It’s All About Style
Understanding your investment style is the second most important factor to consider when investing, once you understand the concept of risk. For most people, there are broad-based investment styles that one will gravitate to, or the investor will not have a preference and can diversify across styles.
The key lesson is to not chase different investment styles as one takes over in performance leadership. The performance of different investment styles shifts and changes over time. This outperformance and underperformance of one investment style relative to others should be expected over shorter periods of time (often years). Based on this author’s experience of covering all types of investment styles across asset classes, an investment style often remains in favor and outperforms others for 3-4 years on average.
Buy low and sell high is a great investment strategy. Emotional investors often buy high with a fear of missing out and sell low when they get nervous. The same thing pertains to investment styles and investors making bad emotional investment decisions. Investors that give up on one style after underperforming for a few years then chase the other investment style that performed well most recently ultimately end up selling low and buying high (the opposite of buying low and selling high) which is worse than if just sticking with one investment style they believe in or stay diversified across styles over time.
Different investment styles have different characteristics that we will go through in more detail. Hopefully this course helps you identify an investment style that fits your investment personality, your determine that diversification across styles is better for you, and understand that investment style performances come into/out of favor all the time.