“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” – Sun Tzu: The Art Of War

The biggest mistake investors make over the long-term is investing without a strategy. The point that Sun Tzu was making, as it relates to investing, is that having a strategy, such as buying and holding stocks, will indeed work. However, doing so without “tactics,” or a methodology to control risk and reduce emotional mistakes, will substantially lengthen the “route to victory.” In investing, “time” is both our most precious commodity and our biggest enemy.

In the mainstream push to promote the “buy and hold” myth, the problem of “time” in the equation is often overlooked. The chart box below shows a $1000 investment from either a period of low or high valuations. It assumes a real, total return holding period until death assuming the individual starts saving at 35-years of age using historical life-expectancy tables. No withdrawals were ever made. (Note: the periods from 1983 forward are still running as the investable-life expectancy span is 40-plus years.)

The gold sloping line is the “promise” of 6% annualized compound returns. The blue line is what actually happened with invested capital from 35 years of age until death, with the bar chart at the bottom of each period showing the surplus or shortfall of the goal of 6% annualized returns.

In every single case, at the point of death, the invested capital is short of the promised goal. The difference between “close” to goal, and not, was the starting valuation level when investments were made.

Back to Sun Tzu.

Strategy is the overarching premise the derives your investment selections. Selecting the right strategy requires some thought about your mental state, aversion or acceptance of risk, and most importantly your “duration” or “time horizon.”