What Investors Can Learn From Atomic Habits


in Memos & Musings · 6 min read

What is the book about?

“Atomic Habits” by James Clear is a book that provides a guide to building good habits and breaking bad ones. The book emphasizes the importance of small actions and consistency in achieving long-term success. It suggests that habits are not just about setting goals, but also about creating sustainable systems that support your habits.

The book outlines practical strategies, such as the “two-minute rule,” temptation bundling, and the four laws of behavior change, to help readers build and maintain good habits. Clear also explains the role of identity in habit formation and provides a framework for integrating habits into your daily life.

Overall, “Atomic Habits” is a practical and inspiring guide to help readers achieve lasting success and personal growth by harnessing the power of habits.

Here are some takeaways and possible learning points:

Takeaway #1

The power of tiny gains: Habits are formed by small actions repeated consistently over time. Even small improvements can compound over time and lead to significant progress.

The power of tiny gains refers to the idea that small, incremental improvements in your habits, routines, and actions can lead to significant progress and transformation over time. Small gains are surely easy to achieve because they don’t require a lot of time or effort on our end. They are manageable and don’t feel overwhelming, so you’re more likely to stick with them. 

As we start making small gains, we also start building momentum. Overtime, the progress we make motivates us to keep going, and helps to develop a sense of confidence and self-efficacy. Each small improvement often builds on the previous one, and the progress we make becomes exponential.


Takeaway #2

Focus on systems, not goals: Goals are important, but they can be limiting. Habits are about the process of achieving your goals, not just the end result. By focusing on systems that support your habits, you can create a sustainable path to success.

Instead of focusing solely on the goal like most of us do, we should actually focus on the system that will help you to achieve it. Take the time to create a system of habits and routines that support our goals. This could involve identifying the specific actions we need to take to achieve our goal, and breaking them down into small, manageable steps.

Be laser sharp and stay focused on the process of achieving your goal, and the habits and routines that support it. Plan out the daily actions that will help us to get there.

From time to time, do also measure your progress by tracking your habits and routines, rather than just tracking your progress toward the goal. This will help you see how your actions are leading you toward your desired outcome.

Lastly, we are always a work in progress. Seek to continuously improve our system of habits and routines to make it more effective. Experiment with different strategies and track our progress to see what works best for us.


Takeaway #3

Make habits easy: It’s easier to stick to a habit if it’s convenient and simple to do. Remove barriers to your habits and make them easy to perform.

Set a small, achievable goal for yourself such as doing the habit for just a few minutes a day. This helps you build momentum and creates a sense of progress. Create a specific routine for doing the habit, and make it easy to follow. This could involve setting aside a specific time and place to do the habit, or using a cue to remind you to do it. It is not the will to achieve your goal that matters, but the will to prepare in order to achieve your goal that matters.

Look out for any distractions that might prevent you from doing the habit, and eliminate them. This could involve setting up your environment to make the habit more accessible, or removing any distractions that might interfere with your focus.

Finally, learn to celebrate any small successes and reward yourself for making progress. This helps reinforce your new habit and makes it more enjoyable.


Takeaway #4

Use temptation bundling: Pair a habit you want to build with something you enjoy. This makes the habit more enjoyable and easier to stick to.

Temptation bundling is a strategy that involves pairing a habit that you want to adopt with something that you enjoy. This makes the habit more enjoyable and easier to stick to.

Choose an activity that you find enjoyable, such as listening to music, or eating a favorite snack.

Next, identify a habit that you want to adopt, such as going for a run, doing a workout, or reading a book. Now, pair the enjoyable activity with the habit you want to adopt. For example, you can only listen to your favorite music while doing a workout.

By using temptation bundling, you can make habits more enjoyable and easier to stick to. It’s an effective strategy for creating lasting change and achieving personal growth. Basically it means helping you to do whatever you attempt to do to become less boring or painful. 

Personally I do not really use this method as it involves extrinsic motivation that is driven by external factors. But nonetheless it may work for some of us too.

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Takeaway #5

Make habits a part of your identity: To create lasting change, you need to adopt habits that align with the person you want to become. Make your habits a part of your identity and focus on building a new identity through your habits.

Identify the qualities you want to develop and break them down into habits that align with those qualities. For example, if you want to be more productive, you may need to adopt habits such as planning your day, prioritizing your tasks, and eliminating distractions. To adopt new habits, start with small, manageable actions that you can easily integrate into your daily routine. This will help you build momentum and create a sense of progress.

Stay consistent for habit formation. Set specific goals and make a commitment to stick to them.

Make your habits visible by writing them down, tracking your progress, or using visual reminders. This will help you stay accountable and reinforce your commitment to your new habits.

In summary, we also have some actionable advice that we believe investors may benefit from:

Have the end in mind

Let’s say that we decide that we want to do well as an investor. Our goal is to be a successful investor but we must learn to build systems that allow us to achieve such an end goal. So then we reverse engineer and ask ourselves, what are some of the things that make these investors successful?

Model after successful investors

One of such things that we can quite safely say is that most successful investors read and learn a lot. Reading voraciously to them is the fastest way to learn from the greats that have been there and done that. It helps to shorten our learning curve rather than trying to figure it out ourselves for most things. Of course in today’s day and age, reading can equally be in the form of watching videos or listening to podcasts but you get the idea. 

So the next step is to create a system that builds up your knowledge and know-how. Of course when we are new to investing, there are many things that we do not know. In fact there are many things that we do not know that we do not know. A good way is to first go to the library and go to the finance section and start picking up books that speak to you for now. 

When I started on this journey at 19 years old, I can safely say that 90% of the books are all Greek to me. And it is so overwhelming that I don’t even know where to start. Nonetheless I did my best to sift out the easiest books out there that I could get started on. As I religiously continue my journey, the next book I read just became a little easier to understand, because I had some prior knowledge from books that covered the basics. I was also able to digest them faster and faster as after you read enough of a certain topic, you more or less know what should be taken note of. It was these small achievable steps that I took in my early years that created the momentum for me to continue reading even in my late thirties today. Thankfully back then there were fewer distractions without Netflix and all. Neither do I have to do temptation bundling because luckily I enjoyed reading them. But I guess what got me going was that I knew I had to figure out how to be able to invest well at some point in my life so that I do not have to be stuck in the rat race for decades after I finish my university education. Perhaps I may even say that a better way is to ask yourself why are you even on this journey as opposed to trying to trick your own brain with temptation bundling. Once you know your “why”, many things are irrelevant.

Another thing that you can look at is how to master the skill sets that will allow you to have an edge over the markets. Even if it’s just a slight edge, it can mean a lot over the long run. Just like how the house makes good profits over time by just adding the green zero in the Roulette game. I was fascinated by how professional gamblers can tilt the odds in their favor over the house by techniques such as card counting. I wonder if the same could be applied in the financial markets. To my delight, after studying the successful investors for decades, they are where they are today because they have a certain edge in the markets that most investors overlook. So bit by bit, I dipped my toes into the areas of value investing, moneyball investing, fundamental analysis, technical analysis, options analysis and stock market manipulation. I realized that each school of thought was good on its own most of the time, but by combining all of them together it was even better because you understand what different market participants are looking out for and what are their motivations which will eventually drive the behaviors.

Acquire compoundable knowledge

Warren Buffett once said that knowledge works like compound interest. Compounding does not just work in finance but as well as in the area of knowledge acquisition and learning. I cannot agree with this more. However, if there is any advice that I may give, it is to spend more of your time and energy on knowledge and developing mental models that still matter 10-20 years from now. 

Most retail investors may have spent too much time consuming information that has a very short half-life. Time sensitive news or news that focuses on the daily or weekly gyrations of the market are knowledge that decays quickly and is of little value weeks later. Some of such contents will have headlines such as “best 5 stocks to buy right now”, “10 things you must know now” or “could the price of xxx go up/down?” You must be able to decipher what kind of content to consume so that your limited time is spent on those that give compounding effects. 

Instead, focus on knowledge that expires slowly and timeless concepts are the way to really compound your knowledge. Built on this belief, that is also the reason why our YouTube channel at The Joyful Investors choose to primarily focus on timely principles that will really help investors over the long term. 

Lastly I would just like to end by saying that it doesn’t matter how slow it may be, as long as you do not procrastinate and make a concerted effort to have meaningful progress over time. Do things that your future self will thank you today.

Joyful Reviews is a series by The Joyful Investors where we will be sharing our thoughts and insights on books or films that focus on personal development and investing knowledge to help everyone become a more confident and thoughtful investor. We believe that continuous education and self-improvement are key to success in any area of life, and especially in the world of investing.

About Kathy

Co-Founder of The Joyful Investors and Manager of The Moneyball Portfolio. I graduated with a degree in Economics in National University of Singapore (NUS). My previous experience with traders at the Merrill Lynch enable me to realize many counter-intuitive truths about how the financial markets work and to uncover the challenges faced by many new investors. We believe that investing can be astoundingly simple and want to make financial education understandable for everyone.

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