Federico Orsi, CFA

The Best Investment Strategy in the World There are a hundred ways to make money in the stock market. You can diversify, concentrate, buy and hold, day trade, trade options, buy junk bonds, follow momentum or search for tiny companies nobody has heard of. People have become extraordinarily rich doing almost all of them, so what exactly is the best way to invest? I don’t think there is a best investment strategy. There is only a best investment strategy for each person. What works brilliantly for one investor could be a disaster for another. Investing cannot be separated from the person doing the investing. Your age, wealth, income, family, goals, knowledge, temperament and the way you react to losing money should influence how you invest. A 28 year old with $50,000 is playing a completely different game from a 68 year old with $10 million, yet we talk about the “best strategy” as though the person executing it barely matters. This is why I think Wall Street’s definition of risk is incomplete. We measure volatility and drawdowns, but what about the probability that you panic, become bored or abandon a perfectly good strategy after three terrible years? Some of the greatest risks in investing exist inside the investor, not the investment. Envy may be one of the biggest. The market gives us a daily scoreboard of everything we should have owned instead, and somewhere someone will always be getting richer faster than you. If you compound at 15% while somebody on X makes 80% trading options, it becomes surprisingly easy to feel unsuccessful while doing something objectively extraordinary. That is how investors get pulled into games they were never supposed to play. A long term investor becomes a trader, a conservative investor starts speculating and someone who spent twenty years studying businesses suddenly decides they need to trade options. Their abilities didn’t change. They simply became distracted by somebody else’s success. One of the great breakthroughs in investing happens when you stop asking what everyone else is doing and decide what game you are actually playing. You don’t need to master every corner of the market or participate in every opportunity. Find an approach that matches who you are and become exceptionally good at it. This is where the circle of competence becomes much more interesting. It isn’t only knowing what you understand. It is also knowing what you can safely ignore. If your goal is to own $MELI for the next decade because you believe MercadoLibre can become dramatically larger, does it really matter what $NVDA reports tonight? Do you need an opinion about $CRWD, Bitcoin, oil and the next Fed meeting? Unless those things change your thesis, much of it is probably noise disguised as knowledge. We have access to more financial information than any generation of investors in history, yet that doesn’t necessarily make us better investors. Information tells you what happened, knowledge helps you understand why it happened, and wisdom tells you whether you need to do anything about it. I think the last part is where much of the money is made. This is also why copying great investors is so difficult. You can copy someone’s portfolio in five minutes, but you cannot copy the twenty years of experience that produced it. You don’t inherit their temperament, pattern recognition, financial circumstances or ability to sit through a 50% decline. Eventually investing becomes a very personal exercise. In the beginning you study stocks, accounting, valuation, business models and famous investors. If you are paying attention, eventually you begin studying yourself. 🌹