Six Methods, Honestly Compared
No tribal loyalty, no sales pitch. Every method works — and every method fails. This page shows you when, how, and for whom.
Passive / Index
Own the index. Let time and compounding work.
Income / Dividend
Build sustainable, growing cash flow from quality businesses.
Value
Buy a dollar of business for 50–60 cents. Wait for the gap to close.
Growth / Momentum
Buy compounding earnings power before the crowd catches on.
Charting / Technical
Use price action to define risk and time entries.
Active Trading
Buy a price move, exit when the move is done.
Core means it runs on autopilot. Satellite means it requires your active engagement. Your diagnostic composite score determines how much satellite you can justify.
📊 Passive / Index Investing
Chapter 9 — Buy & Hold / Passive Indexing
The most boring method on this list. Also, statistically, the one that beats most professionals over any meaningful timeframe. The SPIVA scorecard shows 60–70% of active managers underperform their benchmark over one year. Over five years it's 80%. Over fifteen years, 85% or more. And the ASX has never delivered a negative return over any rolling 20-year period.
That's the case for passive in two paragraphs. But there's a catch nobody talks about: you own every drawdown fully. No stop loss, no exit signal, no active manager making defensive moves. When the market drops 35%, your portfolio drops 35%. The method only works if you don't sell. And most people sell.
Thrives When
Long accumulation phases (15–20+ years). Secular bull markets. Regular contributions via dollar cost averaging. Low-bandwidth investors who know themselves well enough to stay the course.
Destroys When
Panic selling during drawdowns. Sequence-of-returns risk in early retirement. ASX-only concentration without international diversification. First-year bear market in drawdown phase.
Four Lever Requirements
Failure mode: Abandonment during drawdowns. The behaviour gap costs investors 1–2% per annum according to Vanguard research. That doesn't sound like much. Over 30 years it's the difference between $1.5M and $2.3M.
Key data: SPIVA: 85%+ of active managers underperform over 15 years. ASX never negative over rolling 20-year periods. Vanguard behaviour gap: 1–2% p.a. lost to poor timing decisions. Below 5 years the book calls passive investing "borderline reckless" due to sequence risk.
Best fit: David, 42. Accounting partner working 55–60 hour weeks. 20+ year horizon. Zero interest in stock picking. Wants the portfolio to compound without requiring his attention.
💰 Income / Dividend Investing
Chapter 11 — Income Investing
Build a portfolio that pays you. Not a bad idea in principle — especially if you're retired and need cash flow. The problem is how most people execute it. They sort by yield, buy the highest numbers, and call it a strategy. That's not income investing. That's a yield trap waiting to spring.
A stock paying 8% because the price has halved is not a high-yield investment. It's a company in trouble that hasn't cut its dividend yet. Telstra taught a generation of Australian investors that lesson: a 5% fully-franked yield looked magnificent right up until the 50%+ capital loss made it irrelevant.
Thrives When
Drawdown/retirement phase. High-volatility regimes where income acts as a buffer. Pension-phase SMSFs where franking credits are refundable. Paired with quality business analysis, not just yield sorting.
Destroys When
Yield traps — buying declining businesses for their payout. Big 4 bank concentration (ANZ and Westpac cut ~60% in 2020). Confusing yield with total return. Chasing franking credits as the entire thesis.
Four Lever Requirements
Failure mode: Treating franking credits as the entire thesis, then ending up with 40% of the portfolio in four bank stocks — which is a single-sector bet with extra steps.
Key data: Franking credits added ~1.4–1.5% p.a. for zero-rate investors. 663,867 SMSFs hold $1.06 trillion. Telstra: 5% yield to 50%+ capital loss. ANZ/Westpac dividend cuts ~60% in 2020.
Best fit: Robert, 64. Retired engineer. SMSF with $2.1M in pension phase. Needs $130K/year cash flow. Has the time and interest to monitor payout sustainability and business quality.
🔍 Value Investing
Chapter 6 — Value Investing
Buy a dollar of business for 50 to 60 cents, then wait for the gap to close. That's the idea. It sounds simple because it is. The hard part is the waiting. Value investing requires you to be wrong — or at least to look wrong — for months or years at a time. And most people cannot handle that.
The method has one enormous advantage: it mean-reverts. After long periods of underperformance relative to growth, value has historically snapped back hard. MSCI EAFE Value delivered its strongest relative performance in over 25 years in 2025. The problem is that nobody wants to own value when it's underperforming — which is exactly when you should be buying it.
Thrives When
Valuation spreads blow out. Post-panic recoveries when fear has pushed quality names to absurd discounts. High-inflation regimes. After prolonged growth leadership creates the conditions for mean reversion.
Destroys When
Value traps — statistically cheap stocks that are cheap because the business is structurally impaired. Years of underperformance vs growth testing your conviction. Catching falling knives without understanding why they're falling.
Four Lever Requirements
Failure mode: Value traps. Buying statistically cheap without understanding why it's cheap. The P/E is low because the business is dying, not because the market is wrong.
Key data: MSCI EAFE Value: strongest relative performance in 25+ years (2025). Value-momentum negative correlation (-0.50 to -0.60) — a 50/50 combo delivers Sharpe ~0.80 (Asness et al. 2013). Front-loaded analysis: weekends are the bandwidth, not daily screens.
Best fit: David, 52. Professional practice owner. 15+ year horizon. Doesn't check prices daily. Spends 3–4 hours on weekends reading annual reports. Has the patience to look wrong for two years while the thesis plays out.
🚀 Growth / Momentum Investing
Chapter 7 — Growth & Momentum
Buy compounding earnings power before the crowd catches on. Growth investing, when it works, produces the most spectacular returns on this list. CSL went from $2.30 to $300 between 1994 and 2020. Nvidia's revenue exceeded every PE estimate in the market. Growth stocks can justify what look like "impossible" multiples — if the earnings growth actually materialises.
The catch: growth that matures looks exactly like growth that's accelerating, right up until it doesn't. And the exit is everything. The method that got you in — momentum, rising earnings, expanding multiples — reverses into the thing that gets you killed when the cycle turns.
Thrives When
Persistent trends. Low discount rates (falling or low interest rates). Genuine disruption creating new markets. Secular bull markets where earnings growth is being rewarded.
Destroys When
Growth matures and you don't notice. Rate hikes crush long-duration valuations. Momentum reversal — the acceleration fades, multiples contract, and what took two years to build unwinds in two months.
Four Lever Requirements
Failure mode: Holding maturing growth too long. The thesis that was correct at $50 is not automatically correct at $300. You need a sell discipline — and growth investors are the worst at selling.
Key data: CSL: $2.30 to $300 (1994–2020). Nvidia revenue exceeded PE expectations repeatedly. Growth stocks can justify "impossible" multiples — but only while earnings accelerate. Must sell losers fast.
Best fit: Sarah, 38. Tech industry, 12 years' experience, $280K portfolio. Genuinely interested in markets with the bandwidth to monitor earnings and sell signals. Comfortable with volatility.
📈 Charting / Technical Analysis
Chapter 8 — Charting / Technical Analysis
Use price action to define risk and time entries. Charting is the most misunderstood method on the list. Its critics say it's astrology for traders. Its evangelists claim it's the only thing that matters. Both are wrong. What charting actually does — when used properly — is give you a framework for defining risk before you enter a trade. Where's your stop? Where's your target? What's the risk-reward ratio? Those questions are answered by the chart, not the annual report.
The self-fulfilling prophecy criticism is half-right, but it cuts the other way too. Trillions of dollars in algorithmic capital are programmed to trade technical levels. Support and resistance aren't magic — they're price points where real money acts. That makes them useful, not mystical.
Thrives When
Liquid, volatile markets. Algo-driven self-fulfilling levels creating tradeable structure. Combined with fundamentals or macro for timing and confirmation. HFT accounts for 25–27% of ASX turnover, reinforcing technical levels.
Destroys When
Used in isolation without fundamental context. Pattern becomes prophecy — you see what you want to see. Exotic indicators nobody else watches (if no one else is watching the level, it's not a level). Overriding your own stops.
Four Lever Requirements
Failure mode: Abandoning signals during drawdowns and overriding stops. Being wrong 3–4 times in a row is completely normal in charting. If you can't absorb that emotionally, this method will break you.
Key data: HFT 25–27% of ASX turnover (ASIC Reports 331/452/597). Post-2010 studies show trend-following positive in every decade since 1880 (Hurst, Ooi, Pedersen 2017). Stop-loss research: Sharpe ratio roughly doubled with systematic stops (Han, Zhou, Zhu).
Best fit: Sarah, 38. Flexible schedule. One hour before work plus 30 minutes in the evening. Six years' experience. Ring-fenced risk capital separate from core portfolio.
⚡ Active Trading
Chapter 10 — Active Trading
Let's start with the number nobody wants to hear: 87% of active traders lose money over meaningful time periods. That's from the largest study ever conducted — Barber and Odean analysing every trade on the Taiwan Stock Exchange. Less than 1% were consistently profitable. The attrition rate is brutal, and the survivors share three traits: disciplined risk management, genuine edge identification, and the psychological resilience to absorb losses without deteriorating.
If you've read those numbers and you're still here, good. Because for the right profile, active trading can be a legitimate satellite activity. But it should never be your entire strategy. And it should never use money you need.
Thrives When
Volatile, liquid markets with 1–2% daily swings. When you have genuine edge, documented process, and strict risk controls. Swing-based approach with 40–60% win rate offset by favourable reward-to-risk.
Destroys When
Over-sizing positions (10% risk per trade = 4 consecutive losers wipes 35% of capital). Revenge trading after losses. No institutional infrastructure. When you're pretending a hobby is a strategy.
Four Lever Requirements
Failure mode: Gambling disguised as trading. Position sizes expand after wins. Stops widen after losses. The trading account becomes an emotional outlet, not a disciplined strategy. If you're not tracking every trade in a journal, you're not trading — you're hoping.
Key data: 87% lose money (Barber & Odean, Taiwan study). <1% consistently profitable. Marcus example from the book: 42% win rate with 2.4:1 reward-to-risk ratio = 14% net annual return. Minimum $20K ring-fenced risk capital. 1–2% max risk per trade.
Best fit: Marcus, 34. IT worker, $135K salary. $20K ring-fenced trading capital completely separate from his main portfolio. 18 months of documented track record. Swing-based approach with strict position sizing.
Which Methods Fit Your Profile?
The diagnostic scores all six methods against your Four Lever profile. Takes about 8 minutes. The answer might surprise you.