Proverbs 27:23-24 (ESV) – “Know well the condition of your flocks, and give attention to your herds, 24 for riches do not last forever; and does a crown endure to all generations?”


Investing at Level 3 (I@L3) is a 319-page book written by James B. Cloonan, the founder and chairman of the American Association of Individual Investors (AAII.)  It was published in August 2016.  Many of you do not have the time to read a book about investing.  However, it is likely you would benefit from Mr. Cloonan’s ideas.  As I read the book, I took some notes for my written investment plan and thought about how I might apply the things he discussed. I will share some of the ideas and concepts in short blog posts. You might want to apply these ideas to your own investments and investing behaviors.  Much of what is presented is aligned with my personal investment decisions and methods, but this book does a nice job of explaining the “whys” and “how’s” of my current investment thinking and processes.

WHAT DOES LEVEL 3 MEAN? – To begin, it what does “Level 3 Investing” mean?  What is Level3 and what are the other levels?  Here is a summary from the introduction (page 19):

  • Level 1: An Individual Investor playing the market, getting in an out, acting on emotions and following advice from various sources at various times. This, unfortunately, seems to be where many live. You chase the bull by buying high and you run from the bear by selling your investments. It is almost as bad as buying a lottery ticket.
  • Level 2: The Professional can do it better. This is a portfolio invested in stocks and bonds using stock-picking (and/or ETF’s and mutual funds). This approach assumes an expert’s ability to find the cream-of-the-crop investments to offset the high trading costs and on-going advisory and fund fees.  It’s a better approach than level one, and many more probably use this approach.  This is the approach that says, “someone else can do a better job than I can do, so I will hire them to do the work and pay them out of my investment returns” (or my investment losses!)  Too often this approach ignores Proverbs 27:23-24. You need to know well and pay attention to your flocks and herds.
  • Level 3: Passive Level3 Investing: This approach, described in the text, requires little time or effort.  It involves investing in some low-cost ETF’s, but not just any ETF’s.  There are really two types of weighting of investments in many index funds.  One is the frequently-used “capitalization weighting.”  The author says this is not the best type of fund for the Level3 investor.  The other is the use of an equal-weighted index.  More will be said about this later.  However, an example of an equal-weight ETF is RSP: Guggenheim S&P 500® Equal Weight ETF. Most ETF’s are cap-weighted.

Level 3: Active Level3 Investing:  This is a second I@L3 approach. It is the one I currently use for my own investing activities – see the Proverbs 27:23-24 action verbs.  This approach requires active involvement and a careful following of a strategy and a careful and thoughtful throttle on the emotions.  In other words, it is a plan I control and execute. The normal volatility of the market does not drive decisions contrary to the benefits of this approach. More will be said about true investment risk and volatility in future posts.