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Daniel
Many strategies can outperform the market.

These 4 proved they can do it:

1. The Concentrated "High-Quality Business" Strategy
2. The "Special Situations" Strategy
3. The Diversified "GARP (Growth at a Reasonable Price)" Strategy
4. The Deep Value Strategy

Let me explain these Strategies👇

1. The Concentrated High-Quality Business Strategy is what most investors associate with Buffett.

It's probably the dominant strategy among value investors today. At least if we look at the big players.

You own a concentrated portfolio of 5 to 8 stocks consisting of high-quality businesses. High quality means stable and growing cash flows, competitive advantages, and a strong balance sheet.

2. The Special Situations Strategy was popularized by Joel Greenblatt's book "You can be a Stock Market Genius".

It's about finding situations where businesses are misprized due to different circumstances.

Those could be spin-offs, restructurings, mergers, or anything out of the ordinary.

Most successful investors started out in this field and also had their greatest returns during that time.

Even Buffett made his best returns with these investments. He used to call them "workouts".

3. The Diversified GARP Strategy is similar to the High-Quality approach and it doesn't have to be more diversified.

However, I made this assumption just to clarify that concentration is not the only way to outperform.

You can use this and the high-quality approach in both ways.

This approach is a little better suited for diversification because you look for businesses with higher growth expectations.

It's a trade-off between "value today and value tomorrow."
This approach tends to weigh "value tomorrow" a little higher than the high-quality approach.

4. The Deep Value Strategy was used by many of the investors seen in the graph above. Walter Schloss applied it for almost 50 years and it served him well.

It's about buying companies well below their actual worth. That worth is often measured by accounting for all current assets.

Companies valued like this are called "Net Nets." A typical deep-value investment is buying a company below book value.

Such opportunities have become much rarer in today's times, making this approach less common. However, I don't rule out that some investors still do this and perform well.

Let's talk Pros and Cons and what strategy one should use:

1. Individual Fit

Which one of these matches your personality and investment philosophy?

First of all, it's about your take on market efficiency.

If you believe that there are no inefficiencies in large-cap stocks, the high-quality business and GARP approach is already limited.

Yes, there are smaller companies that match the profile, but the number of opportunities is significantly lower. And the more limited your opportunities, the harder it gets.

On the other hand, once you find a great business at a great price, it's an investment for a long time.

You only need a handful of good investment opportunities. This is different with special situations, the turnover is higher.

You have the ability to compound faster and at higher rates, but you also need to find a lot more opportunities.

You need more time, a better understanding of the financial details, and look out for value traps and downside risks when a special situation doesn't turn out as planned.

Downside risks are often higher than with the other two approaches.

2. The Right Time

By owning just the largest US tech companies, you would've outperformed almost every fund and index over the past decade.

I know this info comes a little late... and there is no guarantee it will continue like that in the next decade.

However, businesses have changed dramatically over the last decades, and there's a reason these tech stocks grew like very few other businesses ever have.

Network Effects, winner-takes-all markets, and the inabilit[...]

1 view14:09