The seven simple habits of the best investors

While bad habits get all the press, it’s really their beneficial flip side we should focus on. Good habits are like superpowers that people forget they can have. Somewhere in our subconscious lurk automations — mental patterns and rhythms that we execute regularly — but few people realise just how significant those are. A 2007 study out of Duke University concluded that as many as 40% of our daily actions are deeply ingrained habits, not conscious decisions. Yes, 40%.

When it comes to investing, it pays to look to those who have done it right before. Here are seven common habits I’ve identified among the world’s best investors.

1. They read. And read, and read, and read…

If you follow Warren Buffett and Berkshire Hathaway (NYSE: BRK-A, BRK-B), you’ve probably stumbled across his witty and equally brilliant first mate, Charlie Munger. He’s a legend for his insights into successful investing, thought processes, and habits. He nailed a crucial one here:

“In my whole life, I have known no wise people who didn’t read all the time — none, zero. You’d be amazed at how much Warren reads — at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”

2. They seek and demonstrate humility

Koch Industries may not command the recognition of its phonetic relative Coke, but it should. Koch is the second-largest private company in the United States and rakes in more than twice the revenue of the more familiar beverage-maker.

Koch Industries CFO Steve Feilmeier is in charge of deploying the company’s massive capital at a reasonable rate of return. When discussing what he looks for in a valuable acquisition for Koch, he said: “There is one in particular that I pay attention to when we’re looking at another company, and that is humility.”

Humility can be a rare virtue in an industry controlled by animal spirits, but it pays off.

3. They fail

Peter Lynch, the legendary manager of Fidelity’s Magellan Fund, absolutely stomped the market over his career, averaging annual returns of 29%. Here’s what he had to say on picking winners: “In this business, if you’re good, you’re right six times out of 10. You’re never going to be right nine times out of 10.”

That’s right. If you’re king of the investing mountain, you may <narrowly beat a coin toss> ( in the long run.

4. They steal

Maybe “steal” isn’t the best word for it. In investing it’s called “cloning,” or basically borrowing already great investment ideas and making them your own.

When it comes to cloning, no one is a bigger advocate than fund manager Mohnish Pabrai — and few are so successful at it. After managing his fund for more than 18 years and weathering two recessions, his average annual return is 25.7%.

Pabrai breaks his approach down to three strategies, and one of them is, indeed, cloning. It’s no coincidence that he has had this idea affirmed by someone else too: Charlie Munger.

5. They evaluate internally

A lot of investors are aware of the need to go against the grain to find success, but the judgment and evaluation of others can be a big psychological weight. It can cause doubt and insecurity in your approach.

Buffett knows this best. He was chastised for trailing the moonshot returns of the tech bubble while he stuck with boring insurance and paint manufacturers. His advice for weathering the storm? An inner scorecard. As he said in The Snowball:

“The big question about how people behave is whether they’ve got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard. … If all the emphasis is on what the world’s going to think about you, forgetting about how you really behave, you’ll wind up with an Outer Scorecard.”

6. They practice patience

We got a wonderful reminder of the power of patience here at Fool HQ when co-founder David Gardner’s 1997 recommendation of (Nasdaq: AMZN) became a 100-bagger. That return – a gain of 100 times the original investment – is absolutely stunning, but even more impressive is that David was an owner the whole way through.

In his original Amazon recommendation, David wrote: “We’re patient investors who buy with the idea of holding on to our latest pick for at least a year or two — if not indefinitely.”

He’s still holding.

7. They’re decisive

Don’t confuse patience with indecision. The best investors are poised to act when the right opportunity comes across their radars.

John Paulson and Michael Burry didn’t participate in The Greatest Trade Ever by sitting on their hands. When they saw a clear opportunity, they backed up the truck. For Burry, that often meant battling his own investors’ anxiety. His fund Scion Capital returned nearly 500% in less than eight years.

Foolish takeaway

Taking the time to cultivate good habits will yield incredible results. As one popular saying goes:

Your actions become your habits,

Your habits become your values,

Your values become your destiny.

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