Fishing For Profits

September 10, 2007 by Joe Ponzio

80 degrees. Sunny. I’m getting a killer tan. And that’s about all I’m getting because the fish aren’t jumping in my boat the way I had hoped. In fact, we’ve caught nothing but two small perch for the day, and nary a nibble more. Some guys are sleeping; some are getting frustrated and angry. I’m standing at the back of the boat, sipping a glass of wine and watching the water.

Then it dawned on me: I know exactly how these guys see investing and the markets, and they fish just like they invest.

If you are a serious fisher(person?), this article may not be for you. Me-I’m that Chicago guy that hits the north woods every year to drop a line in the water and laugh with his friends. Could we be doing more than waiting for the fish to find our bait dangling in the vast lake? Absolutely. Do we want to work that hard on vacation? Nope.

As a testament to how non-serious we are, picture this: we’re drifting on a pontoon, the canopy is up to block the sun. Bad 80s and 90s songs are playing in the background and we’re drinking red wine out of Solo cups. A casual observer might think we packed the cooler for a week of camping-we restock it every day.

The Sleepers

Ted is sawing lumber-he’s been asleep for an hour and his pole rests comfortably on the ground. For Ted, fishing is something to do on the boat because everyone else is doing it. He has no illusions of grandeur; and yet, he hopes to catch some really big fish. When everyone else starts catching fish, Ted springs to life and drops his line in the water. But when it is slow, Ted lays down to take a nap.

This sort of investment strategy-springing to life and pumping money into the market when things are going well and ignoring it when it is slow or low-usually results in sub-par returns and disappointment.

The Frustrated

Unlike Ted, Jim is intent on catching fish-and will motor around the lake until he finds that perfect spot. Pole in hand, Jim spends the majority of his day staring at the screen of the fish finder, cursing that we’re “not marking a damn thing” (no fish around). For Jim, fishing is supposed to be exciting. He doesn’t care how many fish we bring home-he just likes to “hook ?em” and bring them in.

When Ted is sleeping, Jim is swearing. Constantly checking his bait, changing his “setup” to different colors, and bouncing his fishing pole like a pro, Jim hates the slow time on the lake.

Not surprisingly, Jim also likes to chase hot stocks and gets angry or distraught when the markets or his stock prices drop. He’s not a hard-core technical trader, but he likes to look at screens and charts more than he needs to. For Jim, owning stocks should be fast and exciting-and they should constantly go up. Anything less is frustrating and he’d rather not be in the markets.

Are You A Sleeper or Frustrated?

Most people are Sleepers or Frustrated investors-and they lose money or suffer poor returns because of it. Can this style of investing bring you rewards? Sure-even a blind squirrel finds a nut from time to time. In fact, when done properly, these styles can reap some handsome rewards for a very small minority of professionals.

Still, they are hardly done right by the casual investor. For us, there is another way.

The Wine Drinker

My style of fishing isn’t very exciting. I drop a line in the water, pour myself a glass of wine, and engage in fun conversation. When the fish aren’t biting, I’m having a blast doing other things. Still, I keep my line in the water.

When the fish are biting, I’m bringing them in while Ted is still baiting his hook. When I feel the tap-tap on my pole, I’m patient enough to let out some line and set the hook. Jim, eager to have some action, prematurely sets the hook and misses more than he needs to.

Whether the fish are jumping in my boat or I’m simply tanning with a fishing pole, my pace and mindset is always the same: patient and calm. Does that make me a great fisherman? Doubtful. But it is one heck of a great way to invest.

Drink Some Wine With Me

And so I return from my vacation and hit the keyboard again. Let’s once again drop our lines in the water and have a blast. Of course, the very fact that I made the above analogies tells me one thing: I need to cut back on my blogging a bit. The truth is that I can barely look at a situation or scenario without saying to myself: Hey, I can write about that on F Wall Street.

I think I’ll scale back (no fish pun intended) to three days a week. That will give me more time to answer e-mails and comments/questions and also offer some better quality posts.

A Note From Joe Ponzio

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