Strategy versus Tactics

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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By | 2014-09-09T15:40:04+00:00 July 25th, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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