What is strategic investing, and how does it differ from tactical investing?
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, and so their returns are more volatile. But if the investor is able to wait long enough—sometimes decades—that volatility can turn into higher returns.
Strategic investing works, but only if the investor lets it work.
Tactical investing looks at things here-and-now and switches readily between companies, sectors, styles, and asset classes. It examines the 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 don’t care. Cash, bonds, real-estate, and stocks are all tools used to achieve higher returns.
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 necessitates volatile activity. Strategic investing focuses on volatile markets.
Whether an investor wants to be tactical or strategic is both a matter of taste 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, custodial fees—shouldn’t try to be tactical.
An investment approach needs to fit an investor’s mindset and resources like a hand in a glove. And a glove that doesn’t fit is best set aside.
Douglas R. Tengdin, CFA
Chief Investment Officer
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