7 Habits of Highly Effective Investors

7 Habits of Highly Effective Investors October 4, 2010

I really enjoyed reading through the 7 Habits of Highly Effective People by Steven R. Covey.  In his book, Covey shares seven habits that shape our character and help us move from dependence to independence and then interdependence.  The underlying principles that Covey shares can impact us as investors whether we’re starting a business, buying shares of stock, or even buying or merging a business.

Here’s my own Faith and Finance twist to the same 7 habits that Covey shares:

1. Be Proactive – Read, read, read.  Financial literacy is key for anyone wanting to grow as an investor.  You need to be familiar with the current economic and financial affairs as well as historical decisions that have shaped our economy.  Start by investing in the following books and you’ll be surprised how much you learn:

“The Intelligent Investor” (1949) Benjamin Graham

“Security Analysis” (1934) Benjamin Graham

“One Up On Wall Street” “Beating The Street” “Learn to Earn” Peter Lynch

“The Essays Of Warren Buffett: Lessons for Corporate America” (2001) Warren Buffett and Lawrence Cunningham.

“Common Stocks And Uncommon Profits” (1958) Philip Fisher

2. Begin With The End In Mind – Before making a decision to open your business, invest in real estate, or even buy a simple share of stock, you should know what your goals are in terms of ending your business or investment.  For small business owners, not knowing how to phase out of the business or sell the business can leave the business owner feeling trapped and unprepared when it’s time to move on.  As for investors of real estate and stocks, you need to determine whether you are in the game of holding the investment for a short period of time or for the long run.  No matter what, you need to begin with the end in mind because if you don’t, you’ll make decisions that may go against your original intent.

3.  Put First Things First: Keeping a balanced life is important especially for the investors and entrepreneurs of the world.  You need to identify your priorities – your faith – family – church – job – community – and then remind yourself of it over and over again.  Everyone’s priorities look different, and we’re not here to tell you how it should be, but you need to make sure your top priorities are the things that really matter in life.

As for your investments, I like how Warren Buffet prioritizes his:  He invests in what he knows, and he doesn’t invest in the things he doesn’t know.  Simple.  Instead of spending his time trying to learn everything there is about technology, he puts his time and effort towards the areas he knows and makes money doing just that.

4.  Think Win/Win – It goes without saying that business should be done with the highest standards of integrity.  Proverbs 20:23 says, “The LORD detests differing weights, and dishonest scales do not please him.”  We’re not saying that you should give away your products at a loss or pay a premium for products just so the other party benefits.  That’s the beauty of a free market – both parties benefit when they agree to a price.  Using dishonest tactics or misleading approaches does not create a Win/Win situation.

5.   Seek First to Understand Then to Be Understood – Covey presented this as the most important of the habits for interpersonal relations.  In business, we can’t afford to leave this principle out of the equation.  If we ignore this habit, expect your business relationship to dissolve and your reputation to tarnish.  No one enjoys working with a ‘know it all’ and this habit will keep us from becoming ‘that guy.’

6.  Synergize – Let’s face it – we can’t know everything.  Surrounding yourself with smart people can be one of the smartest things you do as an investor.  By leveraging the skills and knowledge of those around you, you can ‘expand the pie’ and give everyone a larger piece.  It’s a beautiful thing.

7. Sharpen the Saw Take time to reflect on mistakes and successful investments and improve for the next time.  Go back and review each of the habits regularly and practice them.  You’ll grow your business and your character.

What are some ways that we can improve in these seven habits – add your suggestions in the comments below!

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