« Ostriches and Owls | Main | Blog Carnivals »

August 10, 2005

The Differences Between Ostriches and Owls

I’ve been thinking about the animals we associate with the stock market – the most obvious of which are bulls and bears. There is some question as to where the terms bulls and bears first came from.

 

Many historians believe the terms came from the way the two animals fight. A bull tosses its horns upward to gore its opponent. A bear slashes downward with its sharp claws. But I am thinking of much more mundane creatures than fighting bulls and bears. In fact, I have been thinking about stock market birds – ostriches and owls.

 

Investors who invest in the traditional way remind me of ostriches - they stick their head in the sand and hope it all works out. I don't want to be an ostrich. I don't want you to be an ostrich. I want you to be an owl. Here is what I think are the differences between ostriches and owls:

 

Imagine you have two young birds – one an ostrich and the other an owl. Both have to be taught how to invest. Neither knew instinctively what to do when they were young.

 

The ostrich looked around to see what everyone else was doing and felt most comfortable doing the same thing. He looked to the same sources as everyone else for information.

 

His advisors saw a great opportunity here and taught him early on that he should rely on them for advice – they were “the experts.” After all, this was all too complicated for his little ostrich brain to understand.

Once he had accepted this belief system, his advisors were able to sell the ostrich ridiculously bad investment, charge absurd fees and commissions, and answer any questions with nonspeak worthy of a politician. The ostrich, believing from a young age that he was incapable of understanding, just rubber stamped anything his advisors told him.

 

Owl though, got a much better education. Owl was brought up to be self-reliant. He was told that he should be accountable for his own financial well-being and the way to do that was to get a good financial education and be willing to apply it throughout his life. “There was nothing to be afraid of”, his friends and family said. “This isn’t rocket science. It is mostly common sense. Anyone can learn if they were willing to make the effort.”

 

Over time, the ostrich learned from his advisors that his focus should be on portfolio growth. That is how you will know an ostrich - he will be talking about things like asset allocation, stock picking and market timing. Ostriches focus on maximizing return and the question they ask themselves every night before they go to bed is, “how did my portfolio do today?”

 

The owl learned that so long as he could generate a paycheck from his portfolio that he didn’t have to work for or worry about, he would be financially free. For owl, work, and when to stop working, would be a choice. You will know an owl because he talks about financial engineering –using all the latest knowledge and research to create new and better ways of investing his money so that it creates the steady paycheck he seeks. Owls focus on managing risk and the question that drives them is “what if I live to be 120?”

 

Ostriches and owls come from totally different points of view, based on their upbringing and belief system. Ostriches are eternal optimists. They say to one another, “Remember, stocks always go up in the long run.” Owls respond with, “Yes, but in the long run we’re all dead.” Owls are more realists. They don’t spend time thinking about what they would like to happen but rather on all the things that could possibly happen that they should plan for – for example, “What if what I want to happen, doesn’t?” or “What if the worst thing that could happen, did?”

 

Because ostriches are eternal optimists (and it makes the most money for their advisors), they invest by betting. They bet on the future direction of stock prices in the same way someone else might bet on Cactus Jack in the 6th at Churchill Downs. Listen closely and you’ll hear them. “I’d like to put ten thousand dollars on Cisco to win and I want Google, Taser and Baidu in the Trifecta.” Like all gamblers, this means their portfolios are very volatile – most of the time they are losing but every once in awhile they win big, which keeps them convinced there is a huge payday just around the corner.. Just as the handicapper spends his days poring over the racing form, stock market gamblers pore over news, newsletters, stock charts and data. Heck, there is even a 24 hour gambling channel now. It is called CNBC – the Can’t Not Bet Channel.

 

Owls are different - much more relaxed. They don’t care which direction the market moves because they don’t bet on stocks. Owls have figured out a much better game. They know statistically that the gamblers lose the vast majority of the time. So rather than gambling on stocks, they just bet against the gamblers. It’s the closest thing to a sure bet there is – bet against the bettor, hedge away the risk of the one time in ten that the gambler actually wins and you have a nice steady stream of income that is independent of the market’s direction. So instead of poring over stock charts, you will find the owls enjoying their families, spending time with their grandchildren, playing golf, or hanging out with their buddies in Bora Bora.

 

The ostrich’s best friend is named Luck. He has another guy he likes to hang with called Hope. Ostriches biggest vices are fear and greed. Because Luck and Hope are so unreliable, the ostrich often feels like he is on an island, and the future holds mostly fear and uncertainty. Thinking about whether or not he will ever be able to retire is a source of great anxiety. He often thinks to himself, “Where are Hope and Luck? They are never around when I need them!”

 

The owl’s best friend is a very smart fellow called Probability and another useful chap named Intellect. Probability and Intellect never fail the owl and because they are so trustworthy, owl has trained himself to rely on them whenever he finds himself confronted by the evil fear and greed. With friends like Probability and Intellect at his side, the owl sees the future as a source of joy and can’t wait to see what tomorrow will bring.

 

One day, Money Mustang was standing nearby watching the ostrich go about his investing. “Are you a sheep?” he called out to the ostrich. “Of course not. Everyone can see I’m an ostrich,” he replied. “Humph! Looks like a sheep to me,” thought Money Mustang.

 

Then Money Mustang came upon the owl. He watched the owl taking care of his investing. The mustang noticed the owl was very different from the sheep/ostrich he had encountered earlier. “Are you a Snider Method Investor?” asked the pony. “Why yes I am,” said the owl delighted to find someone who understood him. “I am just leaving for Bora Bora for a month. Care to join me?”

 

If you would like to view a chart that I posted that summarizes the differences between owls and ostriches, it is in the previous post. If you would like to comment on my little parable, leave your thoughts below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Posted by Kim Snider on August 10, 2005 | Permalink

TrackBack

TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8341d248853ef00d83552cf5969e2

Listed below are links to weblogs that reference The Differences Between Ostriches and Owls:

Comments

The comments to this entry are closed.