Around New Year’s Day, much attention is paid to breaking bad habits. “Stop smoking,” “stop frivolous spending,” “stop overeating” — these not-to-do’s are perennially at the top of Americans’ New Year’s resolution lists.
But creating new habits is at least equally as critical to creating a happy, successful life, especially since many new, healthy habits can help replace the instinctive impulse behavior of the bad habits we want to break.
Just as intentionally eating vegetables and preparing delicious healthy meals can help forever vanquish the habit of unconsciously reaching for chips or cupcakes, I believe intentionally building new financial habits can put the kibosh on your overspending, overdebting and other dysfunctional money management habits.
As if on cue, to power our New Year’s money goals, comes Peter Sander’s new book, “The 25 Habits of Highly Successful Investors: How to Invest For Profit in Today’s Changing Markets.”
Sander approaches investing like other skill-based activities, and argues that just as we can improve our skills at golfing or cooking, we can create investing behaviors that are smart, repeatable and ultimately help us achieve consistent, reliable, good performance without the drama and time drain many self-directed investors experience.
Sander advises that understanding good investing habits is critical for any investor who wants to take charge of and responsibility for his or her own investments; if you work with an investment adviser or money manager, Sander advises, “the [habits] can also help you ask the right questions of a professional adviser and analyze the performance of a fund manager.”
Sander’s 25 habits can be best understood as falling within three cycles of investor activities:
1. “Developing your investing style.” Sander explains, “Your style is a foundation, applied over and over and based on your needs, risk tolerance and time, and added to by experience.” Your investing style dictates the information you’ll look to and analytical tools you’ll use throughout your lifetime as an investor. Sanders buckets six habits into the style category, including knowing yourself, holding realistic and prudent expectations, being patient, and being willing to use investing math and market information wisely.
2. “Buying a security.” “Here,” Sanders elaborates, “you learn repeatable approaches for buying a stock like you’re buying the whole business, basing the decision on fundamentals, intangibles and price.” Sanders’ 12 “buy habits” start with understanding the marketing, management and other fundamentals of each company whose stock you buy (beyond just the lagging financial indicators) and center around buying stock as though you are buying the entire business — because in some respects, you are.
3. “Owning a security.” Just as a small-business owner would be charged with all sorts of tasks to care for a business after he buys it, Sanders says investors should also form good habits around what to do with their share of a business during the time they own it. Wise stewardship of the securities you own encompasses habits ranging from knowing when to buy and sell, remaining emotionally detached, keeping up to speed on the news and developments that impact your security, and accounting to yourself for the performance of your security over time, according to Sanders.
“The 25 Habits of Highly Successful Investors” is written to be synergistic with the annual “100 Best Stocks to Buy” book Sanders also publishes, though each title can certainly be put to good use without the other. “25 Habits” reflects an unusual find, a book that even experienced investors can use to level their portfolios and their personal financial skills up, and that novices can also read and work through without it causing clinically significant boredom or going entirely over their heads.
Beyond its fundamentally sound advice on the core subject matter of financial skill, the book’s power lies in the mindset shift that happens as you read it, the shift from seeing money matters as a dreaded task to check off the old annual to-do list to understanding that caring for and cultivating your personal finances can be an orderly, productive and efficient practice, like running or practicing yoga, but for your portfolio.