Fruitless Investment Hopping

​Our second home in California home has some beautiful plants but one of my favorites is the plumeria. The delicate flowers on these plants put off a lovely fragrance that becomes more powerful at night. Coinciding with the strong scent of the plumeria is the nightly arrival of the sphinx moth, eagerly seeking the sweet nectar on which they must feed. Since the plumeria fragrance is stronger than the surrounding flowers, the sphinx is attracted first to them, flying rapidly from flower to flower. As they do so they fulfill their important role of pollinating the Plumeria, but unfortunately, all is not as it appears, or smells, to the frustrated moth. Despite its strong and lovely aroma, the plumeria flower contains no nectar, and so the poor deceived moth who has provided much service to the plant, receives nothing in return. Yet every night the moths return, failing to learn their lesson.
 
The investing world has its own versions of the plumeria plant in the form of opportunities that may look tempting or smell good but have little or no nectar to offer in return. It may be a stock market that takes a big dive and the investor thinks “Oh look how far it has fallen, it will rebound quickly” and so he jumps in chasing the sweet smell of quick profits. Or the market has been on a long and rapid climb and he thinks to himself, “This market is so wonderful. All it does is go up,” and once again he piles in only to learn that the nectar has run out just before his arrival.
 
What the Sphinx moth does not realize is that the plumeria flower does not care about the moth. The selfish plant only cares for itself and night after night sends out false signals to attract the moth for its own gain. Such behavior would not be a problem for the sphinx if the moth would just learn its lesson. What some investors often fail to understand is that the stock and bond and real estate markets do not care about individual investors. The markets seek their own good and often in so doing send out deceptive signals that lure in the nescient investor, over and over again. Investor behavior as they chase from one “flower” to another was illustrated in two headlines I read this month only days apart. The first read, “Investors Flee stocks for the safety of Gold,” followed by “Investors rush to buy stocks on renewed hope.”
 
If the deceptive short-term behavior of the markets tempt you to flit from one opportunity to the next, you may want to consider the often fruitless nightly efforts of the sphinx moth. Then focus your efforts on patiently seeking out, then holding on to, those investments that can provide you with flow of rewards upon which all great investors build their futures