The Best Strategy is One You'll Stick With
I have a lot of terrible habits, but surely one of my worst is taking notes of ideas that resonate with me — or screenshots if I’m feeling particularly lazy — and failing to write down the source.
Recently, my laptop has been wheezing its way towards a slow and painful death and in an effort to give it just a little longer on this earth, a kind of digital defibrillation if you will, I started deleting some of the random screenshots that litter my hard drive. In clearing out my cluttered home screen (I know, I know, I’m an awful person), I came across an extract of something that I had screenshot from some now unknowable source last September.
It read as follows:
The best strategy is one you’ll stick with.
Or more correctly, the best strategy is one that you’ll stick with and meets your objectives. There is no one way of investing that is suitable for everyone. There is only what’s right for you. Lots of things work. Buy and hold works. Value works. Momentum works. There are others too. Start with the evidence-based, empirically-proven stuff. Find which one, or which combination, works for you, in accordance with your timeframe, objectives, and investment horizon.
Buy and hold giving you 7% is fine, but if you can’t tolerate 50-60% drawdowns or trust yourself to not bail precisely when you should be adding any spare cash you have to it, then it’s not for you. Pick a strategy that delivers an acceptable return that won’t have you reaching for the sick bag when turbulence hits.
There is so much value in this for long-term investors. To reiterate a few:
Pick a strategy and stick with it.
Figure out what style of investing suits you and your goals. Stick with it. Stick with it through good times. Stick with it through ‘meh’ times. Stick with it the most through the bad times…
Don’t become distracted by what someone else is doing.
… and stick with it despite what other people are doing. When we start to look into other peoples’ lanes, we lose sight of what it is we are trying to achieve based on our specific personal circumstances. Elon Musk might be investing hundreds of thousands of dollars into Dogecoin, but he’s a multi-billionaire that owns a space company and I’m driving a 20-year old car. We are definitely not playing the same game.
Set reasonable expectations for yourself.
Recently, I had a few friends texting me photos of the returns they were seeing on their crypto investments. The FOMO was real and I was looking at my own brokerage account, feeling a little bereft by what are not bad returns by any means.
Funnily enough, I haven’t heard from any of those friends over the past week or so.
Sell-offs and drawdowns are all part of the game.
Accept it. Use it as a chance to build up your positions if you can. Use it as a chance to do nothing if you can’t. And I repeat — accept it.
If you’re losing sleep over your investments, your strategy doesn’t work for you.
One of the overarching reasons why most people invest is that they are trying to make their lives a bit better and more financially secure. If you can’t sleep because you’re so worried about the fate of your investments, it’s a sign that your portfolio is much riskier than you can handle.
Life is short. Some risk is good. Too much risk will make your life shorter.