When to Change Your Investing Strategy

What’s the best country to live in?

Ask 10 different people and you get 10 different answers.

It’s like asking, “What’s the best investing strategy?” There’s no right answer. No wrong answer. Just different answers. A function of who you ask.

A stock picker says stock.
A realtor says rental property.
An indexer says an index fund.
A venture capitalist says startups.
A dividend investor says dividend stock.

The American author F. Scott Fitzgerald maybe said it best: “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.”

So, how do you pick a strategy?

Well, most investors start out copying other investors. They buy the thing someone else says to buy, and when that person says sell they sell too.

This leads to natural groupings of investors. The people picking stocks. The people indexing. The people buying dividend stocks. And so on.

And because everyone enjoys being part of a group it’s easy to start talking about “our” way of investing. How it’s better than “theirs”.

Psychologists call that groupthink.

You’ve probably heard the stories about doomsday cults. How ordinary people start believing the world is going to end but flying saucers will rescue them on some specific date in the near future.

The belief quickly consumes their whole life. They quit their jobs. Leave family behind. Prepare for the saucers.

And what happens when the aliens don’t come? They don’t say, “Well, that was a stupid waste of time.”

No, they double down on their beliefs. “Gee, the aliens are running late. You know what? We probably calculated the date wrong!”

It’s remarkably difficult to change your mind about something that’s become who you are. To acknowledge your beliefs are wrong.

It’s much easier to just go on believing in flying saucers.

In the same way, it’s important to learn different investing strategies, and to choose something that fits your circumstance and personality. But don’t think it’s the best strategy.

That way, you give yourself the ability to question your beliefs.

I got a nagging feeling that I needed to change my own investing strategy. What had felt right for 20 years didn’t feel right anymore.

So, it was sad, but I slowly let go of indexing. Moved completely to stocks. Mostly Berkshire Hathaway. It felt like I was doing something wrong. Abandoning an old friend.

And that’s what happens when an investing strategy becomes who you are.

You don’t just own an index fund. No, you become a diehard Boglehead. You don’t just own some stocks. No, you become a diehard stock picker.

You’re a true believer, clinging to your strategy as passionately as a cult member believes in flying saucers.

What have I learned? It doesn’t matter what investing strategy you choose. What matters most is you have a strategy. That you stick to it for long periods of time.

But you’re also willing to change your mind!

So, the meta-strategy is:

1. Pick an investing strategy.
2. Stick to it forever.
3. But change it if things change.

In life, not changing a belief or strategy is sometimes the best choice. But other times you need to change them, if they don’t feel right, or no longer serve you.

After all, changing your beliefs is how you change your behavior. To get to where you want to go.