Ten habits of successful executive investors

Every entrepreneurs hope to turn a profit every year and therefore try to invest their money wisely hoping to double and triple their initial investment... My good friend Benoit Poliquin, VP & Portefolio Manager of Pallas Athena Investment Counsel wrote an excellent article regarding this topic, I would like to share it with you:

Ten habits of successful executive investors

Unless you're returning from a holiday on Mars, you have surely heard by now that the financial markets have had significant pullback over the winter months.

How bad has it been? For those of you with investments in stocks, you know the answer – severe. The S&P 500 was down over 20 per cent from peak (in October 2007) to trough (in March of this year), while the S&P/TSX Composite Index was down 18 per cent from its peak (in November 2007) to its recent bottom (reached in January).

Even worse – or better – is that the markets have bounced back since then. The S&P 500 in the U.S. is up 11 per cent from its bottom, while the S&P/TSX Composite Index here in Canada is up 16 per cent from the January trough. This kind of volatility is, if nothing else, enough to pull your hair out.

It is during turbulent times like these that your success in investing will be determined. So what is an executive to do? After working for many years managing investments on behalf of executives, I have observed 10 habits that have greatly influenced their investment success.

1) What's the game plan?
As an executive, surely you have an up-to-date business plan. Well then, why shouldn't you have an investment plan? We can refer to your plan as your decision-making framework.

2) Establish and review your goals
You have a set of business goals, and if you don't, you should. Your investments should be considered an extension of your business, and so you should set rational and measurable goals.

3) Be honest with yourself
Can you live with the volatility? Does your mood follow the markets? You must avoid making emotional decisions, which usually entail a version of selling low after buying high.

4) Stop thinking like an executive
No matter how much coaching, mind space or pressure you have devoted to your investments, once the purchase is made, you have lost a great deal of control over the outcome.

5) Stay calm but be decisive
There will be investment mistakes. How you deal with these mistakes has a significant impact on your success. Storms always pass; you must use them to your advantage.

6) Do your homework
You need to understand what you are investing in. If you can't devote the time, or don't have the knowledge to do it properly, find someone who will. Investing on "gut" instinct doesn't work!

7) Quality always wins
An investment in stocks is in fact a partial ownership of a company. Make sure your investment demonstrates the quality you strive for in your own business. Consider the management, core competencies, competition and customers of the company you are considering.

8) Cash is king (or queen)
Avoid investments funded by borrowings. Losing your own money is one thing. Losing somebody else's is extremely harmful to your financial health.

9) Where's the income?
As an executive, you know that cash flow and net income are the lifelines of your business. Why should it be any different for your investments? Net income is great insurance in turbulent times.

10) Pay the tax
If you have taxes to pay on your investments, it means you have been successful. However, it doesn't follow that you should not look for ways to minimize your tax bill. Simply do not let tax questions drive your investment decision process.
The secret to turning volatile markets into fertile markets is to adopt these 10 habits. Volatile markets are a great time to "upgrade" your portfolio, as everything is on sale. As Warren Buffett once said: "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."