Overview – Doing Things Your Own, Unique Way
There are countless endeavours that people all over the world are trying to work towards. At any given time, there are people around the world who are working towards an undergraduate degree, building a business, or putting together an investment portfolio.
While many people are all trying to work towards similar endeavours, how they choose to do so will vary considerably.
The different approaches people take to achieve similar goals are to be expected: all of us are different and are equipped with various strengths, weaknesses, and other differentiating factors. What works great for one person may prove to be ineffective for another person, and vice versa.
A similar observation can also be made in investing.
Many investors share similar goals but will go about working towards those goals in various ways. However, some investors make the mistake of thinking that just because an approach works for certain investors must mean it will work for them too. While that may be true in some exceptional cases, many times it won’t be.
By taking the time to put together a unique investment style, investors can effectively work towards their goals in a way that best suits their strengths, weaknesses, and other differentiating traits.
What Exactly Is an “Investment Style”?
Before we continue, let’s take a step back and understand what exactly an investment style is. Put simply, an investor’s style can be thought of as an aggregate “picture” of how they perform various individual, investment-related work.
The amount of time spent going through annual reports, how thoroughly they perform portfolio reviews, methods they deploy to keep their emotions in check, and checklists they go over before making an investment decision: these individual pieces, when put together, are what constitute an investor’s style.
One investor may have a very strict, methodical investment style, while another may be more relaxed and do tasks at a more relaxed pace: it all comes down to the individual investor and how well they understand themselves.
An investment style, if properly formed, will be tailor-made specifically for one individual because it takes into account their specific level of knowledge, experience, emotional control, aptitudes, and personality, to name a few factors.
Different investors may follow similar ways of doing things, but no two investment styles will ever be the same. Because of this, there are no “correct” or “incorrect” investment styles, just ones that work best for a given individual.
The Problem With Copying How Other Investors Do Things
While investors go about pursuing similar goals by following their unique styles, it’s no mystery that some investment styles appear to be more effective than others. Upon seeing this, some investors are quick to abandon their way of doing things and are just as fast to try and copy what these more successful investors are doing.
While it may be tempting to abandon our investment style in favour of a seemingly more successful one, things aren’t that straightforward. If all it took to succeed in investing was to copy what more successful investors were doing, then all investors around the world would more or less have the same investment styles, but as we know, they don’t.
Take, for example, Warren Buffett. Mr. Buffett is widely considered one of the greatest investors of all time and because of this his investment style has been thoroughly studied and analyzed through the years. It’s well known that his investment paradigm of choice is value investing and that he values rational thinking very highly.
Because of how widely studied it is, investors all over the world have attempted to copy Mr. Buffett’s style, yet very few, if any, have managed to achieve the same success as he has. Why?
Almost any investor can copy Mr. Buffett’s investment style, but it was made specifically for his level of knowledge, experience, intuition, and temperament – something very few, if any, investors can match.
Just because a certain investment style works great for one investor doesn’t mean the same results can be observed for everyone else. Remember, the best investment styles are crafted with only one investor in mind – attempting to copy a style that was tailor-made for someone else will never lead to the same results.
Copying vs. Taking Inspiration From Different Investment Styles
Any investor can copy any investment style they want, but doing so usually doesn’t lead to the same results as the original user. Just because the investment styles of prominent investors are widely known doesn’t mean every investor can also use them and expect the same results.
However, just because investors can’t perfectly replicate other investment styles doesn’t mean they can ignore what others are doing. Attempting to copy other investment styles may not be effective, but that isn’t to say investors can’t take inspiration from what others are doing.
In the previous section, we talked about how Warren Buffett’s investment style is tailor-made just for him, and how countless investors have tried, and largely failed, to do what he does. Despite the inability to perfectly replicate what Mr. Buffett does, investors can take certain aspects of his style and apply them to their own, such as the intense focus on staying rational no matter what.
So, instead of trying to perfectly copy what others are doing, investors can craft their unique investment style by taking certain elements of what others are doing and applying those elements in a way that works best for their unique circumstances.
It can be argued that very few, if any, investment styles were created entirely from scratch. Instead, what most investors likely do is observe what other investors’ styles are, take certain elements that they like, and implement those elements with their style in a way that accounts for their unique traits.
Investors will need to figure out how they go about doing their work in a way that suits them best, but that doesn’t mean they’re prohibited from studying what others are doing.
Your Investment Style Will Evolve Over Time
As investors advance in their careers, they will (hopefully) accrue more knowledge, experience, and lessons learned. Because of these continuous changes, how investors go about doing their work will also evolve.
What worked well for an investor when they only had a few months of experience and only managed a small portfolio may not be as effective when, several years later, they have a much larger portfolio and more experience.
This isn’t to say investors need to completely overhaul their investment style one day; rather, their style will undergo small, incremental changes as they continue to discover what works best for them at a given point in their careers. Assuming these changes are made little by little, investors will hardly notice their investment style changing at all.
Making changes to their investment style isn’t something investors need to spend lots of time on, but it does require them to constantly pay attention to what works and what doesn’t based on their current level of knowledge, skill, and experience.
Wrapping Up
Many investors share similar goals, but due to the varying levels of knowledge, skill, and experience between them, there are countless ways investors can choose to work towards those goals. In other words, different investors have different investment styles.
An investment style, put simply, is an overall “picture” of how investors perform individual, investment-related tasks. There are no “correct” or “incorrect” investment styles, just ones that work best for a given investor.
It’s no mystery that some investment styles appear to be more effective than others, leading some investors to try and copy those styles to try and achieve similar results. However, just because a certain investor enjoys great success with their way of doing things doesn’t mean the same success can be replicated by everyone else.
Instead of trying to copy what others are doing, investors are better off taking inspiration from different investment styles and implementing the elements they like with their own investment style – a classic win-win.
