The Craft Of Investing & Book Giveaway!
Imagine for a moment you owned stock in a very good business… but the stock just did nothing for years. It lagged behind your other investments. Let’s say those shares under-performed the S&P 500 by 2% annually. Would you sell? How long could that investment under-perform before you finally gave-up and decided to sell it?
This is one of the most important investing questions that every investor needs to answer for themselves — How do you know when to buy or sell an investment? Do you have a investing strategy to help make those decisions?
Re-balance, Find Value, Or Never Selling?
Knowing when to buy, hold, or sell investments are the decisions traditionally directed to investing strategy. If you’ve read all the “classic” investing books, your probably well acquainted with the three major schools of thought on the topic: Regularly re-balancing your investment holdings, investing in undervalued assets, or buying growing assets and then “never selling”.
Rebalancers tend not to worry about individual investment performance, but instead fuss about maintaining set percentage ratios in their favorite investing categories — i.e. 30% in tech, 30% in real estate, 30% in financials and 10% in bonds.
If a given investment declines (say for example, a technology fund), the investor will rebalance his or her portfolio every year to maintain a “balanced” percentage in his or her portfolio. This regular rebalancing means the investor is moving capital from a higher-performing investment into a under-performing investment. In some situations this could be a smart move — investing more money when the prices of cyclical stocks are down (for example). Or, this could mean the investor is throwing good money into a bad investment if they rebalance at the wrong time and then the category declines even further.
Value investing is the direct opposite of the “rebalancing” school of investing. Instead of adjusting assets in direct response to market movements, value investors try to distance themselves from the wild machinations of Mr. Market as much as possible. Instead, they choose to pay close attention to the accounting value of an asset, as well as numerical calculations like discounted cash flow (estimating the discounted sum of current and future cash flows).
It’s all about buying dollars when those dollars are selling at 50 cents apiece!
The third major school of investing is the Buy-and-hold forever category of investor. These investors tend to subscribe to the Phil Fischer school of investing, wherein the investor buys a high-quality growing asset and then holds it forever (or at least until that asset ceases to be a “quality growing asset”).
Warren Buffet epitomizes this strategy as a very successful buy and hold investor. He might have started-out as a hardcore value investor, but these days he’s moved-on to buying higher quality assets at much higher prices. For example, Buffet purchased shares of Coca-Cola way back in 1988 for a PE of 16 times 1988 earnings. That wasn’t a terribly cheap price, but obviously the investment worked out extremely well for Buffet (with a multi-thousand percent gain)! He still holds those shares today — 31 years later.
One of the major problems with this “never sell” strategy is that the market can disagree with you for extended periods of time. You might go to your grave “waiting” for the market to finally value your assets correctly. Other times, investors can over-estimate the quality of a business and get badly bitten when the market realizes it’s actually a poor-quality business (Enron anyone?)
So which investing strategy is the right one?
That’s entirely up to you! This is the craft of investing. All of these strategies have had proven successful track records at some point in the past, but I think we can definitively state that none of them have worked all of the time.
For example, the current bull-market hasn’t been kind to value investors. They’ve had a rough time of it. It’s nearly impossible to find undervalued assets using traditional Ben Graham methodologies — hence value investing has lagged behind other strategies in recent years.
Most investors sign-up for one of these “investing styles” early-on in their investing career and then stick with it for most of their investing life.
In the beginning, I can’t say I was any different. As a beginner investor, (with nary a million to my name) I signed-up for the value investing “camp”. This style of investing worked out pretty-well for me in my early investing days, and I actually realized my largest percentage gains this way.
My most recent example of “value investing” has to be bottom-fishing for preferred shares after the 2008-2009 financial crisis. There were some great value investments back then.
Eventually though, I began to realize that traditional value investments were getting extremely hard to find. You see, good value investments only pop-up occasionally, when the market does extreme things. You can keep hunting for good value, but sometimes the hunting just really stinks.
So, I traded “camps” and shifted to more of a buy-and-hold-forever strategy. I describe this on my blog as being more of a farmer — maintaining the best quality assets on my “farm”. This strategy also worked-out great for me because I caught the big-wave of U.S. growth following the Great Recession.
Then, once I reached financial independence back in 2015, I found myself starting to pay more attention to my asset allocation — managing my cash levels a lot more carefully, and paying more attention to how much capital I allocate in any given category. While I don’t perform a regular rebalancing of assets yet, I’m at least paying more attention to my portfolio allocation these days.
What does all this mean?
It means I follow something of a hybrid of popular investing strategies! I’m a entirely pragmatic investor — I don’t “stick” with any one strategy. Instead, I’ve shifted my assets around as necessary to capture whatever is working in the current environment (not too often mind-you). Sometimes I’ve bought value and sold when that value is realized by the market. Other times I’ve bought growing investments and held those shares extremely long-term.
These days I’ve completely embraced my hybrid investing strategy — I find myself belonging to multiple camps at the same time. I’ll buy good quality investments at good prices and happily hold them as long as they remain good-quality assets. But, if the market suddenly decides to provide quick re-valuation gains, I’m happy to harvest those gains when they outpace other strategies.
In other words, my investing strategy is really doing whatever the hell works.
Don’t Be Afraid To Invest Different
Traditional investing advice tells investors to find a strategy and “stick with it”. The theory being that if the investor consistently “sticks” with a strategy they’re more likely to capture investing gains when that strategy is working….
Nothing wrong with that, it’s great for beginners. But, if I’ve learned anything from my two decades of investing it’s this: Don’t be afraid to invest different than the crowd.
Following the crowd is not the path to riches — it’s a great way to find investing mediocrity. Instead, find your own strategy! Find what works for your unique knowledge, experience, and circumstances. This is probably the most important piece of investing advice I can give to anyone. What worked in the past in investing won’t necessarily work in the future. You don’t need to follow the most popular strategies to earn good returns.
Maybe stocks aren’t your thing either. Maybe your thing is investing in laundromats, or buying small businesses. You’re going to have to look at the investing world and see what’s working. The world is changing rapidly, so pay attention!
Don’t get stuck on all the popular dogma and strategies of the past. Adapt. The ideas about what makes a good investing strategy will absolutely change in the future. I can’t predict what the future will bring, but if history can teach us anything, it’s that change is constant.
Don’t be afraid to adapt and invest differently from everyone else. Being different from the crowd just might make you A TON of money!
Quit Like A Millionaire Book Giveaway!
If you’re reading this blog, then you’ve probably already heard of bloggers Kristy Shen and Bryce Leung. They’re those world-traveling Canadian early-retirees that blog over at Millennial Revolution. I consider them one of my “blogging buddies” and I’ve followed them for years!
They’re also extremely entertaining writers, and they’ve recently published a book called Quit Like A Millionaire. You’ve probably heard of the book too, because it’s gotten A TON of positive press this last week. Everyone and their mother has been publishing glowing reviews and giving away promotional copies!
I haven’t finished reading my copy yet, but Mr. Tako is NOT going to be outdone by anyone’s mother!! I’ve been able to secure a free copy of Quit Like A Millionaire for my dedicated readers, and I’m giving it away today. Yay, free stuff!
To enter this little giveaway, you can either:
- Leave a relevant comment about your investing strategy in the comments section below.
- Sign-up for my blog email mailing list. You can do that here.
- Or both! You can get two entries this way!
That’s all there is to it! I’ll randomly select the winner from the entries provided on Thursday July 25th. Then, I’ll reach-out to the winner via their provided email address.
[Update: A winner has been selected. Thanks for playing everybody!]
For everyone that doesn’t win a free copy of Quite Like A Millionaire, you can still secure a copy from all the usual places.
[Image Credit: Flickr1, Flickr2, Flickr3]
18 thoughts on “The Craft Of Investing & Book Giveaway!”
Great article, Mr Tako. As a long time reader but generally quiet on the comments front, I liked it.
My investing strategy is to buy a good company at a fair price and let the long term compounding do the work for me. Although when thinks get a tad overvalued and I see some more attractively prices valuations I will also switch horses. I guess I’m in the hybrid camp of doing whatever it takes.
So far it’s been a very good run these past five years but all that can and will change in an instant one day. I’d love to have the chance to read that book.
I have been using the buy and hold strategy. That worked pretty well because the stock market was great over the last 10 years. Unfortunately, this strategy doesn’t work for every stock. I had GE and it was doing very well for a long time until it crashed. I sold before it bottomed out, but that was already too late.
Now, I’m not sure what strategy I’ll use. I’ll probably stick with buy and hold for the most part. But I might just buy a good dividend appreciation fund and forget about it. That’ll make life easier.
Great read. I am very much a buy and hold forever investor but I am starting to see the need for a little more variety in my strategy.
I guess I don’t have a good investment strategy since I reached FI by Indexing, but I do greatly enjoy reading your stock picking wisdom. You and some others out there who love the stock picking game are awesome and show that there’s more than one way if you want to put in the research and effort!
Buy and hold when it comes to index funds like VTSAX and VTIAX
We use the buy and hold strategy with index funds since we plan on living off the 4% rule and are in it for the long haul. I do get excited about alternative investments like small businesses too but haven’t acted in it, except for the three that we run ourselves.
I have 2 portfolios – one with index funds which I rebalance periodically… and one with individual shares/stocks that I buy and hold, (with the occasional sale).
I’m slowly moving more money into index funds/ETFs, as I’m not good with Maths and this seems a good strategy for someone like me.
My investing strategy has shifted significantly. Initially, I started value investing in early 2010s. But as you said it, finding value became more difficult. After the ups and downs of 2015-16, I moved to balanced ETFs which have been stress free. Now, my main “investing focus” is creating passion projects that I hope will lead to side income streams.
I have two things at play with our investments.
I keep a small portfolio where I buy stocks of good value for either their dividend payback or when I spot an opportunity that seems good.
Most of our money is divided into index. Canadian and bonds in my trading account and international via work savings plan.
Great post on 3 valuable and viable strategies Mr Tako. There is an old investing saying that bulls make money and bears make money and sheep get slaughtered. I understand and agree with your advice of branching out and thinking different from the crowd to get an edge as an experienced investor Mr Tako. At the same time the risk comes with how often one changes things up and whether one is thinking different or actually just following the hype right? If you are changing things up weekly or even monthly, the result may actually be that you are not following a strategy. What do you think Mr Tako?
Also, I tend to lean value but like Mr Tako I have been doing this for a couple decades and do mix in other strategies and follow each with discipline asking “has my objective been met yet or is the stock still fitting the strategy of why I bought? What has changed and what stays the same?”
Love your breakdown of the different types of investing strategies, Mr. Tako! And very good point that no strategie will outperform all the time. Especially value investing during this current bull run…which no one can predict its duration.
Thanks so much for your kind words about Quit Like a Millionaire and running this giveaway. I owe you a beer or coffee if we ever meet in person 😀
I believe a big part of what people forget when espousing investment strategies is that it really depends upon what stage you are in. Someone without a lot of money in the market like a beginning investor might be better off with more of an index style approach. Whether you are getting 8% or 10% doesn’t really make a big difference in the long run when you only have $5000 or $15,000 invested. Once you hit a certain level then each percentage point does make a big difference. I’m a fan of the buy and hold for now strategy. I re-evaluate each stock each year, but I’m looking at the five year expected return and a company with a good moat. These are companies like Visa and Boeing (which I took a big hit on this year but I think will eventually bounce back). I also have several companies on my watch list I keep an eye on as well to help me decide if I should switch. However when you reach retirement, your investing may be more dividend oriented and more about protecting what you have. This may be REITs, high dividend safe stocks, index ETF’s, bonds, etc…
I am buying and holding with index funds. It seems to me that it will take forever to reach financial independence. I saw Kristy Shen in the movie Playing with FIRE. I thought that was really cool in a movie filled with so many Caucasians/Caucasian-looking people.
Mostly Vanguard Index funds. I moved my allocation from 80/20 stocks/bonds to 60/40 stocks/bonds over the past 3 years. I am 56 and about 2 years from FIRE. Enjoy you blog!
My mantra has been the best way to save is to save. The spenders just do not get this. Where you actually put those savings is then if lessor importance and inactivity can be a good policy. Over time I have found that I identify bubbles far too early and I am not a great stock picker either so holding index forever works for me.
I am a buy and hold dividend growth investor for the most part. Our portfolio is probably 75% individual stocks and 25% index funds through my wife’s work. I would really prefer to never sell a stock and most years don’t. But we are further diversified with a quarter of farmland that pays rent and always looking and thinking of other ways to diversify. Thanks for the nice write up.
Love the blog posts. My Investment strategy at the moment is just to but index funds. I don’t want to spend the time researching stocks, but I have always had an interest. I like what you’ve been doing and it makes a lot of sense. Especially with regard to dividend stocks. I do wonder what happens with those stocks when the market tanks again, but it looks like your Hybrid strategy will adjust for that.
I started off using the Millennial Revolution style, as I prefer that more the the JLcollins techniques. However, since reading this blog I’ve started to look for more Dividend investments with Higher dividend yields.
Thanks for the great information.