The Only Three Questions That Still Count: Investing By Knowing What Others Don't, 2nd Edition

Stick With Your Strategy and Stick It to Him

As Chapter 3 hinted, one tool to stay disciplined with the Three Questions and keep your scurrilous brain in check and not be humiliated by TGH is having a comprehensive strategy driving decisions. Just using the Three Questions is great! But a strategy provides a basis and framework from which you can ask the Three Questions and make small (or big) bets keeping you on the path toward your goals.

Maybe you think you already have a pretty good strategy. Fair enough—but many investors who believe they have a strategy may confuse tactics with strategy. For example, some investors want market-like returns with low fees, so they may want a “strategy” of buying no-load mutual funds. That is a philosophy, not a strategy. Operating that way without a strategy, 30 years later, you may not have paid any load fees! But you also may not have gotten decent returns.

Another tactic many investors (including many professionals) use, believing it is a strategy, is rigid adherence to a static asset allocation—i.e., fixed percentages of stocks, bonds and cash. Static asset allocation may be a fine self-control mechanism for people who otherwise lack self-control, just like having someone else prepare all your meals can control your weight if you can’t hack it on your own. But static asset allocation ensures you can’t take advantage of the Three Questions when opportunity knocks.

Investors also use stop losses and dollar-cost averaging (both self-control ...