The Only Constant in Life is Change: Lessons from Successful Investors

Brokerage Free Team • May 17, 2024 | 6 min read • 658 views

As the saying goes, "The only thing constant in life is change." This sentiment has never felt truer than during the COVID-19 pandemic. The upheaval has made it clear: safeguarding your future against such uncertainties is crucial. To walk in the footsteps of successful investors, you must first learn to think and behave like one. This means understanding their behaviors and applying them to your own investment strategy.


The journey to becoming a successful investor can be daunting due to the numerous fundamental guidelines to follow. However, by incorporating certain habits and principles, you can significantly improve your financial standing. Here are seven key suggestions to help you on your path to financial success, with examples relevant to the Indian context.


Habits of Successful Investors

Successful investors build wealth through patience, risk-taking abilities, and a sound investment fund. However, their success also stems from deeply ingrained habits. Let’s delve into these habits one by one.


1. Save First and Spend Later


Warren Buffet famously said, "Do not save what is left after spending; spend what is left after saving." This philosophy is integral to successful investing. The 50/30/20 rule is a simple yet effective budgeting approach: allocate 50% of your income to necessities, 30% to wants, and 20% to savings. This method helps you prioritize saving and investing before spending on non-essentials.

Consider the case of Radhakishan Damani, the founder of DMart. Known for his frugality, Damani emphasizes saving and smart investing over lavish spending. By consistently saving and investing wisely, he built a retail empire from scratch.


Make it a habit to automatically transfer a portion of your paycheck into a savings or investment account. This way, you consistently build your savings and can take advantage of compound interest over time. Watching your savings grow can be incredibly motivating.


2. Start Investing Early


The earlier you start investing, the more time your money has to grow. Even small investments can accumulate significant returns through the power of compound interest. Don't wait until you have a large sum to begin; starting early is more important than starting big.

Take the example of Zerodha co-founder Nithin Kamath, who started investing in the stock market in his early 20s. Despite initial setbacks, his early start gave him the experience and knowledge that eventually led to the creation of India’s largest brokerage firm.


3. Have a Plan


Successful investing requires a clear, long-term plan. Set specific financial goals and outline a strategy to achieve them. This includes determining how much you need to save each month, choosing the right investment products, and deciding on your asset allocation and risk tolerance.


Having a detailed investment plan shifts your focus from short-term gains to long-term wealth building, helping you stay committed and on track.

An example here is Azim Premji, who turned Wipro into one of India's biggest tech companies by sticking to a long-term vision. His disciplined approach to investing in technology and IT services during the early days of the Indian IT boom paid off immensely.


4. Research and Understand Businesses


Continuous learning is a key habit of successful investors. Since the future is unpredictable, investing always carries some risk. However, thorough research and informed decision-making can significantly mitigate these risks. The more you know about a business, the more confident you will be in your investments.

Rakesh Jhunjhunwala, often referred to as the Warren Buffet of India, is known for his in-depth research before making investment decisions. His significant investment in Titan Company, which he held for years despite market fluctuations, showcases the importance of thorough research and conviction.


Use SWOT analysis (assessing strengths, weaknesses, opportunities, and threats) when evaluating investment opportunities. Study successful investors, their strategies, and their recommended investments to enhance your own knowledge and approach.


5. Diversify Your Portfolio


"Diversify your investments" is a fundamental principle of investing. This means spreading your investments across various asset classes to reduce risk. Low-cost index funds and exchange-traded funds (ETFs) are excellent options for new investors.


A balanced portfolio protects against market volatility. However, ensure that your diversification aligns with your risk appetite and financial goals. A poorly diversified portfolio can expose you to significant risks, while over-diversification can dilute your returns.

Consider the investment strategy of Uday Kotak, the founder of Kotak Mahindra Bank. He diversified his investments across different sectors, including banking, insurance, and asset management. This diversification helped mitigate risks and ensured steady growth.


6. Learn from Your Mistakes


Mistakes are an inevitable part of investing. What sets successful investors apart is their ability to learn from these errors and adapt their strategies accordingly. Every mistake offers a valuable lesson that can improve your future investment decisions.


Don't be discouraged by setbacks. Instead, use them as learning opportunities to refine your approach and enhance your investment acumen.