How To Find The Right Investment Strategy For You
Welcome to the Financial Dojo: Lessons from Martial Arts in Crafting Your Investment Path
A warm welcome to all new readers! I’m glad you are on board.
New here? I’m Michael and on a mission to make beating the stock market as easy for you as choosing your favorite ice cream. I write an algorithm that does exactly that.
Read the full story here.
A reader's question, his name is Pablo, took me back to my childhood. Back to the echoing blows on the punching bags and the distinctive smell of sweat. I often heard a similar question in the gym - the place where I grew up.
A place my family owned for 28 years and where my dad taught various martial arts forms like Karate, Arnis (Philippine Stick Fighting), and many more. As a wide-eyed child, perched atop the warm, humming radiator, I soaked in every word of my dad’s wildly animated conversations with visitors and watched their nodding faces alight with curiosity.
They often asked,
“What is the best martial arts form?”
It still makes me smile instantly.
One fun fact about my dad and martial arts.
Ask him about martial arts today and he will start telling you captivating stories, each more fascinating than the last.
My smile then, much like now, wasn’t because of humor but in anticipation of the flood of insights and practical examples waiting to be unleashed onto the visitors.
He often said.
‘Martial arts are like an endless ocean; there’s always more to learn and explore.’
‘One Size Fits All’?
These questions reveal a deeper truth.
First.
People don’t want to waste their time and obviously not their money. Therefore, this question is in principle, a very smart one.
And yet, you need context to answer this fine-layered question to a satisfying degree.
Just like my father believed that there is no single "best" martial arts style.
Here is why.
The technique you use is one part. And yet, a lot comes down to the one who practices it. I also learned that investing isn’t a one-size-fits-all affair. The effectiveness of martial arts, and every investment strategy, hinges on dedication and the right fit for the individual. Here is what I mean by that.
My 16-Year-Long Series of Experiments
My journey into investing mirrored the variety I observed in martial arts. Each new investment strategy came with its own set of hopes, excitement, challenges, frustrations, and realizations.
Here’s a snapshot:
Day Trading: The Capoeira of investing - a whirlwind of decisions. Initially thrilling, this dance quickly spiraled into a tornado of stress – despite my money management. It drained me, both financially and emotionally. It proved unsustainable for me and was very misaligned with my lifestyle.
Technical Analysis: This method felt like a complex kata (a sequence of movements similar to a dance). Sometimes it worked, sometimes it didn’t, a classical 50/50 - but in the end it made no sense - very frustrating.
Expert Newsletters: I tried more than one, always with the same results. The race to catch up felt as if you were always one step behind in a sparring match.
Options Trading: A foolish gamble that cost me dearly, akin to an ill-prepared fight.
Dividend Stocks: The Tai Chi of Investing. As my father used to say, ‘In the slow and steady moves lies hidden strength.’ – a market approach I love and therefore still maintain. Each dividend is a gentle reminder that not all power comes from speed and aggression.
Classical Fundamental Analysis: Effective, yet time-consuming, like mastering an old traditional martial art form, it takes years and years.
Commodity Trading: I steered clear, remembering the gym lesson of the ill-prepared fight: if you don’t fully grasp it, don’t even think about it – in short, don’t engage.
Automated Fundamental Analysis: My final style, is a blend of Tai Chi and MMA (Mixed Martial Arts), where you only use what works. It’s more than one method; it is the result of my journey, balancing efficiency with simplicity and time investment with returns.
The Core Principle: Simplifying the Complex
What all these lessons taught me was the importance of aligning your investment style with personal your lifestyle and goals.
It’s like dating - rarely do we marry our first date, right? It takes several shots to understand what we truly need and want in a relationship or from a life partner.
My approach, meanwhile automated and refined with code, is data-driven (more in a minute) and fits seamlessly into my life because I touch my stocks only once a year and some not at all. I do quantitative fundamental analysis backed by statistics and AI like my dad refined his martial arts techniques through consistent practice and improvement.
Understanding the Nuance
The initial question was.
What are the differences between a strategy focused more on statistics and one that leans towards quantitative analysis?
It’s worth exploring it in more detail.
The Role of Statistics in My Strategy
When I look at companies, I dive deep into their fundamentals, but I never stop there.
I look for statistically relevant data that resonates with my investment philosophy.
Let’s consider a simple example to illustrate this – the tip of the iceberg if you will. Think about calculating a simple average.
You sum up the values and divide them by the number of entries. This is mathematically sound, but the real question is this.
Does the market even care about this average - about these number(s)?
Market-Relevant Data
If there are outliers in the data, I assess whether removing them offers a better representation of the market average. Often, this refined result aligns more closely with market reactions.
But where to ‘slice the cake’ and remove outliers is a judgment call. It’s art and science. And a decision that each analyst must make based on their understanding.
Most of my (‘unseen’) background work involves identifying the numbers that truly matter – the ones that make the market move. Finding these points and patterns is the key. And if you are right more than 51% of the time, you’re likely to see success.
(Keep that number in mind.)
However, the time horizon you choose to look for has an important role in every strategy. Mine is the 12-month cycle.
Do you need these statistics?
Not necessarily, but in my experience, they enhance my results, and that’s all I care about.
The Quantitative Aspect
Quantitative analysis, on the other hand, involves using mathematical models to predict market behaviors. It offers a structured and model-driven approach.
It’s about understanding the patterns and rhythms of the market in a different way.
While I incorporate elements of quantitative analysis, my main goal of all this is always this.
It must fit and align with my personality, investment goals, and most importantly - risk tolerance.
Use a system that works consistently in your life - because only then you'll stick to it. Read the last sentence again.
Understanding the market (which I’m still far away) requires the same dedication as mastering a martial art. For me, drowning in the market buzz led only to one thing - paralysis by analysis.
I found my personal balance in a less stressful, data-focused approach, which led to my ‘rolling-12-months strategy,’ where I let my investments grow while I refine my code.
The Real Reason Behind Your Investment
When asking yourself why you want to invest in the stock market, the immediate response might be, “To make money.”
However, it’s essential to go some layers deeper into your true motivations.
Take a moment and reflect on the following.
For some, the stock market is a source of excitement. They thrive on the thrill of following market fluctuations, reading analyst reports, and staying updated with financial news.
This consumption of information is enjoyable, and there’s nothing wrong with that. But it’s important to recognize that this activity while engaging, is more about the process of learning and staying informed rather than directly focusing on monetary gains.
For me, understanding the market’s mechanics and what drives its movements is crucial. I look for it in my data, not in the news, because immersing myself in the constant buzz of news and speculation leads to distraction, confusion, and frustration. This ‘over-analysis’ paralyzes me, resulting only in inaction and not investing at all.
In these moments, I neither make nor lose money through market fluctuations, but the silent thief of inflation is still at work, eroding the value of my idle funds.
Therefore, detaching myself from the loud crowd is crucial for me. I want, no I need silence - to think.
Finding Balance in Market Engagement
The key lies in balancing the desire to stay informed with the need to make clear, decisive investment choices. It’s not just about the quantity of information consumed, but about understanding how and when to use that information to make informed moves.
Detaching helps me avoid the trap of ‘paralysis by analysis’, where too much information hinders rather than helps.
While the initial draw to the market might be profit with the “best” strategy, it’s essential to understand your personal connection to investing first.
Are you in it for the excitement of the process, the intellectual challenge it presents, or purely for financial gain?
Recognizing your true motivations will not only make your investment journey more fulfilling but also more aligned with your personal goals and lifestyle.
It’s as important as choosing the right sport that suits your body.
It has to be a perfect fit - for you - and only for you.
(If you want to dive deeper into your personality, I’ve written a whole series about understanding ourselves better - the second part of this article might be a good start.)
Before we go to the "Behind The Scene" part, let me show you this.
Our former gym.
If you think somebody should read this, share it, and make them happy.
Progress
After calculating 70,000 different strategies over 32 days, the majority of the analysis phase is done for now.
I've just started analyzing the year-over-year returns of the last 26 years.
Here is a little spoiler.
The best strategy beat the Dow Jones 84.62% of the time! - in 22 out of 26 years.
With a CAGR of 21.55%.
(Compound Annual Growth Rate —> wiki)
Next time I will provide some details.
After the year-over-year returns, the next step is a detailed calculation of the day-to-day returns over the same 26-year period.
Why all the work?
My aim is to put the results into a simulator. It will allow you to explore the returns.
Here's a first glimpse of how the simulator will likely look like:
Plan
Tackle my To-Do list :-)
What’s on my head
Go to the physiotherapist - my neck is killing me :-D
Nuggets I’ve enjoyed
Have a great day StockStar!
Tap that heart if you like Karate Kid and Mr. Miyagi!
Michael
Recommend The Economy Rocket to your readers and friends
I share my stock investment story without sugarcoating – you get the good, the bad, and those tricky ego trips. I'm developing a service with a mix of smart code and proven investment strategies, making stock analysis a thing of the past if you wish. Because life offers so much more beyond the confines of stock analysis.
Disclaimer:
The information in this article is my personal opinion. I’m not a certified investment professional. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. There are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk and do your own research as well. Investing in the stock market can lead to a total loss of the capital invested.
So I use E-Toro as it just seemed easy to use and understand.
I’ve decided to buy stocks that pay out dividends and I have a watchlist of about 100 companies that pay out dividends that I’ve seen other people post about.
I’m gonna keep adding money to those stocks and just leave it.
If I ever get any bonus’ then maybe I’ll buy stocks in other companies like Apple etc.