After sharing an article on purposeful investing, a reader sent an inspiring email in reply, from which there are lessons to be learnt.
What do you focus on when you read it? Is it on the stocks Rama bought in the past, the amount he invested and how much he gained from them during the period?
For a financial educator, the gems in the email lie in what is highlighted in the picture below.
They reveal key traits of how most successful investors built their wealth via investing. If you follow the main pointers of his email, you could also attain investor success.
1. Save a portion of your income
If you do not regularly set aside a portion of your income, you will not have the capital to invest.
You must be intentional about it because otherwise it will not happen. But saving is just one half of the equation.
2. Invest in stocks
Ever heard the phrase, “Savers are losers”? There is an element of truth in it because cash is a fiat currency and its purchasing power falls over time.
Therefore, it is wise to convert a portion of the money saved into vehicles that hold their value or purchasing power or produce income over time. This would include businesses, real estate and stocks.
Rama found that stocks can yield much better returns than cash, assuming he bought stock in great businesses that expanded their activities, delivering consistent growth in sales, profit, cash flow, and dividend pay-outs.
3. Do your homework before investing
Rama said, “I read and find out the value of each stock I pick.”
This is encouraging because so many people don’t. They do not know what they are getting themselves into, which is the main reason they lose money in the stock market and the property market.
But Rama finds out as much as he can about the stocks he picks before investing in them. The key word is “before”.
4. Exercise caution instead of trying to be ‘smart’
Rama says he is not a smart person but a very cautious one. But being very cautious in investing is being smart.
A large part of successful investing lies not in making a profit but limiting risk.
According to a Chinese proverb, a vessel or a ship can be navigated safely for 10,000+ years if its captain is cautious or conservative.
Think about it.
Rama bought Ipoh Garden, his first stock, in 1981 and kept it for 20 years. His investment portfolio has lasted and remained sustainable for the long term because of his caution about investing, in contrast to most people who think they need to be aggressive or be a “high risk taker” or “very smart” about investing in stocks.
Rama is a classic practitioner of the Chinese proverb, he has been a good captain who weathered the storms of Black Monday in 1987, the Asian financial crisis in 1997 as well as the Global Financial Crisis in 2008.
5. Don’t stop learning
To many people, investing is simply the act of buying “stuff” in the hope of making money.
But to Rama, investing is a lifestyle that involves continual learning, which is evident, for he gained knowledge and met prominent people at annual general meetings.
It can safely be assumed that Rama picked up fresh ideas along the way that he used to enhance the returns on his investments.
This is crucial. What separates successful investors from the rest is the level of investment education, experience or skills they possess.
Some of the best investments with outstanding returns were bought after gaining knowledge, wisdom and insights from years of learning. Think of it as the return on your investment education.
Conclusion: How Rama’s portfolio has lasted for decades
The five investment habits Rama shared in his email are gems of wisdom that kept his portfolio profitable for decades.
With that being said, despite knowing it is possible to build a resilient portfolio without being “smart”, why don’t more people do what Rama did?
The answer lies in his purposes:
- To pay for his children’s education.
- To enjoy a good life.
- To fund his retirement.
Rama had a long-term perspective, so he would not use his children’s education fund or retirement money to play the stock market.
This also explains why he is cautious and is always learning more to become a better investor.
This article first appeared in kclau.com
Ian Tai is a financial content machine, dividend investor and author of over 450 articles on finance featured in KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’, and ‘Small Cap Asia’ in Singapore. He is a regular host and presenter of a weekly financial webinar with KCLau.com.