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Dichotomies in Investing


Read an article about dollar cost averaging and it got me thinking of the different perspectives on investing.

In investing, these issues are constantly debated:

1. Passive versus Active Investing
2. Markets are a random walk versus a non-random walk
3. Risks can be statistically represented versus risks are fat tailed and hard to quantify.
4. Lump sum investing versus dollar cost averaging investing
5. Investment can be timed versus the time in the market
6. You can beat the market versus you cannot beat the market
7. Market charts works versus Market charts are useless
8. You should diversify your portfolio versus you should concentrate your portfolio to just a few stocks
9. Investment is a skill versus investment is pure luck
10. Growth investing versus value investing versus investing in the whole market

You can take a stand and say one works while the other is useless. In the end, there are people who will strenuously argue that their stand is better.

In fact, in the list, it will be hard to say that you must be either be a passive investor or be an active investor.

For me, I like to learn about what the other side is talking about and see if there is any morsel of truth. And I find that I take the cop-out way, or the coward's way. That is to take the middle road. Sit on the fence. And I remember my professor from university saying that sitting on the fence hurts.

If there is anything I've learnt about investments, it is that there are no absolutes. It’s best to try a bit of everything and see what works for you. In the end, its a matter of preferences and your own style and whether you are comfortable with it.

So while I espouse time in the market, I am reading The New Market Wizards by Jack Schwager about professional traders who are able to beat the market using their wits, systems and market knowledge. I enjoy reading it very much and learning about some of the strategies that top traders use to their benefit.

I have yet to finish the book, but a few key characteristics of these top traders emerges from the book. Discipline, a constant effort to learn, a almost academic scientific approach to testing, retesting their trading systems to test it robustness plus the willingness to cut losses and learn the lesson.

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