Financial Success

8 Key Traits of Successful Investors

The techniques and the characteristics of the most successful investors are diverse, and there's not a guaranteed formula of success.

Nonetheless, by looking at the mindsets of certain successful investors, we can learn by following 8 of their key traits:

  • 1. Reason

Arguably the most important characteristic. You need to justify why you hold each company in your portfolio. You must seek out high-quality stocks that are undervalued by the market, and therefore cheap.

  • 2. Commitment

To exploit your strategy you have to do the research - and keep doing it - including surveying all financial data, online investment resources and company reports. Don't forget that "numbers have no prejudices."

  • 3. Discipline

The research process doesn't finish once you've bought a stock.You have to obsessively follow your purchases, to make sure they were sensible. You'll need discipline, because successful investing is about running your profits and cutting your losses. The stockmarket is a rollercoaster, so you have to ride out the peaks and bottoms.

  • 4. Flexibility

If you're going to have rules you need to be able to break them. The same stocks won't perform well in all markets.

  • 5. Guts

The best time to buy stocks is the time of "maximum pessimism" - when everyone is selling and fleeing the markets. To do this takes bravery.

  • 6. Open Mind

Seeking out opportunities ignored by other investors prevents prejudices coming between you and an opportunity.

  • 7. Patience

"Unfashionable stocks" are unlikely to turn around overnight, so you need to know when to hold on.

  • 8. Know Your Limits

This means accepting you won't be the next Warren Buffett. Professional investors spend their whole day researching companies, have analysts to help them, and can visit companies. That doesn't mean you can't stock-pick successfully as an amateur.

The best trick is to keep it simple and stick with what you know.

7 habbits to achieve Financial Success

  • http://www.tflguide.com/2012/12/7-habits-to-achieve-financial-success.html

Assess your Financial ratios

Source - here

  • Liquidity Ratio (or emergency fund) – Liquidity ratio measures your ability to pay for expenses with cash in hand.

It is calculated as –

(Cash + Bank Balance)/ (Monthly Living Expenses)

Typically you should have cash/ bank balance to pay for living expenses of about 3-6 months depending on marriage status, home loan etc. You should check this ratio when you are planning to quit your job or taking a new job with a start-up where financial and career risks might be higher.

  • 2. Savings to Income Ratio – This ratio compares amount invested and the total income earned per month.

(Amount invested per month) /(Total Income per month)

Savings can be in the form of cash, bank balance, FDs, PPF, Shares, Mutual Funds, Bonds etc. Minimum 20%-30% of gross income should go towards savings on a monthly basis.

  • 3. Debt Service Ratio – This ratio shows the ability of a person to pay the loan installments on a regular basis. It is calculated as -

(All EMIs & other debt payments) / (Family Gross Monthly Income)

It shows how much percentage of your monthly income is used for servicing loans. You will have to manage your investments and expenses with the remaining amount. The lower this ratio the better your debt management skills. It is advised that debt servicing should not take up more than 40% of your income.

  • 4. Solvency Ratio – This ratio compares a person’s total assets and total liabilities to find if the person has the ability to pay off his debts.

(Financial Assets) / (Total Liabilities)

The ideal ratio depends on age and income earning capacity of a person. You should have a debt of up to 50% of your financial assets & if its above 100%, you need help. It means you can pay off your debts if required and you have a cushion to fall back on if value of assets go down or you have to take more loan.

Must Read: Net Worth – How to calculate & why its so important

When you are younger or have a bright career ahead with the potential to earn a lot of money in a short span of time, the debt taken can be larger compared to a time when you are nearing your retirement or the scope for earnings increase is limited. When you have to take a loan, you should have a look at this ratio before finalizing the loan.

The personal finance ratios help you to evaluate your financial position and take next steps. I have given a generalized target for the ratios. You should calculate your financial ratios, consider your personal, professional and financial situation and take measures to improve your financial health.

Have you calculated these ratios for yourself. What steps did you take after that?