These days I have been focusing my time on teaching my son things that he needs to learn at this stage. On days when I am working from home or on leave, I would walk him to school as it is only opposite our home.
One of the important things I started teaching him was crossing the road and the green man cue he should be looking out for. The idea was simple. If it’s a green man, he can cross. And if it’s a red man, he should wait until the green man appears then he can cross. It was meant to be simple, easy and not complicated.
Even as simple as it seems, he proceeds to ask me an interesting question.
He asked that if the green man blinks whether he should still be crossing the road. I am tempted to tell him that in such situation, it depends on whether you can time the cross before it turns red but decided against it as I feel it complicates the matter, and at his age he might not be able to make an informed decision. Thus, I told him to wait instead for the next green man cycle before crossing.
There are things that we can draw upon in our daily lives that we can apply to investing.
When a new investor enters the market for investing, they are like children learning how to cross the roads for the first time. The theory is sound and clear and the typical advise applies to buying good companies at a low valuation and sells when valuation is high.
It was meant to be simple but often many special situation comes in and it defrays us from following the basic rule.
During a bull run market like we are in at the moment, it seems so easy to make money that we may forget the basic. The temptation to go into the market and see your shares go higher each day is akin to crossing the road with a blinking green man in sight. If we can time the entry and exit right, it seems all too enjoyable not to participate in the party but we all know the last to leave is the folks who suffer.
Most new investors are being caught buying at the high because they often hear news and acted last after most of the meats are already gone. And because they are new, they probably do not understand situations well enough to get out of the market before the whole bubble bursts.
History always repeat itself and interestingly each decade we have a new generations of new entrants into the market to clean up the mess.