The Tortoise, The Hare, and Your Investments
Photo: Gabet Carlson
The tortoise and the hare set off on their journey (aka race!). Each can see the road ahead as they envision their destination.
They can see the beautiful landscapes, the vistas, and the adventure. But they can also see hilly terrain, storm clouds, blind curves, and ominous forecasts – you know, seemingly treacherous conditions. And, like investors, how well they do depends primarily on adhering to a strategy for getting to their destination.
On Pace
The tortoise moves slowly, at times very slowly, but never tires enough to stop. She doesn’t move off to the side of the road because things might get bad: she’s fixed on her destination. Her motto is “Obstinate Perseverance.”
The hare, on the other hand, comes out of the gate quickly and then seeks out short-cuts, always looking for a way to get there faster. Paradoxically, he sometimes takes naps and tries to wait things out because he believes there’s always a better time to run (i.e., invest). His overconfidence in his abilities makes him feel that he can wait to invest until whenever he wants and that he’ll simply catch up, using his superior skills and special investing techniques.
On Distractions
The tortoise rarely gets distracted. She acknowledges from the outset that things will not always be easy, but she accepts this as part of the journey to her greater goal.
Conversely, the hare goes down rabbit holes. He concerns himself with how he should be positioned for Brexit or Grexit or the elections or the next Federal Reserve meeting or some potential geopolitical event. He is easily distracted by reports warning of impending doom. He pays particular attention to urgings to stop the journey and wait until things “get better.” Or to try a new path that might be better. Maybe he should try options or credit spreads or hedge funds or investment vehicles that are hard to understand. Or maybe not.
On Limitations
The tortoise knows her limitations and has reasonable expectations for her progress. She knows that she can’t bank on double-digit investment returns. She knows she must be patient and that sometimes the markets will not move in her favor. And she accepts these conditions as part of the trip.
The hare, on the contrary, believes that he can be an investment “outlier.” Why can’t annual returns of 15% be within his grasp? Why can’t he have all the upside of the markets with little of the downside? Historical evidence is not going to stand in his way. He’s heard some stories and read about folks who have some secret investing formula. They’ve done really well – last he heard, they had never suffered a down year and their accounts were always up double digits. Allegedly.
Historically, slow and steady has won the investment race. Develop your strategy and course correct accordingly.