If you don’t reflect on what’s happened, it’s much easier to make excuses and create false narratives around past decisions with your investment strategy. When you take a moment to reflect, it creates awareness around past inevitable investing mistakes and creates opportunities for improvement. The author summed it up well, “Reflection brings perspective. Daily habits are powerful because of how they compound, but worrying too much about every daily choice is like looking at yourself in the mirror from an inch away.”
Will you Implement these Habits for Success?
Making small changes can really make a monumental difference in your life. When you bridge the gap between your intentions and actions you begin to change your habits and start on a path to success. Implementing these strategies can help to make you a better investor and they can be applied to many other areas of your life as well. Think it’s only appropriate to let James Clear have the last word as he shared in the book, “Too often we convince ourselves that massive success requires massive action. But if you break things down, small habits can result in large successes.”
Outline of This Episode
- [1:27] Half of all intentions actually turn into action
- [5:45] Understand delayed gratification
- [7:18] Minimize the valleys of disappointment
- [11:00] Implement intentions
- [13:14] Habit tracking
- [15:20] Controlling your self-control
- [19:11] Refine and reflect
- [21:57] A recap of the 6 habits
Resources & People Mentioned
- BOOK – Atomic Habits by James Clear
- BOOK – Essentialism by Greg McKeown
- Article – Stop Teaching, Start Coaching in Morningstar Magazine April/May 2018
- Website – www.jamesclear.com
- Study – The Intention-Behavior Gap – The University of Sheffield
Connect With Chad and Mike
- Connect on Twitter @csmithraleigh@TeamFSINC
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