Are You a Strategic Investor or a Tactical Investor?

Mike Turner |

I have a couple of words for you to ponder... "Strategic" and "Tactical".

Now that you've pondered... I have a question for you (and, keep this strictly in the realm of stock market risk capital)... "Are you a strategic investor or a tactical investor?" In today's Goldilocks world of the 'undecided voter', you may have said, "Both!"

I submit to you that one type is far better for your risk capital than the other, but feel free to completely disagree with me.

Being the well informed investor with an above average (maybe way above average) IQ, you clearly understand the difference between these two words. They are a little like the difference between "War" and "Battle"... or the difference between "Forest" and "Trees". It is also the difference between having a "long time-horizon" and "short time-horizon". It is even the difference between long-term capital gains and short-term capital gains... but, that's a bit of a stretch.

In the universe of the stock market (according to some experts), it is the difference between "investing" and "trading".

In the traditional sense of these words, you have been told that you need a "Plan" that is, in effect, a roadmap designed to take you from where you are to where you want to be, financially. You can implement this Plan through the use of various tactics, but that in all cases the tactics are implemented with the ultimate Plan in mind. By the way... this is a very reasonable concept.

For example, you could have a retirement Plan that has a "Goal" that can be simply stated as: "I want to retire by the time I am ____ years old and have enough money to live comfortably for the rest of my life." Granted... a Goal is not a Plan, but goals nonetheless, are critical components of a good Plan. The plan includes certain objectives than can be reasonably met if the appropriate tactics are used to attain those objectives. For example, one cannot have an objective of obtaining an advanced degree from a prestigious university if certain tactics are not properly employed, like: getting accepted into the university, having the money to attend, maintaining adequate grades, etc. The degree obtained is but one goal that must be reached to stay on the Plan of reaching the stated retirement goal. The wonderful thing about living in this great country is there are many tactics that can be applied to reach a myriad of goals that allow you to follow a plan uniquely suited to your personal situation in order to achieve your retirement goal... this is your "Plan".

But, I want to take you back to the two words, "Strategic" and "Tactical".

In the world of money management, I am what is known as a Tactical investor. Yes, I have 1-year, 5-year, retirement and lifetime plans for all aspects of living in an uncertain world. I manage and/or own multiple companies and am involved in many lives that are impacted by decisions that I make along the way. The details and minutia notwithstanding, I am not unlike a lot of my readers, subscribers and clients. We all have many goals, plans and objectives that we want and/or hope we can achieve in our lifetime.

But, I want to narrow down the 'big' list of goals, hopes, dreams, objectives, plans, etc., to just one... increasing our financial net worth via the buying and selling of stock market securities (stocks).

It is in this arena, I submit to you, it is a mistake to invest in the stock market, strategically. I know... I have a lot of money managers who read my missives... and, I know you may be of the persuasion that having a long-term plan for your stock market investments is a good idea. But, it has been my experience that you will have far less downside risk by being a tactical stock market investor. In fact, a lot of money managers consider the phrase "tactical investor" to be an oxymoron. They believe that you can't be an "investor" unless you are a buy-and-hold (hope), long-term holder of stock securities. The two words, "tactical" and "investor", according to many of these money managers, are not to be used together... "Strategic Investor", YES... "Tactical Investor", NO. And, in my opinion, they would be wrong.

In my opinion, the best and most successful (meaning, profit generating and risk mitigating) stock market investors are, indeed, Tactical Investors. A tactical investor has a long-term objective of making substantially higher returns in the stock market... one week at a time... with an eye to the possibility of downside risk. This is where you only buy stocks when your analysis indicates the odds favor a move higher in your chosen equities. This is a tactical move when your time horizon is weeks; not months and certainly not years. A tactical investor can hold a position for years, but only if that position continues (every day and every week) to stay within predetermined guidelines of performance.

This week, my Signal Investor portfolio is only 30% invested. My goal is to get 100% of my money into the market, but only if I believe my money will be more productive in equities than sitting in the bank drawing near 0% interest. 0% is far better than losing money. Right now (this week), my systems are telling me the risk is higher to put more money into the market than keeping my money in the bank. So, from a tactical perspective, I have put my hands in my pocket this week.

From a tactical vantage point, I can be long and bullish; long and bearish; or, neither. This week, my money stays in the bank. Next week, I may put 100% of my money into the market... or anywhere in between.

My Signal Investor portfolio is up +39.54% so far this year. The S&P 500 is up +24.24%. The DJIA is up +20.44%.. You 'could' have taken a strategic position in the market this year by buying an S&P index ETF and done pretty well. Not nearly as good as I have done, but certainly you would have done well. But, think about what happens when a 2008 occurs... and a 2008-type of market is very likely to occur again in the not-too-distant future. Can your portfolio withstand another 2008 if it is managed strategically? If you remain tactical in your approach to investing in the market, you can avoid melt-downs by switching strategies and moving into bear-biased equities (i.e., inverse ETFs). Staying strategic might mean you hold on to your index ETF and watch your investment cut in half or more. Tactical investing, has far less downside risk and far more opportunistic upside potential than buy-and-hold strategic investing.

It is always a good idea to think about draining the swamp, but when you are up to your eyeballs in alligators, you had better be thinking about how much of your body is under water and what delicate appendages are unduly exposed to serious pain and suffering.

Closing Thoughts

We are rapidly approaching one of my favorite times of the year... Thanksgiving and Christmas. I love the cooking and aromas of Thanksgiving; the football games; the time with family and friends. I love to see the excitement in the eyes of the grandkids as we approach Christmas. Just this afternoon, I asked my 7 year-old grandson to write me his Christmas list. I told him to include the price of each item he puts on the list... at least what he thinks the item he wants will cost. It's a great list... including the Husky pup for $800.14, that he wants. I like a boy who thinks outside the box, but where did he come up with the 14 cents?? This is just such a wonderful time.

But, reality also comes in to play and the markets, right now, look dangerously close to a tipping point. I am certainly bullish as long as the Fed is backstopping equity prices, but it will not surprise me to see some significantly difficult swings in the markets. Staying tactical is the key to staying profitable.

Have a great week in the market!

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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