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The 25 Habits of Highly Successful Investors

Book Description

The definitive guide to investing in today's market!

Especially after the wild ride that began in the fall of 2008, individual stock investing has become far more challenging. Think of a golf swing - hit it right and it goes long and straight, hit it wrong and you'll end up far off in the weeds. But - like much else in life - golf swings become habits when done right. Investing should be no different. What works should become habit, and each and every investor should develop his or her own set of habits for success. Peter Sander in this book reveals a set of twenty five habits that lie behind his own personal investing success, habits loyal to the value investing principles of Benjamin Graham, Warren Buffett and others. These 25 habits - or your own version thereof - will help you hit your investments long and straight.

Table of Contents

  1. Cover
  2. Title Page
  3. Dedication
  4. Acknowledgement
  5. Contents
  6. Introduction
    1. What Do I Mean by “Habit?”
    2. Straight Out of the Dictionary
    3. Where Do These Habits Come From?
    4. The Three Cycles of Investing
  7. Part I: Style for Success: Crafting Your Individual Investing Style
    1. Habit 1:Know Yourself—and Know What to Expect: Know what’s reasonable to expect over the long term, being realistic, patient, and prudent within your level of risk tolerance.
      1. Know What You’re Trying to Accomplish
      2. Know What’s Realistic
      3. Know Yourself
      4. Invest What You Can Afford to Lose
      5. Make Sure Everyone’s in the Boat
    2. Habit 2:Know and Use Basic Investing Math: Like it or not, a few basic math principles, like compounding, can be really handy.
      1. “The Greatest Mathematical Discovery of All Time”
      2. For a Few Dollars More
      3. Fast Figuring: The Rule of 72
    3. Habit 3: Get the Right—and Right Amount of—Information: Too much information can be as bad as not enough; how to get the right amount of the right stuff (and some suggestions).
      1. Know What You Need to Know
      2. It’s a Balance
      3. Regular, and Other, Reads
      4. What to Avoid
    4. Habit 4:Find Your Diversification Sweet Spot: Diversify to reduce risk without overdiversifying, which will compromise returns.
      1. The Diversification Paradox
    5. Habit 5:Segment, or “Tier,” Your Portfolio: Think of your portfolio not as a single entity but as a tiered pyramid of investments with each tier receiving different amounts of attention and designed to achieve different objectives.
      1. Start with a Portfolio in Mind
      2. The Foundation Portfolio
      3. The Rotational Portfolio
      4. The Opportunistic Portfolio
      5. Learning to Think “Tiers”
    6. Habit 6: Work Hard and Work Smart: Contrary to what many think, investing is hard work; how to pull it off when it isn’t your full-time occupation.
      1. Do the Due Diligence
      2. It Takes Time
      3. Set Aside the Time
      4. Get Help When You Need It
      5. Use Funds Where It Makes Sense
      6. Turn It All Into a Routine
  8. Part II: Appraise for Success:Finding Your Very Best Investments
    1. Habit 7: Buy Like You’re Buying a Business: Even if you can only afford a few shares, pretend you’re buying the whole thing. Learn to buy good BUSINESSES, not just good ideas.
      1. The Main Idea
      2. Alternative Approaches Don’t Count
      3. Buy Businesses, Not Just Good Ideas
    2. Habit 8: Buy What You Understand, Understand What You Buy: Use a combination of life experience, skills, learning, and just plain looking around to really grasp a business and understand its underlying fundamentals and what makes it tick. If you don’t understand it, don’t buy it.
      1. Go with What You Know—and What You Can Find Out
      2. In Sight Can Be Insight
      3. Don’t Miss Out on the Big Picture
      4. Does the Company Have the Right Stuff?
    3. Habit 9: Appraise Funds Realistically: Know the costs and benefits of funds and their role in your portfolio, evaluate them objectively; don’t assume that just because it’s a fund it’s a good investment.
      1. What are “Funds?”
      2. The Basics: Individual Stocks Versus Funds
      3. The Basics: Comparing Mutual Funds and ETFs
      4. Evaluating Funds
    4. Habit 10: Value Thy Fundamentals: Understand the financials and what drives the company’s success, and whether they’re improving or not.
      1. What are “Strategic” Fundamentals?
      2. Why Are Fundamentals Important?
      3. Habitual Strategic Fundamentals
    5. Habit 11: Look for Cash in All the Right Places: Cash is king; learn how to evaluate cash inflows and outflows.
      1. Know the Difference Between Earnings and Cash
      2. Read the Statement of Cash Flows
      3. Does P&G Pass the Smell Test?
      4. Of Particular Note: Sale or Purchase of Stock
    6. Habit 12: Don’t Forget the Intangibles: Financials are results; they are lagging indicators. Make sure you read the LEADING indicators—brand, channel strength, customer loyalty, management strength, and others.
      1. Strategic Intangibles
      2. Absorbing It All
    7. Habit 13: Put on Your Marketing Hat: Pretend you’re the CMO for the business. How is your company doing in the marketplace? Is it gaining share or losing it? Are you competing on price alone or on some other value add? Is the company positioned for success?
      1. Is the Company Positioned for Success?
      2. Look for Niche Players
      3. Does the Company Have a Solid Product Portfolio?
      4. Product Evolution? Or Just a Flash in the Pan?
      5. Is the Company Gaining or Losing Share?
      6. Does the Company Present Itself Effectively?
      7. Think SWOT
    8. Habit 14: Put on Your Street Shoes: As you think like a marketer, also think like a marketee—a customer. How is the company perceived by the customer? Look around at its facilities, online presence, etc. Does the experience “click”? Could it be improved?
      1. Look at the Facilities
      2. Look at the Online Presence
      3. Watch the Advertisements
      4. Get the “Buzz”
    9. Habit 15: Sense the Management Style: Are managers achievement oriented and all-in for the shareholders, or are they power oriented and all-in for themselves?
      1. Developing the Sense
      2. A Six-Step Leadership Formula
    10. Habit 16: Look for Signs of Value, Signs of Unvalue: Assess each company for its ten signs of value and unvalue as per the list.
      1. Signs of Value
      2. Signs of Unvalue
      3. Tangible Signs of Unvalue
      4. Intangible Signs of Unvalue
    11. Habit 17: Do Your Threes—Three Pros, Three Cons: When you have your facts and impressions together, list the three strongest reasons to buy the investment and the three strongest to avoid it.
      1. Elegant and Simple
      2. Three Pros, Three Cons
      3. Get to the Essence
    12. Habit 18: Buy with a Margin of Safety: Once you’ve decided that a company is good to own, now (and only now) decide if the price is right. Give yourself a margin of safety in case you’re wrong.
      1. What a Business is Worth—In Theory, Anyway
      2. Navigating Those P-to-Something Ratios
      3. If You Had $50 Billion …
      4. Providing the Margin of Safety
  9. Part III: Own for Success:Getting the Most Out of Your Portfolio
    1. Habit 19:Buy Smart—When You Decide to Buy: Watch price behavior before you buy to try to find a good entry point, but don’t shirk a good entry point just to save a few cents.
      1. Watch—For a While, Anyway
      2. No Limits to your Buying
      3. Buying—Early and Often
      4. Advanced Topic: Selling Puts to Buy
    2. Habit 20: Keep Your Finger on the Pulse: Watch your company as any absentee business owner might; check quotes and news stories at least once a week, read up on not just the company, but the industry. Read earnings announcements; attend investor conference calls, etc.
      1. The Weekly Review
      2. The Quarterly Financial Report
      3. The Personal Experience
      4. What Is the Competition Doing?
    3. Habit 21: React, But Don’t Overreact, to News: Be concerned if bad news surfaces (or if the markets sour), but avoid selling the day of the news; let things settle out. Learn to distinguish between a short-term bad news blip and fundamental changes in the business.
      1. Bad Quarterly Earnings News
      2. Guidance Changes
      3. Executive Departures
      4. Acquisitions and Acquisition Rumors
      5. New Product Announcements
      6. New Customer Announcements
      7. Restructuring Announcements
      8. Brokerage Recommendation Changes
    4. Habit 22: Pay Yourself: Get some current cash out of your investments, through dividends, short-term rotational plays, or covered call options.
      1. Give Yourself a Paycheck
      2. Give Yourself a Raise
      3. Swing High, Swing Low
      4. Buying and Writing
    5. Habit 23: Don’t Marry Your Investments: Always buy, hold, and sell rationally, not emotionally. It’s a business, not a personal relationship. Don’t get angry, don’t get too attached, and don’t get infatuated in the first place.
      1. Be Impersonal
      2. There Are a Lot of Choices Out There
      3. Don’t Throw Good Money after Bad
      4. Be Willing to Accept Failure
      5. Don’t Get Mad (or Get Even)
    6. Habit 24: Sell When There’s Something Better to Buy: Even cash can be something better to buy.
      1. Even Cash Can Be Something Better to Buy
      2. Selling with Limits—A Good Idea?
      3. Not Sure? Try Selling Half
    7. Habit 25: Measure Your Results: Don’t hide your head in the sand—check how you’re performing at least once a year; once a quarter or once a month is better.
      1. The Regular Review
      2. Learn From Your Mistakes
  10. Appendix
  11. About the Author
    1. About the Author
  12. Copyright