7 Habits of Highly Profitable Investors

You’re in the right place if you want to learn how to be a good investor; this detailed guide contains habits that will set you up for success.

Many people like the “baby steps” analogy. They even encourage people who want to jump a process with quotes like “a child first starts trying to roll by themselves, then they learn how to crawl, then they start to walk before they can begin to run.” Well, if this is true for babies, then it is true for investments too.

Building wealth takes time and like Rome, the most successful investors were not built in a day. It is important to deeply understand the financial world, as well as your risk appetite and then combine both to get the best outcomes for your investment journey.

In this article, you’ll learn the 7 habits of highly profitable investors. What mindset do they have? How do they spend their time? Most importantly, how do they multiply their money using investments? 

Let’s begin with the most important habit

1. Be in it for the long term

Nobody buys a farm based on whether they think it’s going to rain next year – they buy it because they think it’s a good investment over 10 to 20 years.

— Warren Buffet

You want to see your investments like an oak tree. According to Urnabios.com, “the Oak tree is one of the most loved trees in the world, and with good reason. It’s a symbol of strength, morale, resistance and knowledge. It grows slowly, but surely at its own rate.” 

Oaks last for up to 300 years and even other trees know that the Oak is not their mate (cue those trees in your compound that dance when there’s heavy rain and thunder). It is “often associated with honour, nobility, and wisdom thanks to its size and longevity”.

Profitable investors know that investments that run on autopilot (i.e. make you money without too much thought or effort) are those you allow to grow – not for weeks but for years.

We once had a displeased Cowrywise user share how they started investing in November 2020 and stopped in April 2021 because their numbers were not “growing” as they wished. To be clear, it wasn’t that they had not started to earn returns, it was that they wanted much more – in just 5 months! Ponzi schemes are well-known for making people believe that “money grows like grass” but it doesn’t.

Ask Warren Buffet

He built his investment portfolio for more than 40 years and has become extremely successful at it. Many people want to become like Warren Buffet, but do they really? 

In life, we don’t really have people who become “suddenly successful”. Instead, we have people who painstakingly build for many years (sometimes silently) and then they come into the limelight because they’ve become so good they can no longer hide.

How did Warren Buffet build his wealth?

Currently, at 92, he has a net worth of 99.1 billion USD, which is about Seventy-Three Trillion, Six Hundred and Thirty-One Billion, Three Hundred Million Naira (N73,631,300,000,000) – this is Google’s rate, not bank rate.

According to this CNBC article, “Buffett has spent his life fine-tuning his conservative approach to investing that favours long-term value over short-term gains.” This article details how Buffett bought his first stock at 11 years old. (I was rolling tyres and playing suwe at that age.)

He bought three shares of the oil company, Cities Service (which concentrates on public utilities like natural gas, and electricity) at about $38 per share and then quickly sold them at $40 each with a profit of $2 per share. “But he learned an important lesson about patience when the price later shot up to $200 per share. Now, Buffett’s advice to investors is “don’t watch the market closely.” Else, you’d make emotional investing decisions.

From childhood hustles to investment guru

He had many childhood hustles and sold different things legitimately till he made about $2,000 at just 15. He then invested $1,200 in a 40-acre farm. Remember what we say about saving to invest, not saving to spend. Well, Warren Buffett is a great example!

As a young adult, he had already spent years learning about investments so he started his own investment company, called Buffett Partnership but that’s not what he does today.

In 1962, at the age of 32, he invested in Berkshire Hathaway (a new textile manufacturing company) and in one year, he became the company’s largest shareholder. After three years, he took control of the company and became the President and Chairman. 

In essence, he did not “blow” by founding his own company, but by buying one and growing it into a formidable investment company. He must have done his research before investing in assets he knew were sure to grow over the years.

You too can invest in assets like mutual funds that have grown exponentially in the past 10 years. It is crucial to look at the growth of an investment when choosing your long-term options.

In 1983, Berkshire Hathaway’s stock became $ 1,000 per share and in 2006, it had grown to a whopping $100,000 per share. 

Even though his net worth hit billionaire status in 1985 (36 years ago), he has grown that into about $100 billion today. Talk about someone who truly takes advantage of compound interests!

So when next you see a really “rich” person and tell them “cut soap for me”, remember the price of patience they’ve paid to be where they are.

2. Invest in what you understand, while you seek knowledge about investments you don’t understand

Do not allow peer pressure to push you into debt because that’s what will happen if you begin to “invest” in things you have little to no knowledge about. 

While speaking with a friend about why he hadn’t gotten the Covid-19 vaccine in Nigeria, he explained that he didn’t know enough about it yet. It wasn’t that he was scared of side effects (he had people in his circle who had gotten theirs), he was just honest enough to know that he had not done enough due diligence to get it.

There are two lessons here though. One is that you should not invest in what you do not have a considerable understanding of and the other is that you should also not be lazy. 

“I don’t know enough to invest” might just be you being lazy to ask the right people the right questions and taking the time to read a little more. 

You will feel FOMO (fear of missing out) about many investment opportunities, but be comfortable with investing in what you understand, while you seek knowledge about investments you don’t understand.

In essence, take your time, but don’t take your time too much if you want to begin early like Warren Buffet.

Let me take you through a few questions on mutual funds.

For example, a mutual fund can invest your money in a basket of stocks.

Before investing with a mutual fund, pay attention to what the fund invests in.

These returns come in two forms: interest rates and capital gains.

With interest rates, if the annual rate is 10%, for instance, you’ll earn a daily breakdown of that on each unit you own. This can then be distributed on a quarterly, bi-annual or annual basis. This applies majorly to mutual funds that invest in money market instruments like treasury bills. Such funds are generally low-risk.

On the other hand, capital gains happen with changes in unit prices. For example, if you buy a unit at ₦1,000 and it changes to ₦1,100 within a year, it has gained 10%. This applies more to funds that invest in bonds and stocks. They are categorised as medium and high-risk funds.

In essence, they are legitimate investment channels. However, they are categorized according to the instruments they invest in. Examples of these instruments are treasury bills, stocks and bonds.

3. Build a Diversified Portfolio 

When investing, do not put all your eggs in one basket. 

Investors usually fall under conservative (low-risk – do not want to lose any money), moderate (mid-level risk – do not mind losing a little and earning returns) or aggressive (high-risk – do not mind losing all but can wait the reds out till they become green).

On Cowrywise, we present you with investment options but also show you the option to take a risk assessment if you’re not sure what to pick or where to start. The results from your assessment then place you under one of these three categories. However, do not be tempted to invest only in a type of asset based on your investment appetite. 

What you want to do over time is invest in different types of assets with different types of risk levels. This will make you into an investor who not only knows how to maximize market returns but also knows how to weather the storm when some assets take a dip.

How can you practically do this?

By spreading your investments under conservative, moderate and aggressive investment plans on Cowrywise.

Also, you can divide your investments into a ratio that works for you, e.g. 50% high risk, 30% medium risk and 20% low risk. Finally (for this point), diversify into assets that are easy to liquidate (can easily be turned into cash) as well as assets that are not so easy to liquidate (take a while to be turned into cash). 

But oh, I can’t let this slip. Diversify your currency as well! ?

4. Have a plan and timeframe you’re working towards

Creating a financial plan will provide you with the foundation for your investment success. It takes away wishful thinking and allows you to take stock of your circumstances, define your objectives and then take practical steps to achieve your goals.

Financial planning is not for only “experts” but for anyone who wants to be clear about why they’re doing what they’re doing. Imagine setting money aside every week or month to save and invest – without an actual idea of why you’re doing that.

At what age do you want to retire? Will you have kids? What kind of life/school do you want to give them? Will you like to get to a stage where the returns from your investments are earning you returns?  (At this stage, your investments and compound interests are on autopilot.)

In essence, making a sound financial plan will save you from “eyi je eyi o je” (meeny, meeny, mani, moe) behaviour. It’ll also save you from FOMO as you’ll have clarity on what you want and how to get it.

Note: We have an investment tool, as well as an education trust fund tool that are compound interest rate calculators. They’ll give you an idea of how much you’ll earn in interest when you save a certain amount every month towards retirement or a University education in Nigeria. 

5. Earn more to save more to invest more

If you currently earn N100,000 monthly and save say 20% of that for investments, it means you’re investing N240,000 per year. 

But if you begin to earn double of that per month and stick to investing at least 20%, you’ll be investing at least N480,000 per year. It changes things when you begin to see numbers holistically like this. It changes your mindset from “I’m just investing this small thing per month” to “I’m not doing bad at all in 365 days.”

Then imagine what returns are possible in 3,650 days (10 years)! 

Therefore, no matter how “blown” you already are, you should be seeking ways to earn more and have more streams of income legitimately, as this will ultimately affect your investments.

6. Be happy with little cash 

Profitable investors understand that having little cash does not mean that they are poor. Instead, most of their money (that would otherwise have been cash in hand) is working to earn returns.

I remember a former colleague who almost immediately begins to send funds to her investment portfolios once it’s payday. When done, she’ll show you her “balance” and lament about how she’s broke but I knew that was not exactly true.

She was keeping enough cash for expenses and making the rest work for her. I mean, why must I be the only one working hard? Let my money work too. Lol.

7. Stay humble and knowledgeable

Remember the “ITKs” in primary school? Always shouting “Aunty, I, Aunty, I”. Lol! 

There’s a reason we all beefed them. It wasn’t that they did not actually have the answers, it was because they were not humble enough to stay quiet sometimes. 

This investment journey requires you to be both humble and knowledgeable, you can’t leave one for the other. As you begin to know more, remain humble because you still don’t know it all. Be willing to hear people out and learn from other investors. 

The bottom line

If you’ve been trying to figure out how to be a good investor, then this must have been helpful.

Investing can look complicated, but most of the habits of highly profitable investors are actually simple. 

If you’re in it for the long haul, understand the benefits of compound interests, have a financial plan and stick to it, build a diversified portfolio, can be happy with little cash while the rest of your money works for you; then you’ll definitely become a profitable investor too. 

Years down the road, you’ll be thankful that you stayed the course.

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meeny, meeny, mani, moe – guesswork that happens due to lack of proper/detailed information.

ITKs – “I too know” refers to people who always have an answer, even when it can be wrong sometimes.

Suwe – A game called hopscotch that kids play with friends.

Beefed – disliked.

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Do you have investor friends who should read this? Then, be a great friend and share with them!

Also, if there are other habits you think are vital, feel free to share them in the comments. You never know who will need it.

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