Please Keep Your Arms and Head Inside the Car Until the Ride Has Stopped

Apr 02, 2018  Jeff Scott, Sage, Seer, Discount Batman

Schizophrenia is defined as a mental disorder involving a breakdown in the relation between thought, emotion, and behavior, leading to faulty perception, inappropriate actions and feelings, withdrawal from reality and personal relationships into fantasy and delusion, and a sense of mental fragmentation. Regardless of whether you’re a novice investor or a seasoned professional, most would grant that the definition at times can be applied to the stock market as well. But while summing up the frustration everyone feels from time to time while navigating the market’s volatile waters, that definition doesn’t exactly help you find out what kind of crazy you are and what kind of voices you listen to when you make investment decisions. So, to help you figure out where you stand as an investor, a better way to look at the market might be as an amusement park:

The Roller Coaster Investor

We’ve all seen them. Survivors of early February’s 1175 point drop, waiting for weeks on end for their latest position in Thor Industries (THO) to continue clicking slowly and methodically up the dividend hill, only to zoom to the bottom screaming “TESLA!” (TSLA) as the recent drops in the carmaker’s price threw the roller coaster at the bottom of a hill into an unexpected loop to loop based on the latest recall. You see them at Ulysses on Pearl Street in the Financial District in NYC - hair disheveled, one side of their shirt untucked, tie loose and gripping a Tito’s and soda like it’s the last life preserver on the Titanic. They regale their friends with the day’s latest dangers and have a wild eyed, frazzled look. If you’re one of those types of investors then you’re in it for the thrill as much as the money and it’s the challenge that drives you.

The Carousel Investor

The good thing about an amusement park is that there’s a ride there for everyone. Carousel investors like a smoother ride. They’re probably looking for the passive income of a regular dividend to close out their investing years. They spend their investment dollars on things like Home Depot (HD), 3M (MMM) and Southern Company (SO) and enjoy the ride because it’s smooth. Rather than be jerked and jostled on the roller coaster, they’re happy to look at all the pretty horses, listen to the calliope music, embrace the gentle ups and downs of predictable cycles and wave at the people in line for the next ride as they glide by.

The Log Ride Investor

Let’s face it, those who ride log rides at an amusement park are often a bit…shortsighted. They want the thrill of a cool splash on a hot day at the park but forget that at the end there’s often a huge soaking awaiting them just when they’re about to get off. These investors may be holding on tight to companies such as General Electric (GE), down 25.1% so far in 2018 and 56% for the last 12 months. And they may not hold enough diversity to weather the soaking at the bottom of the ride.

Amusement parks can be fun. But everyone should choose the ride they’re comfortable with. Balance, diversity and strong professional advice and services can help develop a portfolio that allows maximum enjoyment at the park with the fewest surprises. Not all risk can be mitigated, but with good planning you may find there’s enough time in between rides for a corn dog and some cotton candy… or even a Tito’s and soda.