Investing is a long-term game.
Your Goal #1 is to have enough money so you don't have to worry about it. That means the return generated on your assets covers your expenses and lifestyle. Your number can be $1M or $100M, depending on your ambitions.
You want to achieve this goal as quickly as possible.
Your Goal #2 is to protect and grow what you have already built. You can do what you love without having to work for money. You can focus on bigger ventures. You have the freedom to choose.
Depending on which stage of the RPG Life you're playing, your strategy would be different.
To achieve goal #1 faster, you need to either increase your income, return on capital invested, or both. To do it, you need to have:
- Focus
- Concentration
- Be willing to take risks
These are the rules.
If you want to make more money, you need to be laser-focused - learn new skills, grow your business, build value and increase income.
If you are investing, you must take more concentrated bets with asymmetric risk-return payouts.
High returns (on both capital and time) come with risk. There is always a chance that after spending a lot of time on your business, it won't fly. Or you can also lose your high-risk investment.
That is part of the Game.
We are paid for taking risks. And very few are prepared to do it.
After you achieve goal #1, your strategy is almost opposite. It is about:
- Diversification
- Consistency of returns
- Manageable risk
You want to compound your capital and protect it from adverse market events.
In this post, I will discuss different investment strategies and styles and explain their meaning. However, you need to remember that there is no right or wrong strategy; it very much depends on your current stage and your desired outcome.
Investments that work well for some can be suicide missions for others. I see people make this mistake often. They get into investments they don't understand or that don't suit their needs. This always ends in disappointment and sometimes in disaster.
If you don't understand it, don't invest in it!
Imagine driving a car from London to Monaco. You want to get there as soon as you can to enjoy the sun and turquoise sea of the French Riviera. You want to speed up. But if you drive too fast and are not careful, you can get into an accident and wreck your car. It's all about balance - speed, skill and how good of a driver you are.
So, now let's talk about investment strategies and styles.
Some - you would know well. Others, probably not so much.
Again, think about it as a racing car. Depending on whether it's a race track or a trail rally, you need to fine-tune it differently and adapt your driving style.
Let's dive in.
Investment Strategies: What You Need to Know
Investing is a game with many different strategies
Some work better for beginners, others for the pros. Some require constant attention, while others let you sit in a passenger's seat.
Value vs. Growth
With value investing, you're hunting for bargains. Companies trade below what they're really worth (sometimes even below net asset value). This can happen for various reasons that have nothing to do with a business. Look for low P/E ratios, high dividend yields, and sound assets.
Warren Buffett is one of the most famous value investors. He bought Coca-Cola in 1988 when everyone thought it was old news. He saw strong brand loyalty and global potential that others missed.
With growth investing, you're betting on the future and companies that expand rapidly, reinvesting profits to get even bigger.
Amazon is a good example. For years, it barely made a profit, and value investors ignored it. However, growth investors saw Amazon's potential to dominate retail, and now they're laughing all the way to the bank.
Growth companies often trade at crazy-high multiples. And investors accept short-term rollercoaster rides for the potential long-term moon-shot.
Short-Term vs. Long-Term
Short-term trading is when you hold positions for seconds or days. Maybe months.
Earnings season traders buy before quarterly reports, hoping to catch a quick pop when Netflix announces subscriber growth that beats expectations.
Some jump in when economic data releases, placing leveraged bets to profit from immediate volatility spikes.
Long-term investing is when you play the long game. Think years or decades.
Your retirement accounts steadily buy index funds. Market swings? Whatever. You're letting compounding work its magic.
Pension funds hold blue-chips like Johnson & Johnson or Procter & Gamble for 10+ years, betting on stable earnings driving consistent growth.
Active vs. Passive
Active managers try to beat the market through superior stock picks or timing.
Remember Peter Lynch running Fidelity Magellan (1977-1990)? He uncovered hidden gems and crushed the S&P 500. His secret? Tons of research and personal investigation.
Sector rotation funds move money between industries based on economic forecasts. As oil prices rise, they invest in energy stocks.
If you are a passive investor, you match the market, not trying to beat it.
John Bogle's Vanguard index funds let you buy the entire market cheaply. Over time, most active managers fail to beat index funds after fees. But that doesn't make them bad investments. There are many other factors to consider. Today, Vanguard manages $9.3 trillion in assets.
ETFs like SPDR S&P 500 (SPY) give you instant exposure to America's 500 biggest companies. One trade, done.
Manual vs. Algorithmic
With discretionary management, human judgment drives decisions.
Boutique hedge fund managers travel to conferences, visit factories, and meet CEOs. After months of research, they are convinced that an automotive supplier will benefit from EV growth.
Event-driven traders evaluate merger announcements by assessing regulatory risks and leadership quality to decide if the deal closes.
Algorithmic (systematic) strategies use computers and models to make the calls.
High-frequency traders place servers next to exchanges to shave microseconds off transaction times, profiting from tiny price imbalances.
Quant funds like Renaissance Technologies, run by famous Jim Simons, analyze massive datasets to predict price moves, automatically trading when thresholds are hit. Renaissance's flagship Medallion fund, which is now run for fund employees, is famous for the best track record on Wall Street, returning more than 66% annually before fees and 39% after fees over a 30-year span from 1988 to 2018.
Index vs. Stock-Picking
When you invest in an index fund, you buy the whole market. At once.
Sovereign wealth funds place billions in All-World Index ETFs, capturing economic growth across many countries without betting on any single market.
Tech-sector believers buy ETFs like XLK instead of trying to guess which specific companies will win.
Stock-picking try to select individual winners.
A focused manager might pick only a few obscure small-cap stocks that no one has heard of after deep research. Higher risk, higher potential reward.
Activist investors like Carl Icahn target underperforming companies they believe they can fix, taking board seats and pushing for changes.
Momentum vs. Contrarian
Momentum investors buy what's already winning, riding the trend, and sell what's losing.
Quantitative funds systematically buy stocks with strong 6-12 month returns and short the losers, betting that trends continue longer than expected.
Swing traders jump in when stocks break through resistance levels, expecting continued upward movement.
Contrarians, on the other hand, buy what everyone hates. Sell what everyone buys.
During the 2008 financial crisis, contrarians bought bank stocks at rock-bottom prices while others panicked and waited for a rebound.
When oil futures went negative in 2020, contrarians bought energy stocks, betting the crash was an overreaction and wouldn't last long.
Fundamental vs. Technical Analysis
Fundamental analysis looks at the business itself. It's all about deep dive and thorough research.
Before investing in pharma, analysts examine clinical trials, FDA approval chances, and financial metrics like profit margins and R&D spending.
When evaluating consumer brands like Unilever, investors study brand loyalty, distribution channels, and pricing power - the "economic moat."
Technical analysis trades the charts and statistical patterns. It actually doesn't care about the company at all.
Forex traders spot double-bottom patterns on GBP/USD charts and place trades with tight stop-losses.
Crypto bros watch for Bitcoin to break above its 200-day moving average with high volume and buy in anticipation of a rally.
Technical analysis is particularly popular among day traders.
High-Frequency vs. Buy-and-Hold
In high-frequency trading, the lightning-fast algorithms exploit microsecond opportunities.
Latency arbitrage firms receive price updates fractionally faster than others, buying at old prices and selling at new ones for tiny risk-free profits.
Market makers continuously post buy and sell orders, profiting from the bid-ask spread while adjusting prices in real time.
If you want to learn about the world of HFT, I highly recommend the book Flash Boys by Michael Lewis. It's fascinating! It exposes the world of high-frequency trading (HFT) and how it exploits the financial markets, often at the expense of regular investors.
Most retail investors are buy-and-hold and in it for the long run.
Families saving for college or retirement invest in balanced index funds and contribute monthly, ignoring daily headlines and fluctuations.
Dividend investors in stocks like Procter & Gamble reinvest payouts, letting compounding work without much active trading.
Income vs. Capital Appreciation
Income investing is when you want regular cash flow.
Retirees buy funds focusing on Dividend Aristocrats - companies that have raised dividends for 25+ consecutive years.
Fixed-income investors structure portfolios with staggered maturity dates, providing steady periodic income.
Capital appreciation is when you want growth in value over time.
Venture capital firms invest in startups with zero immediate return, hoping for a big payday when the company exits years later.
Growth funds hold non-dividend payers like Alphabet or NVidia, focusing purely on rising stock prices.
High-Risk vs. Low-Risk
A high-risk (Aggressive) strategy is when you're swinging for the fences.
Crypto investors put chunks of their portfolio in Bitcoin or Ethereum, accepting extreme volatility for potential massive gains.
Leveraged ETF traders use 3x products that triple daily index movements - spectacular when you are right, devastating when wrong.
Low-risk (Defensive) is when you prioritize safety over significant returns.
Conservative investors buy AAA-rated corporate debt or U.S. Treasuries for modest, reliable return.
Defensive equity players can also focus on utilities (Duke Energy), healthcare (Johnson & Johnson), and consumer staples (PepsiCo) that have historically performed better in recessions.
Sector Rotation vs. Broad Diversification
Sector Rotation is when you're timing industry cycles.
Managers overweight consumer discretionary and tech during economic expansions, then rotate to consumer staples and utilities ahead of slowdowns.
Commodity cycle investors load up on energy and materials companies during inflation or resource scarcity periods.
Broad Diversification is when you're spreading bets widely.
Classic 60/40 portfolios divide assets between equities across sectors (60%) and bonds (40%), balancing growth with stability.
Global balanced funds hold stocks and bonds from multiple countries and sectors, minimizing reliance on any single economy.
Long/Short vs. Long-Only
Long/Short is when you can make money by playing both sides, i.e. taking long and short positions.
Equity long/short funds might buy undervalued semiconductor stocks while shorting overvalued social media companies.
John Paulson's firm, Paulson & Co., made an estimated $15 billion in 2007 by shorting the US housing market, with Paulson personally earning around $4 billion from the trade.
Another example is billionaire investor Bill Ackman, who in 2020 made $2.6 billion on a $27 million coronavirus hedge.
Antoine Gara
Market-neutral strategies maintain equal longs and shorts, targeting pure stock-picking skill with minimal market exposure.
Long-Only investing is when you only bet on prices rising.
Traditional mutual funds hold long positions in companies like Apple and Disney, aiming to rise with the market. They can also select stock they think will be better than the rest of the market.
Dividend ETFs invest only in income-paying stocks, collecting yields and hoping for price appreciation without hedging.
Mean Reversion vs. Trend Following
A Mean Reversion strategy means that you bet that extremes won't last.
Algorithmic traders flag blue-chip stocks that drop 10% on negative news, buying on the assumption that prices will bounce back.
Statistical arbitrage funds track correlated stock pairs like Coke and Pepsi, trading when the spread between them becomes unusual.
Trend Following is when you bet that momentum continues.
Managed futures funds scan commodity markets for consistent trends, going long gold or crude oil until technical indicators suggest a reversal.
Traders can buy stocks hitting new 52-week highs with substantial volume, expecting continued upward movement.
Thematic vs. Broad Market
Thematic investing is when you're targeting specific trends or industries, like we have seen with AI-related stocks like Nvidia, etc.
Cybersecurity ETF investors expect consistent demand for digital protection as threats increase.
Broad market is basically when you want a piece of everything.
Total market index funds invest in thousands of companies across all sectors, offering a simple one-stop solution.
Global equity indices hold stocks from developed and emerging markets of all sizes, capturing worldwide economic activity.
Leveraged vs. Unleveraged
When you trade with leverage, you're using borrowed money to amplify returns if your cost of borrowing money is lower than expected returns. But that can also work the other way around, and you can lose more.
Hedge funds might borrow an additional $1 billion against $1 billion in capital to expand their exposure to promising trades.
Leveraged ETF users get 2x or 3x daily exposure to market moves - both up and down.
Unleveraged means that you're only risking what you put in.
Traditional stock buyers use only their available capital, capping potential losses at their initial investment.
Conservative retirees maintain cash and unleveraged ETFs, avoiding margin calls or forced liquidation risks.
Absolute Return vs. Relative Return
Absolute return means that you aim to make money regardless of market conditions. This is what hedge funds do.
Global macro funds might go long on one country's bonds and short another's currency. They seek profits regardless of equity market direction.
Multi-strategy hedge funds combine various approaches to deliver steady performance independent of any index.
Relative Return is when you measure success against benchmarks.
If the S&P 500 falls 10% during a recession but your fund only falls 8%, you've outperformed by 2%, which you consider a good performance.
Institutional investors often target performance like "3% above MSCI World" - even negative returns can be "wins" if they beat the benchmark.
Top-Down vs. Bottom-Up
A top-down approach means starting with the big picture. You look at the global economic outlook, then the country, then the industry, then the sector, and then analyse individual companies.
Global macro managers seeing rising U.S. rates might short Treasuries and buy Japanese exporters benefiting from cheaper currency.
Emerging market investors spotting high GDP growth in Southeast Asia focus on consumer and infrastructure plays in Vietnam or Indonesia.
Bottom-up means starting with individual companies. You identify interesting stocks and then assess the sector's outlook, country, and global context.
Small-cap analysts deeply research unknown medical device companies, interviewing doctors and scrutinizing test results before investing.
Stock-specific investors buy retailers with strong e-commerce and brand loyalty regardless of whether the consumer sector is currently favoured.
Cyclical vs. Defensive
Cyclical strategy means you bet on economic boom times.
Airline stock investors load up during economic expansions when travel demand surges.
Luxury goods holders (LVMH, Ferrari) benefit when consumers have excess cash but can suffer quick drops when spending tightens.
With a defensive approach, you want stability in all conditions.
Utility investors (Duke Energy) count on consistent electricity and water demand regardless of economic cycles.
Pharmaceutical stockholders (Pfizer, J&J) know healthcare needs remain even during recessions.
Concentrated vs. Highly Diversified
A concentrated approach means that you make a few big bets.
Activist funds might put 20-30% of capital into one or two target companies.
Thematic investors going all-in on AI or electric vehicle stocks could see massive gains or painful losses.
High diversification means that you spread your bets widely.
Global multi-asset funds hold hundreds of securities worldwide across stocks, bonds, and real estate.
Core/satellite portfolios will have a major part allocated to broad indices, with smaller "satellite" positions in riskier areas.
Illiquid vs. Liquid
When you invest in illiquid (private markets, you lock up capital for higher potential returns.
Private equity firms buy controlling stakes in manufacturing companies, boost profitability, then sell years later.
Venture capital funds make early Uber or Airbnb investments years before IPOs, accepting 5-10 year lockups for potential exponential returns.
Here are some interesting stats, where a typical VC portfolio shows:
- Failures: 25-30%
- Break-even/moderate return: 30-40%
- High Returns (2x - 10x): 20-25%
- Unicorns (>10x): 2-10%
Liquidity is crucial. When you invest in private markets (especially in the early stage), you need to understand that you probably won't be able to get your money back for 5 to 10 years.
Liquid or public market investments mean that you can exit your positions quickly if you want.
Public stock investors can sell Apple or Microsoft shares within seconds during market hours.
Bond ETF holders trade quickly despite underlying bonds being somewhat illiquid.
Quantitative vs. Qualitative
Quantitative or factor-based means that you rely on numbers and models to drive your investment decisions. For example, around 60%-75% of equity trading volume in the US, Europe, and Japan is driven by quantitative trading.
Smart beta ETFs systematically select stocks based on factor scores like value or momentum metrics.
Machine learning funds feed market data into AI algorithms to detect complex patterns that human analysts might miss.
A discretionary approach means that a portfolio manager (i.e. human) makes final investment decisions.
Early Tesla investors believed in Elon Musk's vision despite uncertain financials.
Brand-focused managers invest in Nike based on cultural resonance that is not fully captured by standard metrics.
Final Thoughts
While this was a long read, we barely scratched the surface regarding investment strategies and styles.
Remember that an investment strategy is a building block, and an investment portfolio is a structure you build with it.
Different strategies succeed under certain market conditions while losing money in others. That is normal, and you need to understand that.
That is why you need to blend multiple approaches in a long-term portfolio.
Your strategy needs to match:
- Your time horizon (short or long)
- Your risk tolerance (sleep-at-night factor)
- Your financial goals (growth, income, or both)
- Your personal values (ESG considerations, tax needs)
There is no perfect strategy for everyone. The best strategy is one that you understand and can stick with through market cycles.
Now, get in the game and start playing.
