The Evolution of Investing: 7 Principles for Smarter Wealth-Building

Investing isn’t about following trends or picking sides in the dividend versus growth debate. It’s about crafting a philosophy that evolves through experience, market lessons, and disciplined reasoning. As a CFA with years of market and macro experience, I’ve distilled my approach into seven principles to help you build a resilient, high-return portfolio. Let’s dive in.

1. Avoid Absolutes: Tailor Your Portfolio

Reject the idea that you must choose between dividend or growth stocks. Instead, align your portfolio with your goals—whether it’s income, growth, or both.  

For example, selling covered calls on Coca-Cola can generate steady income, while holding Shopify fuels long-term growth. You can profit by buying undervalued assets (like Buffett’s 1960s American Express play), holding growing businesses (e.g., Amazon), or investing in liquidating firms for payouts above cost (not ideal).  

Takeaway: Design your portfolio based on your objectives, not rigid categories.

2. Cash Flow: Avoid the Dividend Trap

High dividend payouts can starve a company’s growth or lead to risky debt. Retained cash fuels resilience and opportunity.  

Consider AT&T’s 2022 dividend cut after heavy payouts strained its balance sheet. Meanwhile, Alphabet’s reinvestment in AI and cloud has driven market leadership.  

Takeaway: Favor companies that balance dividends with reinvestment for sustainability.

3. Low Debt: Ensure Survival

A company with zero or low debt is built to weather disruptions.  

During the 2008 crisis, debt-free homebuilder NVR thrived while leveraged competitors faltered. A clean balance sheet offers flexibility to seize opportunities or survive downturns.  

Takeaway: Prioritize low-debt firms for long-term stability.

4. Reinvestment: Drive Compounding

Reinvested cash is the engine of compounding returns.  

Costco’s low payout ratio (<30%) funds store expansion and low prices, driving consistent stock appreciation.  

Takeaway: Seek businesses that reinvest profits into high-return opportunities.

5. Growth: Universal, Not Tech-Only

Growth isn’t just for tech—it’s essential across sectors. Look for companies expanding their total addressable market (TAM).  

Walmart grows through operational excellence, while Spotify’s subscriber base soared from 96 million to over 200 million (2019–2025).  

Takeaway: Invest in companies with growing TAM, regardless of industry.

6. Long-Term Thinking: Patience Wins

A 5–10 year horizon lets you capture value that short-term traders miss.  

Tesla’s early investors (2015–2025) reaped massive returns by betting on its long-term EV vision, despite early volatility.  

Takeaway: Think in decades to unlock compounding returns.

7. Valuation Discipline: Protect Capital

Paying too much for a stock increases risk and reduces returns.  

Buying JPMorgan Chase at a low P/E during the 2020 COVID crash led to strong rebounds. Singapore’s GIC warns in its 2024/25 report of “lost decades” from overpaying.  

Takeaway: Exercise price discipline to maximize returns and minimize losses.

TLDR version - Buy great companies (with huge revenue growth potential and low debt) at cheap prices and hold forever.

Investment psychology 101: Do something or do nothing?

TLDR: If you were selling at the bottom in April (a mistake), you have no reason to be buying now at all-time highs. 

Howard Marks truism:

1. There come times when the pendulum swings between bearishness and bullishness. In a sense, a measure of fear and greed.
2. There are limits to either side; being a rally or a crash will find its eventual top or bottom.
3. Market timing is hard. If not impossible. The worst of crashes came out of nowhere. The 1987 flash crash came out of the blue. 
4. All good investing is contrarian in nature.

Based on my observations, here are some notable ones:

1. On the key index: S&P 500 at all-time high, tends to make new highs. S&P 500 is at a stretched valuation which typically trades at 18.3x PE (last 10-year average) vs 22x (current), though somewhat more before dotcoms’ 28.3x. Buying at high valuations can lead to less unsatisfactory outcomes due to a smaller margin of safety. 
2. Liquidity keeps building: Considering the liquidity and dry powder on the sidelines (record amount of money in money markets worldwide), there is plenty of capital to buy the dip.
3. Real estate in some parts has recovered: REITs in the USA trade lower on an equity vs bond basis indicating a certain bullishness - retail REITs trade around low 4% vs their 10Y bond of 5.3%. Incredible! Can they be pricing that dividends grow faster than fixed income over the years? (Unusual but not impossible)
4. Falling rates is anti-gravity: Rates have been falling worldwide except in the USA. Many people have already priced in some of those cuts in the USA as an eventuality leading to higher equity markets. 
5. Froth is building: Crypto (ex BTC), meme stocks returning to market attention and causing surges is a concern. While it remains unclear when this story will end, margin and leverage in the system are sure signs of greed.
6. CNN fear and greed index at extreme greed.

What to do?

1. Adopt an increasingly defensive posture as the market rises. If April lows allowed you to go aggressive at 80-20, consider neutral at 65-35. Defensiveness can go up to 50-50 too. Justifiable considering bonds are relatively attractive on a historical basis.
2. GIC says it best. One needs to be disciplined on pricing because while long-termism could mean you eventually get it all back (if you never sell), there is opportunity cost with lost time. 2 lost decades for Japan’s Nikkei finally got it back recently. This is painful and so discipline in pricing entry is everything.
3. Diversification matters. Beyond US stocks, other markets could offer opportunities. Considering how HSI, STI and Nikkei hit recent year highs, or even all-time highs. There is an advantage to being a globally diversified investor.
4. Does selling everything make sense? No. Because market timing is a fools game. Unless your stocks are stratospherically high (case could be made to sell some). Berkshire sold some Costco before Charlie passed on, he commented it’s probably a mistake. The centurion was right! (As the stock went higher)

Prepare not predict.

1. Nobody knows when the next crisis or plunge will come. Building up warchest now matters.
2. Be selective on pricing and stock selection as we enter the later innings of the business cycle.
3. Likes: Spinoff (Qnity from DuPont expected in 2H25), temporarily challenged industries (luxury, healthcare), bond funds: PIMCO GIS income (offers >130bps pickup over treasury after fees) delivers 5.5-6% yield. Dislikes: T-bills and FDs and anything that loses to inflation (Consider inflation is 3%, the hurdle is high)

Tariff-iying complacency?

Summary: Markets appear complacent considering the looming tariff expiry at the end of 90 days. Though there are reasons to be both optimistic and pessimistic. But as always, you can’t predict but you can prepare.

Retail is right on the money: Tariff shocks in April have turned into an opportunity as retail bought the dip while institutional remained cautious. Looking forward 2 months, we noted that retail appears to be right on the money for now (at least).

Complacency or roaring 20s? Markets have surpassed their pre-liberation day levels and has moved on from inflation/tariff worries to big beautiful bill. It certainly looks positive for corporates with tax cuts though tariff impact is likely to lead to some slowing. Bond vigilantes may decry the expanding deficit leading to higher yields on treasuries, but unless you are further out the curve at 10Y and beyond (like TLT), you have nothing to worry about. 

Bond 101 and equities: In fact the sweet spot for bonds is probably 3-7Y. With the rest in equities. Long duration bonds really behave closer to equity but with fixed coupon, limited upside (dependent on the benchmark movements), and volatility due to long duration. Long duration bonds could make sense if you bet on a recession accompanying the declining rates environment (long rates not fed fund rates). For the average retail investor, you aren’t really compensated for taking on duration risk given the maybe 30-50bps pickup only)

Many drivers, all macro, all significant. In a nutshell, many factors ongoing but the biggest elephant is probably rates cuts which will likely still happen. And as long as the Fed remains in a cutting cycle - the market will continue to make new highs.

My Strategy:

1. Repositioning back towards bonds from equities (60-40) as I did a rebalancing and increased aggressive stance (80-20) during the dip.
2. Build up dry powder because this administration thrives on chaos, markets hate chaos so there will be opportunities ahead.
3. Exit weaker names like Alibaba which behaves more like a value stock than growth stock (not within my preferred equity stack)
4. Find an opportunity to add a new position in semiconductors with TSMC. Happy to add to existing positions on the dip like Mercadolibre and Servicenow.
5. Tracking a watchlist to understand more companies including - NU holdings, ASML, Ferrari, Datadog.

A fly in search of a windscreen - Alpha, causes of bear markets and playing defense

How do you capture alpha? 

Simply 2 ways, perform higher than the benchmark in the bull market or fall less than the benchmark in a bear market.

And perhaps variants of this - performing average in a bull market but being unaffected in a bear market and anything in between like average in bear market but super high returns in a bull market. 

Considering the double digit S&P 500 returns (2 years in a row), one must ponder what comes next - if anything 8-10% returns on average are not the norm (the swings are wider than you think)

If a bear market rare and unpredictable as it may be comes, one must be ready and watch for some signs. 

ChatGPT provided some answers below and the truth is that high valuations simply isn’t a reason not to be invested or even selling (market timing fails).

A bear market in the S&P 500 doesn't typically start solely due to high valuations, but valuations can certainly play a role in triggering or contributing to it. Bear markets usually emerge from a combination of factors, including:

1. **Economic Slowdowns**: A recession or slowdown in economic growth is one of the most common causes of a bear market. Lower corporate profits, rising unemployment, and weaker consumer demand can all erode investor confidence.

2. **Monetary Policy Tightening**: When the Federal Reserve raises interest rates or reduces liquidity, it can reduce the attractiveness of equities. Higher rates make borrowing more expensive, which can slow down economic growth and reduce corporate earnings. It also makes bonds more appealing relative to stocks.

3. **Geopolitical Events**: Wars, political instability, trade wars, or natural disasters can introduce uncertainty and cause a sell-off in stocks. These events may lead to economic disruption or heightened risk aversion among investors.

4. **Investor Sentiment**: A shift in market sentiment, often influenced by a combination of news and expectations, can also cause a bear market. If investors start to fear a downturn, they may sell off stocks, triggering further declines. Fear and panic can cause overreactions, even in the absence of a fundamental economic collapse.

5. **Overleveraging and Financial Instability**: Excessive debt in the corporate or household sectors can lead to defaults or bankruptcies. Financial crises or liquidity problems can destabilize the broader economy and lead to a sharp decline in stock prices.

While high valuations can be a contributing factor—since overly expensive stocks may eventually face a correction if earnings fail to meet expectations or if the broader economy weakens—bear markets tend to be driven by these broader economic and financial forces. 

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From my sense of the markets - the main risks are likely 1 worldwide (but not in the US) and 3 (which is probably related to risks in Ukraine, China and Middle East) - but some of those are not new, and not really expected to escalate…but still something that could start the next bear.

My approach therefore remains the same (cautious optimism) - buy when entry is right, otherwise build up your war chest.

The alpha in the year ahead is likely in staying defensive. This includes I) Buying well at cheap valuations with potential catalysts, II) Selling or shorting if overvalued and III) Storing up a war chest in cash or short term bonds (<2Y) to prepare for deployment if and when Mr Market sours.

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Thoughts of this article is partially inspired from Carson group. See original article here (https://www.carsongroup.com/insights/blog/seven-important-things-to-remember-in-2025/)