Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) have both advocated the so-called "punch card" style of investing. With this method, investors pick just a handful of companies throughout their lives and sit on these businesses as they grow and build value for shareholders.
These billionaire investors and others have used this approach quite successfully over the years. There is a huge volume of research that shows buying high-quality companies and sitting on them for the long term is a great way to make money.
However, it is not the only way to make money.
Both of these investors have made a lot of money sitting on a handful of good stocks, but Ray Dalio (Trades, Portfolio)'s Bridgewater Associates has made huge profits trading in and out of securities on a high-frequency basis.
The quantitative hedge fund Renaissance Technologies, which is lead by Jim Simons (Trades, Portfolio), has also made vast profits trading in millisecond increments. This strategy could not be more different than the punch card mentality prioritized by Buffett and Munger.
There are plenty of other examples of investment strategies that have worked, which are not based around buying a handful of good securities and holding them.
There will always be opportunities
I am not going to sit here and debate the benefits and drawbacks of each, but what I do want to highlight is the fact there will always be opportunities to make money in the market.
The way to make money is not to find a strategy that other people have used quite successfully, but to find a strategy that works for you and one that you know you can deploy and follow successfully no matter how long it takes.
Every single investment strategy has its own benefits and drawbacks.
Buffett’s method of buying a handful of companies and holding them for an extended period requires a lot of time and research. It also exposes investors to a lot of volatility.
Some investors may not be comfortable with this level of concentration and volatility in their portfolios. Therefore, it is probably not sensible for investors to follow this path if they are not comfortable with it. They are much more likely to make mistakes.
At the same time, fast-paced quantitative trading strategies are unlikely to be suitable for the average investor, even though they may be suitable for hedge funds with huge pools of capital and vast financial resources to deploy in machine learning.
Some investors may choose to eschew the stock market altogether and invest in real estate in their local area.
Once again, it is perfectly reasonable to want to pursue this strategy.
Investors can see how the money is being made and they can look after their investments without having to worry about stock market crashes or what’s going on on the other side of the world.
Stick with what works for you
What works with you is not going to work with other investors simply because everyone has a different psychological makeup.
For example, I am not particularly comfortable buying single stocks under a certain market capitalization because I do not trust their financials.
However, other investors have made huge amounts of money investing in these sorts of securities.
I am not comfortable with it, but have done quite well without buying these companies.
When I have bought these companies in the past, trying to make a quick buck, I have generally lost money. That is why I do not do it anymore; it is not an area where I feel comfortable.
The only way to establish which sort of investment strategy you are comfortable with is to have an honest conversation with yourself and understand where your strengths and weaknesses lie.
Most individual investors cannot compete with institutional investors when it comes to research power and financial resources, but they can invest with more flexibility. That is where the advantage lies.
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