Simple habits, not a hot
stock tip, will lead
to success

WARREN Buffet, possibly the most well-known individual investor around, says that successful investing boils down to two simple rules. Rule No. 1 is Don't Lose Money. And Rule No. 2? Don't Forget Rule No. 1.

Of course, if it were really that simple for everyone, we'd all be rich. Still, investing doesn't have to be that complicated. In fact, most successful investors observe just a few "habits." Here are some of the most common ones:

» Stay in the market. The financial markets will always move up and down -- but the best investors never get "scared off." They stay invested, and, over the long term, they're often rewarded. They know that some of the biggest gains come at the beginning of market rallies -- so they can't afford to be on the sidelines.

» Invest with your head -- not your heart. The truly great investors do not "fall in love" with investments, nor do they refuse to admit mistakes. They're willing to cut losses, if need be, but they also have the discipline to stay the course when the going gets tough. Ultimately, they make decisions based on solid information -- and always with an eye toward the future.

» Forget about the "hot" stock tips. Human beings have always been fascinated by myths. And in the investment world, one of the most popular myths is that of the "hot stock tip." After all, we reason, at some point, someone got in on the "ground floor" of Microsoft. So, isn't it possible that the stock tip you got from your neighbor (or from the Internet, the investment newsletter or any other source) will lead to the Next Big Thing? It is possible -- but it's extremely unlikely. The best investors didn't "strike it rich" on one stock -- they accumulated wealth slowly, over time, by finding high-quality stocks sold at reasonable prices.

» Don't "grade" investments too often. It's important to choose the right time frame in which to evaluate your holdings. Professional investors and analysts may check up on their investments every single day. But most of us don't have to do that -- and we shouldn't. If you're constantly evaluating the performance of your investments, you will drive yourself crazy worrying about market fluctuations. Furthermore, your zealous investment reviews may well lead you into making bad, reactive decisions. If you've constructed a solid, diversified portfolio, you don't need to get overly concerned over what may be a short-term setbacks. Evaluate your holdings no more than once a quarter -- and once a year may even be better.

» Don't deceive yourself. When you do review your holdings, look at them all together. Even if most are doing well you can't be complacent. It only takes one or two losers to drag down your whole portfolio. If these laggards are only down temporarily, it might not be a problem, but if they persistently struggle, consider selling because you may be able to find better ways to use your investment dollars.

Even if you follow these guidelines, you may never become the next Warren Buffet. But you will be cultivating some solid investment habits that should serve you well.