Investing 101

Over the years, I’ve demonstrated a number of times that long-term investing works — long-term, meaning that you pick good investments, stocks and bonds or funds — so long as you stick with the program. Sticking with the program means just that — if you have selected good investments and you watch them and there have been no serious changes in management, valuation, competitive moat and so forth, when the portfolio declines 20 percent or 30 percent, you smile and try to invest more. Designing a long-term portfolio is an exercise in strategic thinking at its best, since the portfolio needs to work well as it can in different kinds of markets.

I’ve also discussed ad infinitum the fact that tactical investing works, assuming you select tactical players — mostly always mutual funds, but not always mutual funds (consider RBS TrendPilot ETN offerings, for example) — that have managements who know what they are doing and rules-based disciplines.

Strategic and tactical can overlap, of course; there’s no need to get bent out of shape over these two words. In the investment business, strategic means long-term and tactical is more related to limited or immediate action. The words are both used often in the military, which seems to fit the fact that the investment world is often a battle.

If you have a strategic long-term portfolio, it may make strategic sense to include some tactical elements that may immediately respond to unusual market conditions, right? In this way, when the index drops 40 percent, you may only go halfway.