Strategy and Tactics
What’s the difference between investment strategy and investment tactics?
Strategic investing is investing for long-term needs. It looks at the world in terms of structures and institutions, and invests in those areas that respect property rights, the rule of law, and that allow capital to flow freely. It understands that small companies, troubled companies, and junior claims on cash flow are more risky, so their returns are more volatile. But if the investor is able to wait long enough—sometimes several decades—that volatility should be associated with higher returns.
Strategic investing works, but only if the investor lets it work.
Tactical investing looks at how things are today and switches readily between companies, sectors, styles, and asset classes. It examines current circumstances and situations as dispassionately as possible to choose which road to follow. Sometimes the well-travelled road is the best choice; sometimes a narrow, rocky path will be better. Tactical investors shouldn’t care. Cash, bonds, real-estate, stocks, commodities—they’re all fair game. The only goal is a bigger payout.
Tactical investing also works, but only if the investor makes it work.
Both approaches have their strengths and weaknesses. Tactical investing tends to be expensive. Strategic investors need to be patient. Tactical investing requires volatile activity. Strategic investing focuses on volatile markets.
Whether an investor focusses on tactics or strategy is both a matter of temperment and resources. An investor who wants to be strategic but doesn’t have the time or perseverance to wait through the dark periods shouldn’t choose that route. Conversely, an investor who wants to minimize costs—research, transactions, fees—shouldn’t try to be tactical.
Your investment approach needs to fit your attitude and aptitude like a hand in a glove. And a glove that doesn’t fit is often worse than no glove at all.
Douglas R. Tengdin, CFA
Chief Investment Officer