Investment Philosophy, Principles, and Strategy looks similar, however, they play different roles in investment.
Investment Philosophy (the why)
- Definition: Your belief system about how markets work and how value is created.
- Nature: Broad, timeless, and often rooted in personal worldview.
- Example:
- “Markets are not always efficient, so patient investors can exploit mispricing.”
- “Long-term compounding matters more than short-term gains.”
- Role: Provides the foundation and “North Star” that guides every decision.
Investment Principles (the rules)
- Definition: The guidelines or core rules derived from your philosophy.
- Nature: Practical, but still fairly general. They shape behavior and discipline.
- Example:
- “Always maintain a margin of safety.”
- “Do not invest in businesses you don’t understand.”
- “Diversify across industries and geographies.”
- Role: Translate philosophy into rules of conduct that keep you consistent.
Investment Strategy (the how)
- Definition: The action plan you implement using your principles, to pursue returns.
- Nature: Specific, tactical, and adaptable depending on market conditions.
- Example:
- Value investing in small-cap companies with P/E < 15.
- Growth investing in AI-related tech stocks.
- Dollar-cost averaging into the S&P 500.
- Role: The playbook — how you actually invest day to day.
Hierarchy
- Philosophy → the beliefs that shape…
- Principles → the rules that guide…
- Strategy → the actions you take.
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