I enjoy talking to investors. In fact, I derive great satisfaction in helping them to understand themselves, the markets and how they should invest. That often means I have to resorts to metaphors and stories to help reinforce my points. Throughout the years, one of my favorite story when it comes to investments has got to be The Three Little Pigs - a great story which I have used countless times to illustrate the different investor mindset and investment products.
So I thought perhaps some of you would be interested in some bedtime fairy tale in this issue instead of the usual heavy duty investment talk.
Well, how about we start with the first fella who did up his house in straw. So there he was, all excited with the opportunity to get out there after maybe some coaching and pep talk by his mom. Feeling all ready to face the world and perhaps a little eager to prove himself, he's all ready to hop onto the next opportunity, things quickly, especially if it requires little or no effort down. This little pig's certainly not a construction type of fella. I mean... how do you waterproof a straw house? But well, he's good with straw and with a little effort he got the house up fast enough. It kept the sun and wind out, and if things get tough, it wouldn't be too difficult to pack up and run.
Thing is, when was the last time you saw a pig outrun a wolf? But I digress.
Starting to see some similarities? Folks who are all hyped up and eager to start, often limited knowledge and inflated ego gets in the way, whose shortcut often turn into years of grief. Maybe the plan was a quick escape, a house that allows quick exit when the going gets ugly. But more often than not, they didn't put in the necessary exit plans. And when the big bad wolf turns up, instead of exiting in time, they find themselves trapped in the false hope that maybe, just maybe the house will hold up.
But we all know what happened. Yeah I know there are more benign versions of the story where the pig manage to run off but I'm more incline to put my dollar on that it was more pork than pig after the wolf was done.
And then we have the second chap. Now we all know this fella - This is the "one-up-you" guy. Straw's a bad idea. So sticks were sturdier. And it looks better too. Surely it will do better than the pathetic straw thingy that his brother had used. Not that he knows more about anything else. No escape routes. And sticks are the worst! They look better, feels better. But when the wolf comes along, it falls just like the straw.
You see, its not in the packaging. Nor the structuring. They may sound fancier and more attractive than straws but at the end of the day it has to perform. Better is not enough. It has to be better than enough.
Now for the last chap. Of course the story glorifies him as the steady eddy of the trio. Wise and hardworking. But here's the surprise- he's actually the biggest risk taker of the three. Why? Well, he risked having no place to hide if the wolf had found him first. He risked being laughed at by his brothers for working so hard when they had plenty of time after they put up their homes to spend in revelry. He risked the house failing to stand up against the big bad wolf after all the research and hard work.
But he stood by what he believes to be the best of what he can do and should do. And build his home with the best of his ability. Yes the home is not as "portable" nor cheap to dump when he needs to. But he figured that it should stand up well against all that life can throw at him. Including a big bad wolf.
When I told the story to my kids and ask them which would be the dumbest pig, I had a pleasant surprise when they all picked the one with the stick. I asked why and they replied "Do. Or do not. There is no try.". in other words, its either you pick the straw and make sure you know and manage your risks, or pick the brick and take the risks out of play. The one who is neither here nor there tends to be the one who is, in their words, complacent.
Well, in actual fact, there is no so call the better pig. In either positions, with the right preparation and strategy, they will all be able to survive any catastrophe. The thing is the former positions would need a lot more fortifications and monitoring. The latter greater security and quality of life.
Picking the position means that you will have to pick the corresponding efforts that comes with it. And the reward? As my kids put it succinctly , is "Wolf Soup".
Hope you liked that one.
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