Monday, October 28, 2013

Enough is Enough


Throughout this blog, I have repeatedly pointed out that an individual must set a goal as the first step in any investment plan.  Why are you investing?  What is the purpose of the money you hope to make with the investment?  Saving for a rainy day or for a child's college tuition each require a different investment strategy.  The strategy for both of them will differ from the strategy for investing a retirement portfolio.  The Cat in Lewis Carroll's classic Alice's Adventures in Wonderland gave Alice the following directions: 

"Would you tell me, please, which way I ought to go from here?"
"That depends a good deal on where you want to go to," said the Cat. 

Ben Graham advised individuals that they should not invest to "beat the market."  Rather, the investor should focus on achieving his or her specific investment goal. You may recall the TV ads for an investment firm which promised to help you reach your "retirement number" (whatever that means).  They never explained what a person should do if and when they reach their number?

Al Frank, author of Al Frank's New Prudent Speculator quoted from the fourth century book on Chinese philosophy, Tao Te Ching, when he gave the following advice to successful investors:

In verse 9 we are told, "Going to extremes is never best...The way to success is this: having achieved your goal, be satisfied not to go further.  For this is the way Nature operates." *

In his book Where Are the Customers' Yachts? or A Good Hard Look at Wall Street, Fred Schwed, Jr. asked the following questions:

If a man makes thirty million dollars, and then loses the entire thirty million and some more to boot, would you say that such a man is quite bright in the head? I should like to carry this inquiry into intelligence a little further and ask a second question:  what do you think of the mentality of a man who goes down to Wall Street with very little and wins, by speculation, thirty millions, none of which he has as yet lost?  My own considered opinion is that he too is pretty loony.  In order to make his second unimportant million he had to risk his first precious million?  Obviously he did so, and did it time and again.  That he happens to have been successful each time does not really change the picture.  What could he have been thinking of each time he took all those risks?  The very contemplation of it makes my bourgeois soul shudder. **  (Author's emphasis in bold) 

If you have run through the ribbon at the end of a foot race, stop running.  If you keep going after crossing the finish line, all you can do is hurt yourself.  Some folks still believe the mantra from the 1990s that "More is better."  If you really think about it, more is just more and enough is enough.

The material from Al Frank's New Prudent Speculator by Al Frank, copyright 1995 by Al Frank, is used with permission of the copyright holders, the heirs of Al Frank.

**  Excerpts from Where Are the Customer's Yachts? or A Good Hard Look At Wall Street, Fred Schwed, Jr., copyright © 1940, republished by John Wiley & Sons, Inc, pages 152-154

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