Aesop’s investment lessons
THE Mule. A mule, frolicsome from lack of work and too much corn, said to himself: “My father surely was a high-mettled racer, and I am his child in speed and spirit.”
The next day, being driven a long journey and feeling very wearied, the mule exclaimed: “I must have made a mistake; my father could only have been an ass.”
Despite the substantial role of luck in the market, we invariably congratulate ourselves when things go well and blame ourselves when they don’t.
As Mark Caney says: “The undisciplined mind confuses misfortune with mistakes.”
The Milkmaid and Her Pail. Patty the Milkmaid was going to market carrying her milk in a pail on her head. As she went along, she began calculating what she would do with the money she would get for the milk.
“I’ll buy some fowls … and they will lay eggs that I will sell … with the money, I’ll buy myself a new dimity frock and a chip hat … Polly Shaw will be jealous; but I shall just look at her and toss my head like this.” Patty then tossed her head back, spilling all the milk.
Although the story could be used as a metaphor for not doing dumb things in the market, since that’s inevitable, it better serves as a reminder that “wishin’ and a dreamin’ ” comes at a price.
According to Jesse Livermore, “There isn’t a man in Wall Street who has not lost money trying to make the market pay for an automobile or a bracelet or a motorboat or a painting.”
But as Jim Cramer says in Real Money: “You haven’t made a dime in a stock until you sell it and take your profits to the bank.”
Ironically, you can’t similarly assume you haven’t made a loss just because you haven’t sold.
The goose that laid the golden egg. There was a farmer who owned a goose. One morning, he found the goose had laid a golden egg. Every day thereafter, the goose laid a golden egg. The farmer soon made a fortune. Unfortunately, he also became impatient — wanted to get even richer, faster — and one day, he slashed open the goose to try to retrieve all the gold at once; leaving himself with a dead goose and no more eggs.
It’s easy for investors to become greedy and lose the balance of discipline. “Killing the golden goose” has become a metaphor for any short-sighted action that may bring an immediate reward, but might ultimately prove disastrous. An obvious example: Selling your winners too soon.
The Cock and the Pearl. A cock was strutting up and down the farmyard when suddenly he saw something shiny in the straw. “Ho! ho!” said he, “that’s for me,” as he rooted it out. It turned out to be a pearl that had been lost. “You may be a treasure for some,” said the cock, “but I would rather have a single barley-corn.”
Value is subjective. That applies to stocks. Where you see value, others might not. But just because they don’t, it doesn’t mean it’s not there. On the contrary, value investors rely on just that.
The Ass and the Grasshopper. An ass, having heard some grasshoppers chirping, wanted “the same charms of melody” and asked what they lived on that gave them such beautiful voices.
“The dew” they replied. So the ass resolved that he would live on dew, and in a short time, he had died of hunger.
Which is pretty much what happens to traders who try to follow other people’s strategies. The one essential for success in the stock market is finding something that works for you — whatever it might be.
As Michael Marcus says: “You have to follow your own light. As long as you stick to your own style, you get the good and the bad in your own approach. When you try to incorporate someone else’s style, you often wind up with the worst of both styles.”
Or, as Nicolas Darvas put it: “You can religiously follow other people’s tips — buy whatever you’re told — but what you will find is that this is one method that never works.”
There are two crucial reasons for developing your own strategy: it calls for a sufficient understanding of the market; and it is the only way to know for certain how the strategy works, and what will cause it not to work.
The Fox Without a Tail. A fox caught its tail in a trap, and in struggling to release himself, lost all but the stump. At first he was ashamed to show himself, but then, determined to put a bolder face upon his misfortune, proposed to all the other foxes that they should all do away with their tails — pointing out how inconvenient they really are and not finding any advantage to it.
Don’t trust the advice of those who have a stake in the outcome. When evaluating financial advice, consider what the adviser has at stake and whether, like the fox, they aren’t trying to get you to do something that might benefit them more than you.
The Dancing Monkeys. A prince had some monkeys trained to dance. Being great mimics, they showed themselves most apt pupils, and when arrayed in their rich clothes and masks, danced as well as any of the courtiers. But when someone threw a handful of nuts on the stage, the monkeys gave themselves away by fighting for them.
Nowhere is the saying, “Not everything you see is always what it appears to be,” more true than in the stock market. Sometimes it feels like it’s nothing but smoke and mirrors. Which brings to mind another story about monkeys, throwing darts.
Belling the cat. The mice called a meeting to decide on a plan to free themselves of the cat … many plans were discussed, but none was thought good enough until a young mouse got up and suggested hanging a bell around the cat’s neck, so they’d all know when he was approaching. It seemed like a good idea until an older mouse stood up and asked who would bell the cat.
It’s one thing (although not an easy thing) to know what should be done to make money in the markets — find an advantage, do not succumb to fear and greed, avoid unnecessary risk, etc — but it’s quite another thing (a far more difficult one) to actually do any one of them. A bit like listening to Will Rogers when he says: “Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.”
You haven’t made a dime in a stock until you sell it and take your profits to the bank