You know that famous scene in The Princess Bride where Westley faces off against Vizzini over a goblet of poison?
The stock market is like that.
Or at least investors try to be.
You are bullish on the economy and the future of America. Your “side” is in office (not that that usually matters). And so you allocate big to equities.
You are bearish on the economy and the future of America. Your “side” is not in office (see parenthetical remark above). And so you sit in cash.
Or you get fancier. You are a contrarian. You recognize that if everyone thinks things will be good, you bet on bad.
You try, impressed with your own confidence about these kinds of matters, to be Vizzini.
You treat your investments like a Battle of Wits, attempting to outsmart the smirking market in front of you.
You even talk to the market like you were the Sicilian criminal mastermind:
Are you the sort of man who would put the poison into his own goblet or his enemy’s? Now the clever man would put the poison in his own goblet because he would know that only a great fool would reach for what he was given. I’m not a great fool so I can clearly not choose the wine in front of you. But you must have known I was not a great fool. You would have counted on it, so I can clearly not choose the wine in front of me…
Vizzini goes on…
Imagining all kinds of situations that may have given Westley a reason to place the poisoned drink where he had.
Suddenly, Vizzini points to something in the bushes and switches the goblets.
He then drinks the glass he placed in front of himself. Quite the trickster.
The joke is on him though. Spoiler alert:
Both drinks were poisoned.
Vizzini dies.
And Westley—the stock market in this metaphor—continues plugging along his merry way.
The metaphor is not perfect, but it’s a good reminder about how the stock market functions day-to-day.
Bernard Baruch, a twentieth century investor and Presidential advisor, said,
Above all else, in other words, the stock market is people. It is people trying to read the future. And it is this intensely human quality that makes the stock market so dramatic an arena, in which men and women pit their conflicting judgements, their hopes and fears, strengths and weaknesses, greeds and ideals.1
Beware the daily drama.
Maybe you should stop trying to guess and be smarter than everyone else?
Inconceivable, I know.
Investment success is not often one act of brilliance, but an act of patience.
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Sources:
- Baruch: My Own Story, p. 85. Accessed online via Google Books.