What Is the Best Investment Strategy?

finding what works and what doesn't

It took me too long to understand psychology is more important than facts and figures. As a typical male, I thought I would be able to “out-logic” any psychological challenge with numbers and spreadsheets when presented with a problem. I have been humbled many times over. This post I go over how my thinking has changed around finding the optimal investing strategy.

When I first started out, I wanted as high returns as possible to leave my corporate life. Like pretty much everyone I stumbled on Buffett and the high returns he put up during his partnership years. Eventually, I learned that his circumstances are not mine. As my journey continued, I would interact with all sorts of investors who only focuses on specific companies or parts of the market. These included macro focused investors, industry specialists (like commodities or biotech), market cap specific companies, dividends, geography specific, various options strategies, quantitative strategies, and many more. Many would state they had the BEST strategy. Many of these investors are very successful. Many more were glorified marketers.

I investigated many of these different styles and even jumped from one to another to try and maximize my CAGR. There were many of these strategies that I feel I lacked the brainpower to execute (particularly many of the options, derivatives, and macro strategies) so they were immediately discarded as on option. There were others that I felt were somewhat “easy” to execute until it came time to hold shares in the businesses. These would be shares in companies that I couldn’t understand but were statistically cheap or businesses that weren’t profitable. The headlines would scare me out of them. There were also strategies that would have so much friction with buying and selling while having a day job. I was stuck in a cycle following someone else’s “best strategy”.

As time went on, I (very) slowly realized that more important than the return of the different strategies was that I needed to consider which one I could stick with. I had to find out which of them appealed to me as a person. And I will be honest, I am still learning as I continue with my journey. This is why I can understand the appeal to some of the mathematically illogical types of investments such as:

• Only buying dividend companies or focusing on dividends to cover expenses.

• Avoiding certain businesses like “cyclicals” or industrial companies.

• Avoiding all the countries outside of your home country.

• Including things like gold or GICs throughout a business cycle.

• Staying away from a company because of size.

• Refusing to buy something due to it being “dirty”.

I’m sure everyone has their own heuristics on what to stick with. And for good reason.

Personally, I gravitate toward Canadian microcaps that have some sort of operating history. This is because I don’t feel I can compete with information and analytical capabilities of others invested in larger businesses with more following. I stick to Canada due to my ability to purchase shares inside all tax-sheltered accounts. I also stay in Canada due to the network I have built up to help me with due diligence. I typically don’t buy businesses at high multiples (and usually have a high terminal value) because I am not confident in my ability to see far into the future. And lastly, I stick to businesses I “understand”. This point warrants a post by itself as it really nuanced and is in the eye of the beholder.

Closing Thoughts

Like so many things in life, finding something you can stick with is more important than the absolute most optimal. Whether it’s diet, exercise, learning a new skill or working toward financial freedom. It’s more important to find the best strategy for you, not the best for someone else.

Now the real challenge for me is not engaging in debates about the best strategy online. Just letting others believe what they want and focusing on my own investments.

What is your best strategy?

Thanks for reading.

Dean