Who will win the investment strategy battle?

The Sterling Report

BY Toni-Ann Neita-Elliott

Sunday, May 26, 2019

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In any type of competition or battle, you have to know who the competitors are before you can bet on a winner. There are several different strategies which investors employ, some reap more success than others, depending on the economic cycle that you are in.

There is the tried and true “buy and hold” strategy. There is the active investing strategy, and last but not least, there is the reactive/panic strategy.

The question is: which one is best? Which one yields the greater return?

The “buy and hold” strategy can sometimes attract a degree of ridicule. Why? There is a mistaken belief that people who employ this strategy may not know a lot about investing and that is why it appears that they do nothing. However, this can be the most successful strategy, especially for individual investors.

There are a lot of benefits to combining this strategy with a consistent investment habit. Simply put, if you invest a little each month, and combine this with periodic lump sums, you will naturally end up doing a kind of dollar cost averaging.

Buying consistently will allow you to purchase when the prices are high, low, and in-between. Over time, you expect markets to increase, and even with bumps in the road (downturns), this is likely to be very fruitful over the long term.

The active investing strategy is one that is typical for investment managers. It is difficult to be in the business of managing money and be allowed to just buy and hold.

Active management focuses on the turnaround periods for your money. The idea is that you invest for a few months, realise your profit, quickly move on to the next investment, and the next — so in a year, you would have turned over your money several times and increased it exponentially.

This is an accelerated way of getting rich, and it is sometimes successful. However, it takes a lot of energy and focus, and in a depressed market, there are times when prices are just not moving up, therefore, it proves challenging to execute the strategy.

In other words, selling will lead to losses, so you may be forced to hold longer than expected.

No one will ever admit to employing a reactive/panic strategy. The truth be told, most people do not have any strategy at all. They invest based on conversations that they have with various people; they may hear a lot of hype around something and they decide to invest based on that. There is no exit strategy, and of course, this is why at the first sign of trouble, there is panic selling.

Unfortunately, this normally leads to losses on the portfolio, and worst of all — regret.

The regret comes when, shortly after, there is news that mitigates the first bit of bad news and the investor realises that they have locked in these losses unnecessarily.

If you find that you have no strategy, it is good to identify one that works for you. That is not to say that you can't change course, but it is good to stick to one that works. There is never any one right way to invest.

In addition, there can be a lot of stress in investing, particularly when prices move against you. There are people that watch the prices every day, and almost every minute. If you don't need to do that, it is probably better for your health that you conduct your reviews on a scheduled basis, rather than obsessively watching the prices, which naturally leads to panic selling. Remember to keep a cool head when investing.

Yanique Leiba-Ebanks, CFA, FRM is the AVP, Pensions & Portfolio Investments at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm Feedback: if you wish to have Sterling address your investment questions in upcoming articles, e-mail us at info@sterlingasset.net.jm.


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