The order, from strongest evidence to weakest#
Index Fund → Value / GARP / Dividend → Growth → Contrarian → Real Estate → Angel → ESG → Gold → Crypto → Momentum → Options → Day Trader / Quant.
That ordering is uncomfortable in a useful way. It puts the least glamorous approach at the front and the most discussed approaches at the back, which is roughly the inverse of how much attention each gets online.
The question worth asking about every step rightward: what do I have that the person one step left doesn’t? Not “what could I earn” — what edge, specifically, do I hold. Most steps rightward are taken without an answer.
The left end works because it needs nothing#
The index investor buys total-market funds, automates contributions, and doesn’t attempt to time anything. Buffett’s advice to beginners is unusually blunt for a professional investor: consistently buy a low-cost index fund and over time you’ll do better than almost everybody. His ten-year bet against a group of hedge funds settled the point — 7.1% annually for the index fund against 2.2% for the funds-of-funds.
Value, GARP and dividend investing sit just behind it. Value hunts companies trading below intrinsic worth — “a $100 bill selling for $60” — reads annual reports, demands a margin of safety, and holds forever. Dividend investors treat the portfolio like a rental property, targeting growing payouts and low payout ratios; $500,000 at a 4% yield produces $20,000 a year of cash. GARP splits the difference between value and growth.
The edge required to occupy any of these positions is patience. That’s it. That’s why they’re at the front of the line.
Each step right demands a specific edge#
Growth requires a defensible view of the future. Paying 80x earnings for 50% revenue growth is rational if the growth continues and catastrophic if it doesn’t. Amazon in 2005 and Tesla in 2015 are the examples people cite; the failures don’t get cited, which is what makes the archetype look better than it is.
Contrarian requires the stomach to be publicly wrong for years. Michael Burry saw the housing bubble in 2007, bet against mortgage bonds with credit default swaps, and was laughed at throughout. The trade is famous because it worked; the required trait is tolerating ridicule while your position bleeds.
Real estate requires operational capacity. The mechanism is borrowed money — 20% down, tenants covering the rest — and one good deal can match ten years of stock returns. The edge is that you are willing to run a second job: tenants damage properties, rates move against you, neighbourhoods decline. It isn’t passive until you own enough to pay someone else to do it.
Angel investing requires capital you can genuinely write off, plus a decade of patience. One 100x return covering twenty write-offs is the model, and it only works if you can afford enough shots.
Each of these is legitimate. Each has an entry requirement that isn’t money.
The right end is where the evidence runs out#
Gold has a record that deserves stating plainly. From around $670/oz in 1980 down to roughly $256 by 1999 — a nominal loss above 60%, and over 80% in real purchasing power, while stocks rose more than 1,000% across the same stretch. A small allocation for diversification and peace of mind is defensible. Gold as a growth engine is not.
Crypto operates in a largely unregulated market where 100x borrowed exposure is available to anyone. Exchanges get hacked, projects vanish with the money, and there’s no insurance or recourse. The genuine counterweight is that Bitcoin has moved toward institutional acceptance through ETFs and government adoption. The workable position is a tiny slice you’re truly fine losing.
ESG is a values choice more than a returns choice, and its record shows why the two shouldn’t be conflated: these funds beat the market in 2020–21 when green energy surged, then trailed badly in 2022–23 when traditional energy rebounded.
Momentum buys whatever is already moving and exits the moment the trend bends. Most professionals lose money doing this over the long run.
Options and day trading are where the evidence becomes damning. Chague, De-Losso and Giovannetti tracked everyone who started day trading Brazilian equity futures between 2013 and 2015. Of the 1,551 who persisted beyond 300 trading days, 97% lost money net of fees. Only 1.1% earned above the Brazilian minimum wage. And critically, the researchers found no evidence of learning — persistence produced no improvement.
The Instagram accounts with sports cars are mostly selling courses, and the study explains why that’s the more reliable business.
Quant is at the far right for a different reason#
Quant investing sits at the extreme end not because it fails, but because you can’t do it.
Renaissance Technologies’ Medallion Fund averaged roughly 66% annual returns before fees and about 39% after, for decades. Algorithms parsing price, volume, news sentiment and satellite imagery of retail car parks, trading automatically when an edge appears.
The entry requirements are PhDs, years of research, terabytes of clean data and millions in infrastructure — and the fund has been closed to outside money since 1993. It proves short-horizon trading can work while simultaneously proving that the version available to you isn’t the same activity.
Summary — and what to do about it#
Start at the left. Move right only when you can name what you’re bringing.
- Default to the index end unless you can answer the edge question. “I find it interesting” is not an edge.
- Write the edge down before each step right. Patience, sector knowledge, operational capacity, or capital you can lose. If none apply, don’t take the step.
- Treat the far-right archetypes as expenditure, not allocation. Crypto, options and momentum go in a slice you’d shrug at zeroing.
- Hold gold for diversification only. The 1980–1999 record settles the growth question.
- Don’t reason from the outliers. Burry and Medallion are real and neither is a template.
- Remember that persistence doesn’t fix a bad approach. 97% of committed day traders lost money, and experience made no difference.
Nobody regrets starting at the boring end. Plenty of people regret starting three steps right of it.
Sources & further reading#
- AEI on the Buffett bet — 7.1% annually for the index fund against 2.2% for the funds-of-funds.
- Chague, De-Losso & Giovannetti, “Day Trading for a Living?” (SSRN) — 97% of persistent day traders lost money; no evidence of learning.
- QuantifiedStrategies on the Medallion Fund — ~66% gross and ~39% net annual returns.
- Quartr on Renaissance Technologies — the fund’s structure and its closure to outside capital.
