How to win in the stock market? the seven habits of successful investors

 

To make money it is not necessary to obsess spending hours and hours in the market

All investors have the same objective: to ensure that their portfolios, which they spend so much time configuring to achieve the risk-return balance they are willing to assume, make them earn money. It is not an easy task, but to achieve, it is not necessary to obsess over spending hours and hours on the market. You just need to follow these seven habits, which are those that the most successful investors profess.

The Allianz Global Investors team has been in charge of compiling these seven practices in one document. Navigating investing and wealth accumulation isn't straightforward, particularly when investors grapple with balancing risk avoidance and pursuing profitability. Seven simple habits can help you accumulate capital calmly and serenely. After all, your money should work for you, and not the other way around," say the manager's strategists.

These are the seven habits of successful investors:

 

1. "Know yourself and challenge your intentions"

As the manager's experts say, we often see the investment world in a framework, that is, we see what we want to see and we may be excluding better alternatives as a result. We tend to follow the crowd or get carried away by the feelings that drive investors, particularly between fear and greed. Without forgetting that loss aversion is just as typical: we suffer more pain when we suffer a loss than when we enjoy the same amount of gains.

The main thing is not to delude yourself with thoughts like the following in case you suffer losses: 'I will wait for the stock prices to return to where I started and then I will sell.' It is better to change your strategy, because they are not just losses on paper. If investors sell in these cases and switch to a diversified basket, losses can be "more than" recovered, says Allianz.

The main thing is to follow the premise 'Know yourself and challenge your intentions' following the outline of behavioural finance, which is an approach that "is gaining more and more popularity in equity investments."

 

2. Your investment decisions should be governed by 'conservation of purchasing power' and not 'security'

Many times, when it comes to investing, everything seems to revolve around security, which is often considered synonymous with the absence of price fluctuations. But equity markets offer little security when they seem to be riding a roller coaster. "That investors want to avoid price fluctuations is more than understandable given the circumstances.

 However, in doing so, they overlook the risk of losing purchasing power , which is even more unpleasant considering that the interest of savings is practically zero today," says the manager.

And state bonds are no longer the solution either, because the only 'security' they offer investors “knows that they are going to recover less than what they invested." Therefore, if you want to preserve capital, you should not focus on the absence of price fluctuations. In fact, Allianz states that "the minimum requirement for an investment should be 'preservation of purchasing power'", taking into account, of course, that "the biggest risk may be not taking any risk.”

 

3. The fundamental law of capital investment: Bet on risk premiums!

Allianz also states that successful investors "know that they cannot obtain risk premiums without taking risks. This is the fundamental law of capital investment," says the manager, who gives a "logical explanation: investments in assets of greater risk must be justified by the expectation that such investments will generate greater potential returns over time than alternative investments without exposure to risk, which therefore offer less opportunity.

In fact, he points out, if the history of the US equity market is taken into account, the expectations of risk premiums "have not been disappointed, although the reward for investing in US equity markets has not always been the same in all periods." ".

"History does not repeat itself, but we can learn a lot from it," say the manager's strategists, and that is what must be taken into account when investing. Because "taking greater risks in equities has historically been rewarded in the long term ," and "from the perspective of purchasing power, equities have offered greater security than fixed income."

 

4. Invest, don't speculate

"You don't have to become an expert and devote all your time tracking prices and market fluctuations to determine the optimal timing for entering and exiting investments. If your goal is to build capital over the long haul, you focus on investing rather than speculating. Speculating involves wagering on short-term price changes, whereas investing entails deploying your capital for medium to long-term growth," the manager emphasizes.

The Allianz team defends that "making money work has usually been the best method", especially because "the risk of missing out on the best days in the capital markets is extremely high." It is better that "strategy trumps tactics," he concludes.

 

5. Make a binding commitment

Investors have three options to reach this binding commitment:

a. Strategic / long-term aspects should govern the allocation to different asset classes:

Commitment means that strategy comes before tactics. "For investors it can mean deciding on a strategic allocation between equities and fixed income that suits their risk profile and using it to weather turbulence in the capital markets."

Strategic allocation is easily applied with balanced portfolios (i.e. portfolios composed of stocks and bonds) and multi-asset strategies with their even broader investment spectrum. If actively managed, portfolio managers can make tactical adjustments without investors having to worry about them. "A strategic allocation that answers the question 'What do I want to achieve with my capital in the long term?' protects against sudden adjustments that can be expensive," says Allianz.

 

b. The general rule to follow is to never put all your eggs in one basket, so you have to diversify:

"There is little point in trying to find the right investment every time and continually making changes to the portfolio. We believe that money should be invested broadly, combining equities with fixed income, and perhaps other segments as well. The 'multi-asset' ' makes it possible, says the manager.

 

c. Invest regularly:

As these experts explain, it is about "saving in savings", that is, following the same thing that applies to savings plans. "Risk premiums can only be earned by taking risks. Although the specific return cannot be guaranteed, three effects can be cleverly combined with each other":

-The diversification effect: Investing regularly in portfolios allows you to diversify in an entire basket of stocks and/or bonds. Savings can also be allocated to numerous multi-active strategies.

-The average cost effect: The fact of regularly contributing the same amount to a savings plan causes shares to be purchased at different prices, since they fluctuate depending on the evolution of the capital markets. In practice, this means that if you always pay the same amount, you buy fewer units at high prices and more at low prices.

-The effect of compound interest: If you save for longer periods, you can benefit from the effect of compound interest simply by reinvesting distributions.

 

6. Don't leave for tomorrow what you can do today

"Despite the crucial role of investment horizon and compound interest in achieving investment success, billions of euros remain dormant in savings accounts and bank deposits. Don't delay actions that align with your goals; start today if you have clarity on your objectives."

 

7. Bet on active management

According to Allianz, those who opt for active management not only expect that experts will provide them with additional returns, but also expose themselves to a "lower risk of the dead weight of former equity market darlings crowding their portfolios." After all, he explains, "passive management only maps yesterday's world."

The management's experts highlight that "when certain sectors were in fashion, their participation in the corresponding indices grew as the market capitalization of the corresponding stocks increased. If this trend continues, some sectors may end up representing a large part of a passively managed portfolio just when we least want it," they say. In his opinion, "it is better to counterattack."