Summary of my Investment Philosophy
My Investment Philosophy is heavily influenced by (in alphabetical order) Benjamin Graham, Charlie Munger, Howard Marks, John Bogle and Peter Lynch, which can be easily summarized as follows:
- An investment promises safety of principal and an adequate return. Anything else is speculation – Inspired by Benjamin Graham
- The only way to outperform market returns is by being contrarian – Inspired by Howard Marks
- Utilize an investment style that suits your temperament and talents – Inspired by Charlie Munger
- One of the biggest killers of returns are costs (eg. taxes, transaction costs, management fees) – Inspired by John Bogle
- One of the three best ways to reduce risk is to buy with a hefty margin of safety – Inspired by Benjamin Graham
- Another best way to reduce risk is to spread it with diversification – Inspired by Benjamin Graham
- The other best way to reduce risk is to buy great companies since they get better over time – Inspired by Charlie Munger
- Always be willing to sell great company stocks whenever it’s overvalued by any perspective of valuation – Inspired by Peter Lynch
For retail investors, a few ways to be contrarian is to take up credit risk, illiquidity risk, concentration risk, leverage risk and impatience risk (the risk of being impatient and doing too much trading as a result). I strongly believe that the more types of aforementioned risk you can take with your investment strategy, the higher possibility and potential of outperforming market returns.
Therefore for normal retail investors, the few sustainable ways (including, but not limited to) to really outperform market returns based on the definition of “investment operation” by Benjamin Graham, would be investing in distressed debt (credit risk), NCAV stocks (illiquidity risk), great companies (concentration risk), investing with debt (leverage risk), active indexing / dividend stocks (impatience risk), or mechanical investing strategies (mixture of all risks).
For leverage risk, I’m only comfortable taking up that risk for investing in great companies during bear markets. The reasons can be found in “How Amateur Investors Can Reduce Competition To A Minimum“. Even then, I’m relatively uncomfortable with leveraging due to the threat of cash flow problems when servicing debt.
The investment style most suited to my temperament is investing mechanically (following stringent quantitative buying / holding / selling conditions) as I tend to over-think after making purchases. I will also want to have very long holding periods as I’m a minimalist and don’t like killing my returns with stock commission fees.
The investment strategy that I’m currently mainly pursuing as a result is a Wide Moat Dividend Growth strategy, but I’m always flexible to snap up bargains that are more tax-efficient (I pay 30% dividend withholding tax but 0% capital gains tax as a non-US citizen) such as Net Nets or Non-Dividend paying Compounders.
As for why I love Wide Moat Dividend Growth so much compared to other strategies at this current stage, you can read the reasons here: Why Dividend Growth Wide Moats vs No Dividend Wide Moats.
[Updated as of September 26th 2015]
Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)