Fool's Eye View

[ December 4, 2000 ]

Who Are You?

By Stephen Bland (TMFPyad)

We love to label different styles of investor. It gives us a handle on where they are coming from, as far as shares are concerned; enables us instantly to appreciate what they are about.

A value investor, a growth investor, technical analysis (TA), fundamental analysis (FA) and so on. Arguments sometimes rage on the strategy boards about how valid the style might really be in practice. People looking to stir things up will occasionally for mischievous reasons go on to a strategy board and deliberately plant an attack on the proponents. Why somebody else's strategy should bother anyone I cannot really understand.

It has happened on the value board. A reader might come on saying that studying out of date fundamentals is no guide to the future. Giving the benefit of the doubt and assuming it is not just mischievous, people might come to this conclusion possibly because they have never tried it and are just theorising, or maybe they have and lost. But if others have actually won at that which is being criticised, repeatedly over many years, such comment carries no weight at all.

I have my own style, as most will know, but good luck to anybody who is using any working, successful strategy whatever it may be. Yes, even daytraders. I have known many successful investors over the years, from long term holders who don't even follow the markets at all and never trade the shares -- the real heroes of what I regard as true or literal long-term investing which unfortunately is not promoted here enough in my view -- to real gut traders.

My view on comparative strategies is that whatever works, whatever turns you on in the wallet, must therefore be a good approach -- for you. In practice, apart from literal long term investors, people will frequently use a hybrid approach to short-term share investing. Few suffer from the extreme financial strategy puritanism to which I am a victim For example, some regular value players have said that they use a bit of TA as well as well as FA.

The ultimate test of a successful strategy for shortish-term trading is that it is capable of repetition such that it will win enough times to produce an overall good return. Any strategy of this nature -- value, TA, whatever -- will lose sometimes, and you have to able to live with that, but if it is sound it will win big enough, often enough to score well enough to absorb losses and produce the required profits.

So let's say you are a newcomer to shares and want to hit on a successful strategy. Understandably, you wish to cut out years of trial and error involved in working it out for yourself by going straight to something that appears to work for many others. There are a vast number of books out there detailing the approaches of many successful investors, of which if you are serious about strategy you should read a selection. Additionally there are all the message boards and archived articles here at the Fool on various strategy topics.

But the key question, once you have understood the main styles, is: which one to adopt? You may well find that the question answers itself. Instinctively you could find yourself being drawn to a particular approach because it attracts you psychologically.

If not, ask yourself first, Who Am I?

Are you patient, impatient, good with figures or not so good, instinctively have an eye for what might work or lack that kind of judgement, easily led by press and bulletin board comment or stubborn and not easily led by anybody else? And so on.

Perhaps the biggest decision of all for a beginner is the one to decide on a strategy altogether. Because strategy gives you a reason to be in a share, and critically, a reason to dump it when the time comes. Haphazard hunch or tip buying is very likely to lose you money, unless you have gut instinct in your hunches, in which case that is your strategy anyway.

I believe it is the hallmark of successful investors that they maintain a disciplined approach to their chosen strategy. They choose it because it fits their personality and they keep to it, driving emotion aside. Few can keep up such a stance over periods of many years.

If you want to be a serious winner in investing you have to develop these characteristics within your chosen style and then go for it. It has to suit you. No messing about. No mixing of approaches in the portfolio. No compromise.

Where Next?
• Investment Strategies Discussion Board