Why you need to find your investment strategy

When it comes to planning for their financial future, most investors can identify the where, what and when. But the how is often a different story, and like someone who knows their destination but doesn’t have a map that will help them get there safely, investors can get distracted along the way. Especially during times of uncertainty in the market, which investors are trying to navigate as the post-pandemic economy continues to fluctuate unpredictably. This has many investors questioning their strategy and whether or not they should change course.

But that contrasts with how legendary investors like Warren Buffett and John Bogle --who have tended to stay on course regardless of what they encounter—strategize.

“Buffett had an investment philosophy, and he stuck to it even when it looked to others like it was a bad strategy,” says Michael Wynes, an assistant professor at Wilfrid Laurier University who is studying the role of emotional intelligence in investing. “People were saying, ‘Why aren’t you investing in tech?’ or ‘Why aren’t you chasing these trends?’ And he said, ‘Nope – that’s not how I invest.’”

What’s your strategy?

The challenge, of course, isn’t figuring out how Warren Buffett invests. It’s figuring out how you invest. “It’s not that there’s one right way,” explains Ryan Lewenza, a partner and portfolio manager with Turner Investments. “You can be a technical momentum trader and be successful, or you can be a long-term investor and be successful. But I do think you have to figure that part out.”

That process, he says, has to begin with taking an inventory of what makes you tick.

“What gets you excited personally? Do dividends get you going? Or are you someone who’s really interested in global trends and trying to be on top of them? It’s about doing what you’re passionate about.”

You also need to be passionate about learning, Lewenza says.

“It takes a while. I’ve been doing this for 25 years, and I’d bet only in the last six or seven do I really feel like I’ve started to hone this in and figure out who I am. It’s not an overnight thing, and you have to read tons.” And, he adds, there really isn’t any substitute for experience – a lesson that he had to learn first-hand coming out of school. “I thought I was smarter than anyone else, and that experience didn’t matter as much because I knew how to do a discounted cash flow model and all this other stuff. And I realized really quickly that I didn’t know anything. Experience matters.”

Stick to your plan

The biggest challenge of choosing an investing philosophy is sticking to it, though having one can make it easier to ride out market ups and downs. For instance, value investors – people who buy stocks that tend to be trading at a discount to their historical value – have seen their returns underperform the broader market for years now, in part because growth stocks, which include popular tech companies, have done so well. They’re waiting for these high-flying companies to fall out of favour, at which point value plays could see better returns.

Ed Rempel, a fee-for-service financial planner in the Toronto region, says any investing strategy is only as good as your willingness to commit to it. “If you decide you’re going to be a value investor, then study value investing and commit to being a value investor for 20 years – regardless of what happens.”

It’s when people deviate from their investment philosophy that they end up in trouble, notes Rempel. When people abandon their philosophy, they end up buying into what’s popular just as its popularity is about to run out.

“I think that’s the No. 1 mistake investors make: buying what’s done well recently,” he says. Likewise, investors often sell what’s doing poorly at the worst possible time. Case in point: mutual funds saw their biggest redemptions ever during early 2009, when global markets were just about to bottom out. “Whatever investing strategy you pick, whether it’s indexing or value investing or growth, you should stick to it long term and ride through all the ups and downs,” he suggests.

Those ups and downs can be harrowing, though. The explosive growth of financial information gives investors access to huge volumes and varieties of data; it can also serve up daily – and often hourly – reminders of just how hard you’re getting hit by the market. Technology, meanwhile, makes it far easier to react, and not in the ways we might want to.

“When you had to think about it and get in contact with your broker, that time delay was probably really helpful,” Wynes says. “But now, I can see a tweet come out that says a company released its earnings, and I can immediately pull up my trading app and make a trade within seconds.”

Those are the trades you most want to avoid; though it’s easier said than done, explains Lewenza. That’s where a having a well-articulated investment strategy, along with enough experience to know how to ride it out, can help.

“It’s that strategy,” he says, “that will help you achieve long-term success.”