The Only Investing Strategy That Works Is The One You Stick To

The only investing strategy that works is the one that you stick to.
It sounds overly simple I know…find an investment strategy you believe in and stick with it. However, most investors fail to take this simple approach. And it costs them.
Instead, most retail investors constantly seek out the latest and greatest investment strategy and go with it just to the point where it ultimately fails to meet their short-term expectations.
The reality is that investing strategies don’t work in all market conditions. There will be periods of underperformance, and periods of outperformance.
What matters is how you do over your investing horizon. And that means sticking to a strategy.
Choosing investment strategies isn’t like dating – you can’t try them out for a little while to see if there is a potential match. A successful investment strategy is a long-term relationship that requires commitment, discipline and conviction.
Personally, I love small cap stocks. And I love holding them for the long term. To me, investors who pay attention to small cap stocks and want to outperform the market are starting in the right place to layer on more sophisticated investment strategies.
This asset class has outperformed large caps over the long term, despite the fact that small caps are much more volatile. And I expect it will continue to do so in the future.
Yes, small caps get hit hard during corrections. But in bull markets, small caps are an absolute must.
In the 100% Letter, we’ve been sticking with small cap stocks. And a few simple strategies have helped us lock in five doubles so far in 2014.
First, we look for small and micro-cap stocks that have significant exposure to the major growth trends in today’s global economy. Again, it’s simple. But it works.
These aren’t one month, three month, or six month trends. We’re looking for major, multi-year trends that our portfolio companies will benefit from. This means perfect timing is less important than getting invested in the first place. We believe that each stock we add to the portfolio has a legitimate opportunity to double in value over the coming years.
Second, we want to be steady buyers of these solid growth companies. Given the huge gains that we expect to eventually have, and their relative volatility as compared to most mid and large cap stocks, it’s not necessary to buy an entire position in a small cap stock all at once.
Buying in multiple purchases is a good way to reduce your risk of being down if the stock pulls back after your first purchase – especially if the market has been on a one way trip higher, as it has been recently.
My personal preference is to establish a modest position first, then add to the position on weakness or after becoming more comfortable with the company. I always recommend investors have money on the sideline ready to take advantage of any significant share price weakness that is not related to a fundamental shift in the company’s growth prospects. This strategy turns a potential weakness (volatility) into a positive.
These strategies are part of our investment philosophy in the 100% Letter. We stick with them through thick and thin. And because we do, I expect to significantly outperform the market. You should use them too.