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My Long-Term Investing Strategy

7 October 2010 6 Comments

If you ask 10 people what their long-term investing strategy would be, it’s probably continue buying stocks over time, because long-term, I’ll be in great shape.  Few people put more thought into it than that.  And who can blame them, until recent years, this strategy has worked for a long time.

For me, I have a hard time accepting this method of investing.  I’m not in the camp that believes stocks are automatic returns and I’m not interested in doing exactly what 90% of the public is doing when it comes to investing.  I hope to put a little more thought and effort into it.

The other point I should make briefly is that I think we’re at a major turning point in our economy.  This turning point is essentially the end of automatic gains in the stock market and automatic assumed growth rates.  There are a number of factors that go into this and I’m not going to get into them here.  I talk about this stuff at length on this blog so just read some past articles if you’re interested.  The point is: this is also a contributing factor to my investing strategy that I’m going to lay out here.

First, let’s define long-term.  I’m talking 5-10 years here. Having a strategy for longer than that is just dumb in my opinion.  Who knows what the world will look like in 20 years?  How can you expect to have a good strategy for a world you have no idea what it will look like?  Stick to 5-10 and re-evaluate your strategy overtime as the macro-environment changes.

My strategy is as follows:

  1. Build positions in hard assets such as gold & silver over time.  I don’t intend to allocate a huge chunk of money at one time, but instead build positions over time.  Think of it as putting a few hundred bucks in your savings account each month.  Instead of a bank account, I’m putting that money into metals.
  2. Increase ownership in strong, solid, cash-flowing companies over time.  I do this primarily in the form of DRIP investing, but will also allocate larger chunks of money when quality buying opportunities present themselves.  Notice I emphasize “ownership” and “cash-flowing” versus stock trading.  I want to own these companies, not move in and out of stock positions.  There is a time and a place for trading, but this isn’t what I’m talking about.
  3. Expect volatility in the markets due to a number of factors that I’ll just briefly mention: economic instability, political instability, currency instability, market manipulation (high frequency trading), etc.  Be in a position to where market volatility doesn’t rattle me, but instead becomes an opportunity.
  4. Have significant cash reserves or “dry powder” to be able to take advantage of opportunities and volatility.

Do you notice the difference between what I’ve outlined above and how most investors who fret at any down day in the market?

I don’t care where the market marks my positions on a daily basis.  I care about the degree of cash flow, and I care about the macro economic environment.  If the environment changes over time, then my strategy might change.  For example, if I feel that the central banks around the world are going to change their entire strategy regarding monetary policy, maybe I’ll consider halting my accumulation of precious metals – I don’t see this happening of course.

So, what’s your strategy?  Do you have one?

6 Comments »

  • buzz said:

    This is similar to the "Permanent Portfolio" (25% cash 25% stocks 25% long bonds 25% physical gold) If you haven't already I would suggest looking into it

  • @FinancialPlan said:

    This is my investing strategy:

    Invest in businesses for income. I started doing this about 5 years ago and it has served me well. When the recession hit, it was clear which companies were fine and which weren't. The ones that continued to pay me (and in some cases, pay more), I kept. The ones that didn't were sold. I am not concerned about what my investments are worth, rather how much more I make each year.

    Stop contributing to retirement plans. Taxable accounts have more flexibility and options.

    Diversify into gold watches, art and sculpture. These might not make money but it beats putting "all" of your money into paper assets that are susceptible to market swings. Owning some real assets that you enjoy is worthwhile.

    Look for strong international investments with real organic growth. The reason why the US is not the best place to be is that we have "bubble growth", such as the housing bubble created by loose money. I'm a big fan of India, they actually have real growth as the population is earning more and joining the middle class.

  • John Hunter said:

    Very sensible, a long term investment strategy is key. So is actually saving money – maybe people never even get to this step so don't have to worry how to invest it.

    I have real estate instead of gold/silver. And I have been investing in oil and gas companies (not the same as hard assets directly but has some of the same benefits). I wouldn't mind getting some additional commodity exposure.

  • Geopulse Inc. said:

    I think it’s a great piece of content for the long term investors. However I would like to suggest this http://hubpages.com/hub/Building-a-Strategy-for-Long-Term-Investment

  • Hiram Berumen said:

    Throughout this awesome scheme of things you actually receive an A just for hard work. Where you actually lost me personally was first on all the facts. You know, people say, details make or break the argument.. And it couldn’t be more true here. Having said that, let me tell you just what did give good results. The writing is actually pretty persuasive and this is most likely why I am taking the effort in order to comment. I do not make it a regular habit of doing that. Next, while I can easily notice the leaps in reasoning you come up with, I am not sure of how you seem to connect your points which in turn help to make the actual conclusion. For the moment I will subscribe to your issue but trust in the near future you actually link the facts better.

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