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Money Wisdom focuses on the engine behind your investment portfolio: your income, spending, & savings habits. Money Wisdom shares top money strategies, principles, & frameworks to help you grow your investment portfolio and achieve financial freedom.

Today, we’re going to look at:

1. Warren Buffett’s thoughts on finding an investing strategy that’s right for you, by way of a story about chess prodigy Josh Waitzkin

2. What we can learn from physics’ mental model of “Momentum” & its applications for investing.

3. Insights from Buffett on his unexpected perspective on his role as an investor, Robert Greene on the role of creativity in our journey of achieving mastery, & James Clear on what allows successful individuals to repeatedly win.

Let’s dive in.

1. Story

There are a lot of different investing strategies. Many at odds with themselves. Some are short-term, others long-term:

Some believe in value investing, aka, buying 40-cent dollar bills:

Others in quantitative strategies, technical trading, derivatives—the list goes on.

The key is to find one that fits your personality, skillset, & objectives well:

And resist the urge to automatically adopt what works for another investor.

This begs the question:

How do you know when you've "found your fit?"

2 tests stand out:

The first, as Buffett alluded to above, the strategy makes sense to you almost immediately.

Everything seems aligned—time horizon, risk-to-reward, etc.

The second test:

If you can sleep well while your portfolio weathers temporary declines, you may have found your match.

Waitzkin’s story is a cautionary tale:

There are a lot of different strategies that work—but not every strategy works for everybody.

The key is to find the strategy that works for you.

2. Mental Model

"You must know the big ideas in the big disciplines and use them routinely — all of them, not just a few.” — Charlie Munger

Today, we pull from the discipline of physics. Specifically, an instructive & powerful mental model for investing & business: Momentum.

In physics, momentum is velocity times mass, or the quantity of motion of an object. In simple terms, the more momentum an object holds, the more difficult it is to stop.

3 applications of Momentum for investing:

1. Momentum strategy:

If you've been around investing for any amount of time, you've probably encountered the term "Momentum Investing.”

This is the idea that stock prices that have gone up recently will continue in the same direction.

And, actually, studies have shown Momentum Investing to perform well.

However, it’s antithetical to the Graham-Munger-Buffett strategy of value investing. Momentum investing chases performance & relies on another investor to pay you more for shares—without regard to fundamental value.

Yet, if you’re a value investor, it’s still helpful to be aware of momentum stocks to take advantage of from a contrarian perspective…

2. Contrarianism

The momentum investing strategy offers opportunities for value investors to take advantage of when the positive momentum runs out.

When momentum stocks swing the other way, underpriced stocks can be picked up at bargain prices:

3. Compound Interest

And taking advantage of underpriced stocks can create greater momentum for our overall portfolio to compound more effectively.

After all, the better deals we get, the more opportunity for appreciation…

Which creates ever-growing capital to reinvest in more opportunities:

3. Insights

Key Takeaways:

As Waitzkin’s story showed, attempting to mimic the best in the world doesn’t necessarily lead to success. In fact, it could be to our detriment. Other investors may be profitable with their own strategies, but we must watch them with a wary eye: what worked for them, may not be a great fit for our own personality, risk tolerance, & investing goals.

2 ways to test whether we’ve found the right investing strategy for us:

1. It makes sense almost immediately: Buffett found that those who are highly confident in value investing, for example, almost immediately understand the strategy—or never do.

2. It passes “The Zzz’s Test”: Whatever strategy we choose, it’s almost inevitable we may experience some portfolio declines. If we can sleep peacefully at night during these down periods, with confidence in our approach, we may have found the right strategy.

Well, that’s all for this week

I hope you enjoyed these lessons.

See you next Saturday.

Two resources I think you might like:

1. Book Summaries: One of the most important lessons from Charlie Munger is to strive to become a little bit wiser each day. To accelerate my learning on everything from investing & decision-making to negotiating & habit-building, I use Blinkist (Thank you to the Blinkist team as their affiliate program helps keep this newsletter free to the reader). Blinkist offers easily readable book summaries to help you get the most valuable ideas from the most popular books. You can check out Blinkist here.

2. Mental Exercises: To paraphrase Morgan Housel, the common factor among elite investors is they have complete control over the space in between their ears. Financial news networks and social media can create a lot of "noise" for investors. To stay focused and calm, I like to use Headspace (I don't receive any compensation from Headspace currently). Headspace offers mindset and breathing exercises to help you keep control over the space between your ears. You can check out Headspace here.

Disclaimers

This material is not investment advice. No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading this material can be accepted by the publisher. Additional disclaimers here.

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