[pullquote-right] “To invest successfully, one doesn’t need a stratospheric IQ. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” — Warren Buffett [/pullquote-right]
The study of prominent investors and their successful investment strategies reveal a somewhat surprising conclusion: various investment approaches work. Value investing works, growth investing works, momentum works, reversion to the mean works, long-term buy-and-hold strategies work, short-term high frequency trading strategies work. The key is to pick a style that is aligned to our own individual strengths, and then stick with that style, through thick and thin, and avoid the all-too-natural human emotions and biases that constantly try to derail us. Our investment philosophy form the structure on which we overlay our thinking, which in turn guide our research, and ultimately translate into investment decisions.
- Investment values and principles: our values help guide our investment behavior; our principles also help guide, motivate, and simplify our investment actions. The principles stem from our values.
- Competitive advantage: our edge; what sets us apart from the majority of other investors
- Major investment styles: the primary investing styles and how do we compare on that
- Active vs. Passive: how we decide when to use active vs. passive investment approaches
- Minimize cost drag: expenses matter—a lot!
Diversification Dimensions
Types of Risk
- Volatility vs. uncertainty: one is quantifiable and indicative; the other is abstract but direct
- Permanent loss of capital
- Ignorance: “risk comes from not knowing what you’re doing.” — Warren Buffett
- Underperformance of peers/ benchmark