When to Choose a Not-So-Great Investment Strategy?

Not So Great Investment Strategy


Few years back when I was working in oil sector, I was posted in a very remote location in Rajasthan. Since there was not much to do there, I used to regularly undertake biking trips to explore the state with my adventure-seeking colleagues. (Good Old Days) 🙂

A frequently debated topic for us then was about the best strategy to reach our destinations. Some advocated driving at ‘really’ fast (average) speeds and saving on time. While others were more inclined towards driving at less-than-insane speeds and focus more on ‘reaching the destination’ first. 😉
Eventually, the speed of our biking-gang was set by the slowest biker. That is what worked for us (and is indeed, the basis of Theory of Constraints).
Now lets come to the point that I wanted to make here – a great strategy in our case was to drive fast and save time.
 
But that ‘great’ strategy would not have worked for slow drivers. Driving at very fast speeds is not easy (and not recommended). So pushing ‘comparatively slow’ drivers to drive fast would have increased the chances of accident. Isn’t it?
Same is the case with investments. There are some great money-making strategies in stock markets. Yes. Even in the short term.
But will that strategy be suitable for you or not, is the most important question for you.
A person trading in F&O may have a strategy to make serious money in the short term. But just blindly copying his strategy will not work for you. Why? Because that person might have some buffer (which you are unaware of) that can bail him out in case of financial accidents. You unfortunately, might not have that buffer.
 
So for you, the best words of advise would be as given by Cliff Asness:
A great strategy you can’t stick with is obviously vastly inferior to the very good strategy you can stick with.
This is a very important concept that most investors fail to realize. Something that worked for others might not necessarily work for you. Plain and simple.
And as Ben Carlson of A Wealth of Common Sense says –
 
“People are taught their whole lives that if you just work harder you can achieve all of your goals. Unfortunately, trying harder in the financial markets doesn’t usually yield better results and most of the time it actually hurts performance. This is what happens when investors shoot for perfect instead of accepting good enough.”
Grass will always look greener on the other side. There will always be someone getting better results than you.
But don’t let that push you off your course.
 
Ofcourse as long as what you are achieving is working for you. If your financial goals can be achieved by earning 11% average annual returns in 15 years, then why would you risk going after a trading strategy that has the potential to give 20%+ return, but also high chances of going wrong and giving (-)40%?
 
(Read thisto know the real meaning of investing)
In times of low returns, most people will start questioning perfectly legitimate long-term strategies – as for them, the pain becomes unbearable in the short term. When equities do badly, people start looking at other asset classes and forget that the best time to load up equities is when everything looks bleak.
So I suggest you do one thing – evaluate your financial decisions of the past, especially the mistakes where you lost money. Be honest with yourself. Did you try to go for a ‘Great’ strategy and abandoned a ‘good’ one that worked for you? This exercise will help you clear your thoughts and being clarity in the way you think about your finances.
 
By the way, the speed of our biking-gang was set by me. 😉

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