The perfect investment strategy to make money
TLDR: The best way to make money
I am going to reveal the magic behind the curtain and the one true method to make money that has eluded the masters of investing from hedge fund managers to investment gurus? Probably not.
There are lots of different types of people who invest in the market and everyone has different goals and expectations from the market. So how is it possible for anyone to define a “one size fits all” approach to this varied group of people.
Chartists / Technical analysis
There are a lot of traders who swear by technical analysis. I have tried my hand at learning and understanding this art and science behind it. But I have come to the realisation that it is not for me.
The only reason I was interested in technical analysis was to see if I determine good entry prices for my index investments.. Maybe if i had persisted and learnt more it might have come in handy. But i just felt that is more voodoo and reading the tea leaves than an actual science.
If you are an expert and you use it as trader to make a quick buck or as a fundamentals based investor helping you get in or out using good entry / exit points more power to you. It is just not for me.
The second class that I see are the traders who use the momentum as their guide.
The rising tide lifts all boats
So if I particular firm is doing particularly well because of certain market conditions it might end up impacting other firms in the same industry or sector.
There could also be a lot of movement because of policy implications from the government that push things in one direction or the other.
Again, this is not for me as it is difficult to keep up with all the happenings and drivers which lead to the changing directions and momentum. I would be happy to stick to the sidelines and watch from a safe distance.
Another popular method of finding opportunities to make a quick buck. This option can be quite profitable if you are able to do some quality analysis. This requires some strong second and third order thinking, which is not easy to do. Also this needs you to be at the top of your game and dedicate time and energy to grab those opportunities.
Again, I have no illusion that I am smart enough to do this. So it is not for me.
If I get a dollar for every time I hear or see any investment blog or twitter handle selling themselves, it is always
I am so and so and I am a value investor
Please, give me a break. Value investing is now this catch all term for anyone with a twitter profile and want to be your next financial advisor. This has gain a lot of popularity and is the darling of the small and retail investing world. If everyone of these are value investors then all the hidden gems of the Indian market would have been fully discovered and we would have 100 multi baggers every year identified.. But in reality it is hardly the case.
Value investing in the small / mid cap space is really hard, it needs a lot of leg work in attending the AGMs, visiting factories, distribution chains, talking to vendors and customers, asking the management the right questions and evaluating what is the value and possible addressable market the firm is trying to reach.
Sitting in front of a computer and running a few screeners will not magically give you the ability to identify the next TCS or HDFC bank.
Again, this is hard work and I was fooling myself in believing that I was a value investor, sadly I am not.
Growth - steady compounders
Out of all the above types of traders / investors, I feel that this group has the best chance of building real wealth. Not just make money which is what traders tend to do, but investing makes wealth not just money.
Why run in search of the next HDFC or TCS, when there is nothing wrong with HDFC and TCS. When try and find out if a relatively new NBFC or insurance is worth a risk when Bajaj Finance or HDFC life are doing quite nicely.
Instead of trying to find that elusive small / mid cap that could potentially turn into a multi bagger, why not invest in the solid performing bluechips of today which are steadily compounding at 12 to 20% CAGR.
The key here is to resist the temptation to tweak the holdings from time to time, because the growth is not going to be 12% every year. It can be flat to negative some years and 30% the next, but what matters is the ability to consistently invest all the way through and have the conviction and patience to stick with it.
Total market investing
I am currently in this space for the most part. This is the simplest and easiest way to invest with everything on autopilot with not a lot of thinking required. No analysis, no reading of annual reports, minimal rebalancing. My current picks for the Indian market to get a good coverage of the Indian stock market as a whole is
UTI NIFTY index fund - covers top 50 companies in India
UTI NIFTY Jr Index fund - covers the next 50 top companies in India
Motilal Oswal Mid cap 150 index fund - covers the next 150 top companies in India
If you can invest in these 3 funds, you get exposure to the top 250 companies listed in the Indian market. You are essentially betting on the entire Indian market except for the small cap space, which tends to very volatile and the results mixed at best.
I am in this camp now and I will continue here for the foreseeable future. The question that you might have is
Why not move to growth as well?
The simple answer is, for trading individual stocks I need to get approval from work trading desk both on the buy and sell legs and there are restrictions around chinese wall which pose too much of a hassle for me to bother.
So yeah, sorry to disappoint there is no one investment strategy that is the magic bullet. Do what works for you based on your goals. If you have the patience, perseverance, skill and time to do research then consider growth as your investment strategy, if not stick with index funds which are the easiest to setup and automate.
Good luck and Happy Investing,