Goodbye Lord & Taylor (Investment Strategies)

Today we celebrate 4 weeks of Investing Reimagined. Gosh, time sure flies when you’re having fun. I hope you’ve enjoyed the ride so far and have solid takeaways.

Not any of us, amirite? 

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Biggest headlines of the week

  • Exxon Mobil will be ending its 92-year run as the longest-tenured blue-chip stock in the Dow Jones Industrial Average. Additionally, Pfizer and Raytheon are also being removed to make room for, Amgen and Honeywell. Honeywell was actually part of the Dow but was removed in 2008. Why the change? The Dow is intended to reflect the primary sectors of the U.S. economy – and it makes sense to realign its roster from time to time. In Exxon Mobil’s case, it comes at a time when oil and gas is being absolutely hammered by the pandemic. Read more.
  • Microsoft and Walmart are teaming up to buy TikTok. The most unlikely pairing in the latest saga that none of us could have predicted – but we’re now starting to make sense of. Walmart has been determined to keep up with Amazon by getting involved with the digital business, such as entertainment (having a hard time imagining watching an original series produced by Walmart). Those involved in the discussions are suggesting that Walmart could be looking to incorporate e-commerce into the app for both users and creators. Microsoft and Walmart are up against Oracle, which doesn’t hold a candle to the amount of market share and liquid assets both Microsoft and Walmart currently have, but it still remains unclear which bidder will be selected. Read more.
  • Several well-known tech companies announced plans to IPO. Most notably, Palantir Technologies, a data mining company founded by Peter Thiel; Snowflake Computing, a rapidly growing data storage provider; and Asana, a project management platform cofounded by a Facebook cofounder. Asana filed to go public via a direct listing, meaning it is not raising new capital, while the other two have raised over $1 billion apiece. IPO activity slowed dramatically at the height of the pandemic, so now that capital markets are showing signs of recovery, companies are starting to pick back up. Globally, 241 IPOs have been recorded in the second half of 2020 so far. Read more.

Is the U.S. Treasury on an all-carb diet? 

The Federal Reserve announced policy shifts that essentially means higher levels of inflation are going to be expected – and tolerated – while the country focuses its energy on lowering the high unemployment rate. 

It’s called “average inflation targeting” and it means that the central bank will aim for average inflation of 2% over a period of time, even allowing it to exceed the 2% threshold before it dips back under 2% (hence the “averaging”). This is intended to keep interest rates low, which is helpful for cash strapped individuals.

Why does this matter?

Usually, when unemployment is low, inflation rises. It’s a classic situation of supply and demand. When there are more jobs (supply) than there are job seekers (demand), employees now have bargaining power with wages. The result? People get raises and have more money in their pockets to spend. This in turn increases the demand for items they otherwise may not have purchased.

Naturally, as demand increases for items, merchants will raise prices for those items (because they can). With this in mind, U.S. unemployment being around 10% – vs. 3.6% in 2019 – poses no threat to inflation. Jerome Powell said so himself on Thursday during his Jackson Hole address.

How to craft an investment strategy that works


Before you invest, you’ll want to answer a few questions about your personal situation. These will help you determine the best strategy to suit your needs. For instance, you’ll want to decide whether you want to pursue a passive or active approach, as well as how your approach fits in with your risk tolerance. There’s nothing worse than throwing your future into the stock market and losing everything in your 50s.  

When it comes to investment strategies, every investor has their own preferred methods. From wearing a lucky hat and vetting every security for weeks to checking the news religiously and trading at gains of pennies on the dollar, there is no necessarily right or wrong way to approach the practice. In fact, there are over half a dozen widely regarded investment strategies for investors to consider before they take the plunge.  

In short, an investment strategy is a way to define your approach and goals when buying assets. Regardless of the types of securities you purchase (bonds, stocks, etc), there are several well-known tactics built upon financial or moral suppositions.

Choosing an Investment Strategy 

Before you choose an investment strategy, it’s important to consider your personal factors. Ask yourself these simple questions. To narrow down which strategies work best for you, ask yourself these 3 questions.  

Do I want a passive or active strategy? 

Passive strategies

  • Characterized as long-haul investments
  • The goal is to minimize spending costs while maximizing profits by buying securities with the intent of holding them for years, or even decades
  • Many investors believe that this method allows them to cut down on taxes, commission and purchasing costs, as well as the risks of trying to time the market

Active strategies

  • Involve trading stocks much more frequently
  • A lot riskier – a few bad calls can wipe out a portfolio overnight
  • Typically utilized by day traders or those who hire a portfolio manager, as success hinges upon a deeper focus on market trends
  • When correctly implemented, this method can lead to massive short-term gains

A robust portfolio will usually blend both strategies. The real question for most investors is not which approach they want to take, but what percentage of their portfolio they want to dedicate to each.  

What is my risk tolerance? 

Think about your risk tolerance as a measurement of your age and how much you’re willing to lose at any given time in your portfolio. For example, if you have more disposable income then you would be able to stomach taking a large loss in comparison to someone who has a much tighter budget dedicated to investing.

Typically, advisors suggest that younger investors can handle a larger proportion of risky investments, such as stocks. Strategies such as value investing may work well for younger age groups.  

Alternatively, older investors are advised to look toward more stable but less fruitful investments, such as bonds. Income investing is one of the better strategies if you’re risk-averse, as it focuses on generating a stable, but potentially reduced income.  

What is my time horizon? 

Your time horizon is essentially your financial lifelong goals list. It includes the answers to questions such as: 

  • When do I want to buy a house?  
  • How close am I retiring? 
  • Do I want children? 
  • Do I have student loans / am I planning on going back to school? 

Based on your answers, you may tailor your investment strategy accordingly. For instance, if you’re planning to start a family and buy a house soon, you may want a short-term strategy with larger gains. On the other hand, if those things are all *~irrelevant~*, you may look toward a longer-term strategy that allows for slower gains but increased profits overall. 

Types of Investment Strategies

Growth Investing 

Growth investing focuses on investing in things you believe have a high potential for increasing in price. It’s common to find growth stocks in emerging industries, such as the technology and medical sectors.  

Typically, growth stocks break down into two categories: 

  1. Short-term investments are held for less than a year. Investors select this strategy when they believe a company will see rapid gains followed by a plateau. 
  2. Long-term investments are held for more than a year. Investors select this strategy when they believe the company will increase steadily for years or even decades. 

While it may seem like a money-chasing strategy (isn’t that all investing is?), there is actually a lot of thought that goes into growth investing. Investors have to consider the following factors: 

  • The current health of the stock compared to its peers as well as the company’s future potential in its industry. For instance, growth investors will ask questions not just about the company’s financial situation, but the services and products it provides compared to the larger market. 
  • The company’s historical performance to get an idea of potential future growth. If your potential investment has a strong earnings trend and increasing revenue, there is a far higher chance they’ll continue to see growth in the future.  

Downsides of Growth Investing

Any company aggressively growing is likely a company not paying out dividends. Some investors may accept that trade due to the rapid increase in company value. Others may decide that a risky bet with no return in the interim is not worth it and opt for an alternative investing strategy.  

Value Investing 

Let’s say that a stock is trading at $25 per share due to current market conditions but you believe it is actually worth closer to $75 per share. When the market realizes its mistake and the price “magically” corrects to $75, you’ll make a $50 profit on every share you purchased simply by calling it first. That’s value investing.

Value investing – the favorite of famous investor Warren Buffet – focuses on stocks an investor believes may be currently undervalued.

  • The allure of value investing is that when the market corrects for the undervaluation, investors can sell their stocks for much higher than they paid.
  • This strategy partially stems from the belief that the market is irrational
  • Returns may not materialize for years, which is why value investing is typically a long-haul game.  

To be a successful value investor, you have to do your homework and learn not only the companies you wish to purchase, but the larger markets. When correctly implemented, studies have shown that value investing strategies outperform most growth strategies – when considered in time frames of ten years or more.  

Downsides of Value Investing 

One of the issues with value investing is that the field is incredibly subjective. It’s also possible you will never see the gains you hope to achieve. Furthermore, not everyone has the time and resources to throw into investigating every company in their portfolio.

Momentum Investing 

Momentum investors are data-driven traders who look for patterns and discrepancies in a company’s financial data to inform their purchasing decisions.

  • The goal is to capitalize on equities that are either over or undervalued
  • Can rack up profits over months, rather than a period of years

Momentum investors are all about winning by betting on the numbers. As a rule, they believe that growing stocks will continue to grow, while stocks that consistently show losses will continue to lose. 

Downsides of Momentum Investing 

This investing strategy has repeatedly shown to outperform benchmarks and markets worldwide – in theory. In actuality, very few momentum funds prove excessively profitable.

All of the buying and selling required with this strategy comes with high trading costs. For every stock traded, there is a broker or investment firm making a commission and taking their fees off the top.  

Lastly, not everyone has the time to spare hawking the markets. While this is reasonable financial professionals, it’s not reasonable for most individuals who have to work at their day jobs outside of investing. 

Income Investing 

Income investing focuses on buying securities that provide a steady source of revenue. Rather than throwing money into equities that theoretically could increase in value – thereby increasing the cash-in value of your portfolio – income investing looks toward investments that provide immediate returns.  

This investment strategy can be broadly divided into two categories: 

  • Dividend investing. When a company pays investors some of its profits, this is called a dividend. While usually not a radical sum of money, dividends provide steady income in a volatile market.  
  • Bond investing. Bonds are essentially a loan you grant to an institution or government in return for guaranteed interest and principal repayment. These securities pay out consistently, which makes them attractive to income investors.  

Downsides of Income Investing

As with anything in the financial market, there is no guarantee that income investing will definitely produce returns equal to or greater than your initial investments. However, by staying away from volatile companies and electing for securities that provide quarterly payments, investors mitigate some of their risk.  

Dollar-Cost Averaging 

Dollar-cost averaging (DCA) is a strategy that involves investing regular amounts of money in the market at regular intervals. Rather than helping investors select which securities to purchase, DCA is a tool that any investment strategy can easily utilize.

The major benefit of DCA is that it prevents investors from attempting to time the market.  

For instance, an investor who uses DCA may set aside $200 per month in an investment account. Whether the account is professionally or personally managed does not matter – so long as the money is regularly deposited. Once the money is set aside, the investor may select one (or a blend) of the methods above to determine which specific securities they want to purchase. 

Overall, DCA is a wise investment practice for almost any investor who can’t afford to dump huge lump sums into a set of securities. Once a sustainable sum, time of month, and frequency of purchase is set, all investors have to do is select their favorite securities. Some investors may choose to purchase the same stocks every month, while others may vary their investments every few months.  

The real secret to this method is that, while you may purchase securities at both high and low price points, over time you lower your average cost-per-share price.  

The Bottom Line?

There is no one right investment strategy, nor is there an “easy” strategy. Regardless of your situation and diversification, you’re likely to come across losses in your portfolio. The trick is to find a method that earns enough interest to compensate for lost funds – and then some.  

Check out this fascinating infographic from that underscores whether these recent tech IPOs are the early signs of another dot-com bubble burst or if it’s a goldmine for making a quick buck.

Tech IPOs averaged a return of -4.6% last year but have also seen 21% increase over offer price when analyzing the median first-day performance. Something to think about.

View Infographic