The 7 Habits of Highly Effective Investors

by Carl Delfeld

Learning of the passing of Stephen Covey this week, I dug out and re-read my dog-eared copy of his influential book, The Seven Habits of Highly Effective People. This book was a bestseller for five consecutive years and spawned a company with revenue that reached $160 million last year.

Covey shrewdly leveraged this book into a golden speaking, consulting and publishing business that, in 1997, merged with Franklin Quest to form Franklin Covey. I think part of this self-help book’s wide influence was its crossover appeal to business executives hungry for simple and powerful strategies.

Some of the book’s habits can be applied to investing, and since the book’s first habit was to “be proactive,” I thought I would share with you my own 7 Habits of Highly Effective Investors.

1. Take Responsibility

The first step is to take responsibility for your investments. Don’t blame others or bad luck for your poor decisions. This is the starting point for all great investors. Do your homework and learn from your mistakes.

2. Put Time on Your Side

Forget about get-rich-quick schemes and realize that improvements in your financial situation will take some time and require discipline and patience. Put the power of compounding behind your portfolio and reap the rewards.

3. To Get Ahead, Get Organized

Before you even think of building an investment portfolio, you should set aside about six month of income in a "rainy day" account. This could be put into a money market fund or high-quality corporate bonds. Having this money set aside will ease your mind and allow you to be more open and patient with your stock portfolios. It also allows you the chance to pounce on dirt-cheap stocks in a time of crisis.

Then, separate your investment capital into two portfolios. The first is your core portfolio. Your top priority here is capital preservation, and this portfolio should be very diversified and conservative. The second portfolio is your growth and exploration portfolio. This portfolio has capital growth as its top priority with higher risk and volatility, the price for the potential for high returns.

4. Think Global to Capture Growth

You need to search worldwide for the most promising companies. Why limit yourself to U.S. stocks when you can find great companies anywhere. For your growth and exploration portfolio, be open to investing in emerging and frontier markets.

5. Be Careful Where You Invest

You need some guidelines to help keep you from getting carried away and having too concentrated a position in a particular country or region.

Take a good look at the following: 1) political stability and a level playing field plus low corporate risk, and 2) a transparent legal system: respect for contracts, low levels of corruption, due process and rule of law.

Investing in a country with double-digit growth, but that’s short on the above traits, may work for a while, but will always end badly.

6. Look for a Combination of Quality and Value

Keep in mind that the quality of the companies and countries you choose to invest in is critical, but overreaching when valuations are high is always hazardous. The price of a stock you’re considering is extremely important. Oftentimes the best time to buy into a company or stock market is when it’s beaten down but only if you see quality and catalysts pointing to a sharp recovery.

“The job of an investment company is to decide to invest in the right thing

in the right place at the right time. But the right thing is the least important. If you picked the very best share in St. Petersburg in 1917 you could be the greatest genius in the world and still go bust… You have to be able to see the swings in the market.”

— Sir James Goldsmith

7.   Manage Risk and Review Performance

We have all been there. You buy a stock or fund and it appreciates in value rapidly. Then it stumbles and begins to decline. Should you buy more, let it ride, or sell to protect your gains?

Save yourself a lot of pain by following a simple rule. If a position ever falls more than 20%, sell it automatically and reassess the situation. And just like your annual physical, it is wise to review your portfolio annually to make sure you’re on track to meet your financial goals.

Good Investing,


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Following a Highly Successful Investor

It doesn’t just pay to follow the habits of a highly successful investor. In many cases, it also pays to follow the money of highly successful investors.

And there aren’t many investors more successful than Carlos Slim, the world’s richest man.

Carl recently alerted Oxford Club members to a recent development regarding Slim’s American Movil (NYSE: AMX).

Slim, who’s no stranger to currency crises (the 1990s Peso crisis was a catalyst to his vast fortune), sees opportunity in Europe right now. But Carl doesn’t recommend American Movil or even Royal KPN (AMS: KPN) – the company Slim has recently doubled-down on in Europe.

Carl feels the play with the most upside is Slim’s largest rival in Latin America – the beaten-down Spanish telecom Telefonica (NYSE: TEF).

Here’s what he’s thinking:

“Slim’s flagship investment vehicle, America Movil, recently offered to quadruple its stake in the Dutch phone monopoly Royal KPN NV, from nearly 5% to 28%...

“America Movil’s investors didn’t like the move, viewing KPN as an entry into a highly regulated, low-growth marketplace. America Movil’s stock plunged nearly 10% in one day.

“But I see the KPN deal differently.

“It’s a smart move that doesn’t commit the company to any one particular action, but rather keeps its options open. If the Eurozone does unravel, there’s no telling what manner of regulations could be swept aside in the aftermath of a major financial crisis…

“The doubling down on KPN is also a neat strategic countermove against Spain’s Telefonica, which just happens to be America Movil’s chief rival in Latin America…

“Telefonica is struggling with a huge debt load. The company cut its dividend and workforce late last year. As bad as European stocks are right now, Telefonica’s shares have done even worse – underperforming the broader sector by a staggering 40%.

“Now Telefonica wants to spin off its German division, and even unload some of its Latin American assets. You can bet Carlos Slim will be interested in those.

“If you wanted to be aggressive here, you could buy a small stake in Telefonica ahead of a future Slim acquisition.

“Yes, Telefonica’s huge debt load and the uncertainties created by Spain and the Eurozone’s worries could give one pause.

“But Telefonica shares are cheap, the company has nearly $9 billion in cash and it has strong cash flow. Besides, Latin America – not Europe – is the key to Telefonica’s business empire. About 50% of its profits and 60% of its revenue come from that region. It’s definitively a high-risk/high-reward situation, so I recommend a 15% trailing stop.”

For more risk-sensitive investors though, Carl thinks American Movil will be a solid conservative play as Slim expands his company’s tentacles into Europe.

– Justin Dove with Carl Delfeld

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