Investing and duck hunting
By Bruce E. Brinkman
"Every hunter knows you don't shoot where the duck is," says John Mauldin, "you shoot where the duck is going to be." The well-known investment guru and prolific financial columnist has also identified many investors' dreams: how to anticipate where the market is going and get there first. Many a dollar has been lost in that hunt.
My one attempt at duck hunting came years ago at a college buddy's family farm. I remember waking up before dawn on that drizzly fall morning in western Kansas thinking, "This better be good." It didn't help that I had no experience handling a shotgun; my experience shooting pond turtles with my .22 rifle hadn't prepared me for handling the heavy artillery of a 12-gauge shotgun.
In my limited experience, the hardest part of hunting waterfowl is the wait. Minutes turn into hours when you are squatting behind a damp, camouflaged blind. On that dreary morning, when the birds did finally decide to tease us by flying by, my timing was off. My shots were either behind or ahead of the birds. I nursed my wounded pride by reminding myself that I didn't even like the taste of duck, unless it's of the Peking variety.
Most investors' efforts to make money in the stock market resemble a wild goose chase more than a duck hunt. One reason is that their patience wears thin waiting for the expected double-digit returns. In fact, research has shown that the brain's wiring somehow gets crossed for most investors; they buy at the peak of the market and sell at the bottom. Emotions take over when self-discipline wears thin.
Another reason for the average investor's underperformance is overconfidence. When it comes to investing, many folks seem to think they hail from Garrison Keillor's fictional hometown of Lake Wobegon, where "all the women are strong, all the men are good looking, and all the children are above average." We all tend to think we are above-average investors, but the results are predictably "woebegone."
One of two strong emotions drives most investors' market decisions: greed or fear. Benjamin Graham, described as the father of value investing, said "individuals who cannot master their emotions are ill-suited to profit from the investment process." The challenge is separating our feelings from the investment decision.
Some respond by keeping their money in cash or CDs, the "safe investments." The problem with this approach is that inflation reduces the purchasing power of those dollars annually. Others follow every gyration of the market and waste time and money betting on the latest hot sector or stock. These investors would be better off visiting a local casino, where at least a portion of their losses go to fund state and local government services.
The better approach is to manage your investments like you do the rest of your operation: Diversify, since you don't know where the next market gains will be found, and take the long view as time rewards the patient investor. And take advantage of this duck hunting season as a reminder of the difficulty of hitting a moving target.
Editor's note: Bruce Brinkman is a Certified Financial Planner with Allen, Gibbs & Houlik, L.C. of Wichita. He can be reached at 316-291-4191 or firstname.lastname@example.org.