The question that will be debated until the end of time is “how should I invest my money”. With this said we’ll go ahead and give you a look into the 3 general strategies we see people in the financial world take, you’ll notice that the strategies tend to line up with personality types as well so here we go.
Safety First: These investors are typically two fold “Cash and 401K/indexes only” and Deep Value, both of these strategies scream a personality type that is unable to hold together emotions. As you would expect this would typically be your Type A personality in Sales/Research/Banking or long only value shops. Essentially the goal here is to either buy S&P 500 or keep stacking cash into a money market account at the highest rate possible (1% today), or an equivalent strategy of staggering Certificates of Deposits or buying Government Bonds. With that said this strategy does generally work over the extremely long term if you never sell and continue to dollar cost average down and collect a dividend. The one thing here that makes sense is that you’re really not paying for someone to manage your money (note most people who have been in long enough have enough to not pay management fees on their accounts).
Take Away: You’re creating your own personal mutual fund.
Risk is Okay: If you’ve worked in a Hedge fund or in Equity Research on the sell-side you likely have some skills that allow you to become comfortable picking stocks. This means you’re essentially trying to maintain material short-term gains and don’t believe markets are efficient (Efficient Market Hypothesis has been proven false many times). You’ll buy individual stocks and you are likely taking the maximum match your company offers to your 401K or at least have some in there for tax purposes.
Take Away: Trying to get short-term gains while realizing that if everything falls through you don’t want to be begging for quarters.
Hit it Big: These guys are extremely intense and confident in what they do. You’ll see maybe 1 or 2 in research, and a handful in the hedge fund industry. I have yet to see a banker have this philosophy since they are generally risk averse and follow the safety first plan unless they are a Type B banker who is living a riskier/more expensive lifestyle. Simply put, they make large one time bets on items they are confident in and then sit back and hope to clean up.
Take Away: If the description wasn’t good enough think of these investors as Option buyers, go big or go broke.
Conclusion: If you make good money none of these options are really wrong, some are safer, some are more aggressive etc and it really depends on what you’re trying to get out of life.
While this post is quite basic, the real takeaway that needs to get out into the public is that “text book investing” is rarely correct for “everyone”. A good way to think about it is as follows: How are you going to make any money by doing exactly what everyone else does?
