My investment strategy
This might not be the right strategy, but I claim it as my own.
Over the years, I’ve learned a lot about investing and have discovered some principles which I now. In this article, I want to share these principles with you, and the stories behind them. This is not investment advise, I am just sharing my strategy for informational purposes only.
The principles
My goal is and always should be to substantially beat the market
Maximizing returns comes before minimizing risk
Maximize long-term compounding
Automate away behavioural biases
Keep 25% in cash to buy the dip
Focus on growth (momentum) rather than value
Minimize active management
Fewer stocks are better
1. My goal is and always should be to substantially beat the market
I have a much higher risk tolerance than most people. Normally, when you’re filling out forms for investments, advisors will ask you to rate your risk tolerance on a scale of 1-10. Most people assume that 10 is the highest risk. It is not even close. Using this scale, I am probably more like 20 or 30. That said, everything I’m about to share here should be viewed from this lens.
If your goal is simply to get the market return, then you will never beat it. In order to beat the market, you must actually set your sights on beating it. This sounds obvious, and it is. To use an analogy, if you play basketball and never set a goal of joining the NBA, you will almost certainly never join the NBA.
This might sound delusional, given the statistics. And it is. But it is possible to beat the market, we have seen this many times before, however it is unlikely. But no matter how unlikely, you cannot beat it if your goal is to meet it.
2. Maximizing returns comes before minimizing risk
In portfolio construction theory, we often start from the premise that “in order to make a return, you must take risk”. This was pioneered by Harry Markowitz. Expected returns are directly proportional to the risk that you take. Normally, when you complete the exercise of constructing a portfolio, the result is that you look at the whole portfolio in terms of returns per unit of risk. This makes sense, but also constrains your absolute return. In this, there is a hidden notion that you should start from the risk-adjusted returns and seek to maximize the return per unit of risk. I look at this differently. If you want to beat the market, you have to take more risk and do things differently than the average investor. True outsized returns are made when you correctly bet against the consensus. If you pigeonhole yourself to the Markowitz-ist view of portfolio construction, there is an upper bound limit to the absolute return. Again, if you start from a perspective of minimizing risk and then trying to find the best stocks from there, you simply aren’t taking enough risk to beat the market. I start from a maximizing returns perspective and find ways to minimize the risk after. Risk-minimization is an after-thought, it’s not the foundation or starting point to constructing my portfolio. Practically speaking, this is the approach you have to take to achieve principle #1.
3. Maximize long-term compounding
Investing well over the long-term has a lot to do with leveraging compound interest in your favour. This means minimizing losses, costs, and spending as much time in the market over the long-term. The less you get involved, the better. Now, the question is whether you picked the right stocks or not. To answer this, I always come back to something I heard from Jeff Bezos. The interviewer asked Jeff “What big changes do you foresee in the coming decades and what businesses should we create to capture these opportunities”, which Jeff replied “You can’t build a business on the premise of some future change, you have to ask yourself ‘what things won’t change in the coming decades, and how do I build a business around that?’”. I think this is the best way to think about stocks, too: how do I bet on something that will not change over the next x years? For me it’s 5-7 years, but the longer the better.
4. Automate away behavioural biases
Related to #3, most losses come from various behavioural biases. E.g. you’re in love with a losing stock, you react to market fluctuations and incur fees, etc. There’s a great book called The Little Book of Behavioural Investing that I recommend, it documents all the biases investors have and makes great recommendations on how to automate them.
5. Keep 25% in cash to buy the dip
I read this article from Fidelity in late 2018 that analyzed the 10-year performance of their clients from 2008 to 2018. They wanted to understand which cohort of investors did best during this period. To their surprise, the best performing cohort was actually a bunch of boomers that forgot their logins in 2008 and couldn’t log in to sell during the financial crisis. Everyone else who bought in at the peak, sold the bottom, and bought back in did significantly worse. The lesson here is never sell at the bottom, because the market always corrects and surpasses it’s previous high eventually. This relates the #3 because the loss compounds negatively. E.g. you need a 11% gain to make back a 10% loss, but you need a 100% gain to make back a 50% loss.
To extend this rule further, if we look at the best performing days in the stock market, it is often the bounce off the absolute bottom during a major crash. In the Fidelity example, they were able to capture those because they didn’t sell. However, to take it one step further, we should actually buy during those times. Therefore, I always keep 25% in cash at all times to be ready to get those best performing days when they happen. I don’t just let the cash idle either, have it automatically buying small amounts of stocks in my portfolio every day via dollar-cost averaging strategy, which I will talk more about in the coming sections of this post. I have the DCA setup to invest the 25% over 1 year and make regular contributions. If and when a large crash comes, I increase the dollar-cost averaging to buy more. Additionally the nice thing about DCA is that it is automated (see principle #4).
6. Focus on growth (momentum) rather than value
One of the most empirically verified phenomenon in quantitative finance is Momentum: stocks that go up tend to keep going up. You might think that’s silly, but the reality is that it has a lot to do with human nature. Humans are imperfect capital allocators and strongly prefer to invest in companies who’s stock price is going up, rather than down. From a purely rational and robotic point of view, the opposite should be true, but it’s not. The only case we can point to is Warren Buffett, who lives by this rationalist point of view.
Growth stocks exhibit much stronger momentum than value stocks. Value stocks also tend to be “lemons”, i.e. stocks that are cheap for a reason. It’s very hard to find cheaply valued stocks that the market has mispriced, only a skilled active manager like Warren Buffett can do this well. Certainly investing in value stocks works, but it is not for me. See principle #7 about minimizing active management.
7. Minimize active management
The most I get involved the more I lose money. I’ve found the more I step back, the less I lose and the more I let the compounding take over. Actively managing your portfolio introduces many opportunities for behavioural biases. It is best to keep it as simple and automated as possible, however to beat the market (#1) you do need to be managing it actively. This is also beneficial for a quality of life perspective. Do you really want your life to revolve around managing your portfolio, something which you don’t control in the short term? Not me. I’d rather just sit back and let the compounding and momentum do the work.
8. Fewer stocks are better
In David Einhorn’s book Fooling Some of the People All of the Time, he explains how he doesn’t have more than 8 stocks in his portfolio at any given time. This is because the more stocks you add, the more the portfolio mimics the average return, statistically speaking. If we are trying to beat the market, we do not want to mimic the average. We also need to take positions in individual stocks that are large enough to actually impact the overall portfolio substantially. I stick to this rule, but also add that fewer stocks is better.
The strategy
Return objective: 10x in 5 years (~62% IRR)
5-7 year investment horizon
3-5 stocks, ideally uncorrelated
TSLA (37%)
IBIT (34%)
Uranium (7%)
23% cash, setup on a DCA on 3-5 stocks
Starting with my return objective, I went looking for opportunities that are in massive, high-growth markets. I settled on Tesla, IBIT (Bitcoin), and Uranium. I then setup a DCA on each one of these, proportional to my weightings, to buy a small amount of each every day. I have the DCA parameters to span 1 year, so that I am buying enough every day to reduce the overall volatility of the portfolio but long enough that I have a large cash balance at times if and when the market crashes. I also tactically supplement the cash position with OTM SPY Puts if the market peaks and gets ahead of itself.
I keep a watchlist of stocks that I like and fit my overall strategy. I have price targets for each stock. For me, the main one I am watching is NVDA at $90 (if the market crashes). Buying NVDA at $90 essentially means you’re buying it at around 30x P/E for a company that is growing at +100% per year with no viable competitors. Others I’m watching are Google, Meta, Spotify, Shopify, and some battery metals exploration companies.
I also have setup Good Til Cancelled Sell orders to sell 50% of my position at double my entry price. E.g. you buy 100 shares at $2, so you set a GTC sell order for 50 shares at $4. This automatically replenishes the cash balance in my account and lets me DCA back in over time. I don’t always do this, because it conflicts with staying in the market, so lately I haven’t used it much.
TSLA thesis
Tesla is the most ambitious company on earth by far. I challenge you to find a company that has their sights set on bigger and more ambitious markets. Not only that, they have several bets taking place that are equally as ambitious: robotaxi, energy, humanoid robots. Tesla is cash flow positive and investing heavily in these areas. I am personally most interested in Tesla Energy, their utility-scale battery business, which has been growing at +100% per year and earning over 50% margins in a massive market.
IBIT thesis
Bitcoin is now here to stay. Since Blackrock launched it’s ETF in 2024, institutional finance now recognizes Bitcoin as a legitimate macro asset class and a store of value. Bitcoin is considered digital gold, but is still widely underowned. Most people understand the importance of having gold in a portfolio to protect against inflation and add diversification. The same dynamics are at play here with Bitcoin, except the average person hasn’t accepted this reality. The bet here is that we will see continued adoption of bitcoin as a core allocation in their portfolio. I.e. if bitcoin is at $96,000 USD and it’s still owned by less than 1% of investors, what happens when it becomes more widely accepted and grows to 10% or 20% of investors?
Uranium thesis
We do not produce enough energy to meet the growing needs of the planet: the growing population, EVs, and growing demand for compute (AI, Bitcoin, Datacenters). Renewable energy is not a viable source of energy for where we anticipate the growth to come from, but it can definitely help. We need more baseload power generation and with concerns around hydrocarbons (environmental and peak cheap oil), we need to find new sources of baseload power. All other sources of baseload power are not scalable enough or geographically feasible for where the power is consumed (hydro electric or geothermal only work in certain countries and cannot be exported). Additionally, since Fukushima, we have not invested in new Uranium supply for the existing fleet of nuclear reactors. Since then, China has been building aggressively and prepurchasing massive amounts of Uranium in anticipation of a shortage. The bottom line is that at some point in the coming years, we will realize the only option is nuclear. The growing demand plus the shrinking supply makes this incredibly bullish. Additionally, my thesis on Uranium is a counter-consensus view, which means we will benefit significantly when everyone else realizes the problem.