Aesop Investing

The legendary tale of the tortoise and the hare has forever provided a cautionary warning that slow & steady can win the race.  Recently, I heard this fable applied to finance as well, and, at first, it rubbed me the wrong way.  I was not sure how apropos the metaphor was for investing, despite my own personal preference for “slow & steady” investments like index mutual funds.

For starters, the tortoise and the hare were in a race against each other, and personal investing should not be comparable to direct competition.  In a race as with most forms of competition, there would be a clear beginning and a definitive end.  Additionally, the goal of both competitors would be perfectly aligned, but there would only be one winner.  Immediately, those disconnects triggered a realization of the most applicable lesson to be taken from the same fable for investing.  Looking at what others are doing will lead to a pitfall!

Listening to the success stories (or financial failures) of others is fine, but never take their words as pure fact.  People have numerous ways to perceive the same set of circumstances.  It stretches beyond the basic half-empty/half-full conflicting viewpoints.

Pretend I put $10,000 in a single stock for five years, and that investment went as high as $15,000 at one point, and then as low as $7,500 at a later point, but, at the end of five years, that initial investment was worth $11,000 (ignore dividends and assume no additional money was commingled into the stock during the interim).

In this scenario, I would most likely say my investment made $1,000.  But I could say my investment lost $2,500 or I could say my investment lost $7,500.  Truthfully, I could even say that this investment made $8,500, i.e. $5,000 when it went from $10K to $15, plus another $3,500 when it went from $7.5K to $11.  People invest with blinders, and everybody's blinder is different.  These “blinders” are a conglomerate of our individual perceptions, intentions, and expectations.  Without seeing detailed balance sheets or an audited track record, the facts may or may not be interpreted in the same way.

Therefore, hearing that a turtle has earned $8,500 in an investment when your money only earned $1,000 in an identical investment may be troubling or, at least, perplexing.  But making changes based on only those facts in an attempt to outpace the “competition” will likely send your portfolio into a destructive pitfall.  While many people accept that slow & steady won the proverbial race, the reality is that the bunny shifted focus from what he was doing to where his opponent was.  Investing is not a competition.  Turning it into one is instantly problematic.