To be a winner, or to avoid being a loser?

  1. Being proactive can yield greater rewards, but in the long run, it is not always beneficial.
  2. When luck is bad, one may encounter developments that are less than expected, leading to frustration.
  3. Short-term success is generally recognized, yet there is insufficient attention paid to its persistence and stability in the records.

Timing the Offensive-Defensive Shift

Few people (if any) have the ability to instantly adjust tactics to match market conditions, so investors should stick to one method, hoping that this method can apply to various different scenarios.

They might adopt an aggressive strategy, hoping to earn a lot when investments succeed and recoup costs when they fail; or they might emphasize a defensive strategy, hoping to keep pace with market performance during a bull market and lose less than others during a bear market.

We cannot determine the exact timing for offense and defense So, we can only choose based on our own conditions. The safety of your asset portfolio should be determined by how much potential return you are willing to sacrifice. There is no correct answer, only a trade-off.

Offense

An aggressive strategy raises potential highs and lowers potential lows. However, if you exclusively use an offensive investment approach, when things go wrong, it might be impossible for you to recover. On the other hand, defensive investment can help you navigate difficult periods, giving you enough time to enjoy the ultimate returns brought by smart investing.

Defense

  1. Defensive investment has two main elements. The first is eliminating poorly performing investments from the portfolio. To achieve this, the best approach is to conduct in-depth evaluations, adopt high stock selection standards, require low prices, and set a relatively large margin of error (which will be mentioned later in this chapter). Furthermore, do not bet on uncertain scenarios such as continuous upward trends or beautiful forecasts and developments.

  2. The second element is avoiding market downturns, especially avoiding the risk of an imminent crash. In addition to excluding individual poorly performing assets from the portfolio as mentioned earlier, defensive investment also requires thoughtful asset diversification, limiting overall risk exposure, and focusing on safety.