If religions are our beliefs of the world, investing strategies are our beliefs of the markets.
You are not suppose to criticise someone else’s religion because he may get extremely upset. He might even hurt you if you have gone overboard.
Similarly, it isn’t a good idea to criticise someone else’s investing strategy. Who are you to say he should invest the way you do, especially when it was an unsolicited ‘advice’.
It probably stems from the ego’s need to make others aware of their superiority by proving their beliefs are right. It can be as crude as a dick-measuring contest by saying ‘my returns are higher than yours’. Such person failed to realise that investors have a different belief because they may have different objectives.
For example, a dividend investor may not be using higher returns as a yardstick, but he is concerned about the amount of dividends he can receive to cover his living expenses. Effort could be another factor. You may want to spend a lot of time and effort to uncover hidden gems in the stock market but some are not willing at all. Your ‘higher returns’ is something that is irrelevant to them as they rather get lower returns in exchange for a fuss-free process.
Let us explore some of these investing religions.
Passive investors believe that you cannot beat the market. Don’t bother trying. Buy index funds and hold for the long term. Most active investors cannot beat the index, not even the professionals.
Market timers believe that buy and hold is dead and slow. You should always get out prior to a catastrophic crash. Look short term as the markets go up and down like a roller coaster.
Technical analysts believe that fundamental analysis is useless because the numbers and figures cannot be trusted. There are big hands manipulating the markets and the information you need are in the stock charts.
Fundamental analysts believe that technical analysis is witchcraft and has no basis. They scorn at market timers being short sighted. Towards the quants, they believe that not everything in this world can be explained by science and investing has an element of art.
Quantitative analysts believe that both technical and fundamental analyses have no science behind them. Their methods have not been backtested or verified to work. Everything that can be tested should be tested. Only use models that have proven to work.
Value investors believe that you need to buy stocks at a discount and have a margin of safety. They believe that assets are always worth something in this world and the market will mis-price them at some point to become good undervalued buys. The market will eventually wake up its senses and offer to buy them back from you at fair prices.
Growth investors believe that value is static and about the past. The returns are in the future and they believe in identifying good businesses that can continue to grow their market share, revenue, earnings, cash flow and even dividends in the future. They also must have competitive advantage to deter newcomers from taking the share away such that their growth is unimpeded.
Tech investors believe that the world has changed. Now it is about buying business with fast growth after product-market fit and no earnings is fine. Book value is useless and being asset-light is the best way to scale fast.
There are more beliefs which I did not pen down. The problem is that there are too many of them and if you have yet to choose one, you will be torn to decide. You probably are suffering from FOMO. It is tough making a choice because it means you have to give up everything else. And you are afraid of making a wrong choice.
I don’t believe there’s a right belief but that’s one that is more suitable for you because of your investment objective, level of effort, personality and risk appetite.
You don’t trade the market. You trade your belief of the market. Make a choice and stick to it, and stop criticising others even after you become successful.