5 thumb rules to become a great investor

Generally savvy investors have certain traits in common which makes them a pro at handling markets in all their variety, here’s what you need to know to be a great investor:

Understanding the Risk:
Understanding risk is essential to developing an investment strategy that works and produces repeatable performance over time. As individuals, we need to be aware of the times we are irrational in our thinking about investing.
By clearly understanding the potential for loss, investors can allocate their funds among long-term, mid-term, and short-term investments.

Understanding how emotions influence investing decisions:
A good investor has a plan, which is disciplined, which does not get caught up in unnecessary assumptions. Good investors do not allow their decisions to be ruled by emotions. The field of behavioral finance gives us some good insights into the most common mistakes people make and how to avoid them.

Diversification across asset classes and industry sectors:
A well-diversified portfolio includes large-company, mid-size, and small-company stocks. Both value and growth styles are reflected, as well as domestic and foreign stocks. Generally, you will overweight large cap investments, as they tend to have lower-risks than do mid- or small-cap stocks.
Research shows quite clearly that an equal weighting between value and growth styles of investing produces better returns over a longer period than does each style alone.

Timely re-balancing your portfolio:
Once you have your diversification model set up, it is important to stay the course. There will be times when you will feel you've erred as one style (value or growth), or one asset class (large cap or small cap) outshines the other.
The temptation is to add funds to the outperforming investment, or at the very least to let your winners run and sell your losers. Rather than doing either of these, the strategy that produces the best returns is to rebalance your portfolio yearly.

The importance of staying invested:
Besides rebalancing, you'll want to stay invested.
It's difficult, if not impossible, to time the market. So whatever portion you decide to put into equities should stay unless something changes in your personal situation requiring that you have less volatility and more income

Source : Rediff