Back in my university professor days, I used to speak to community and professional groups on communication topics. Inevitably, these talks often got around to putting communication into action. One image I used to explore the plight of a small business trying to decide on a communication strategy is “The Four Things You Can Do In the Water.” It goes like this.
If you’re in the water, there are four things you can do.
The first is drown. Let’s keep that in mind, because if you do nothing when you’re in the water, you really can sink, die and disappear.
The second thing you can do is float. It has the advantage of not drowning, but unless you trust the tide to put you on the shore or you think someone is going to come along and rescue you, that’s about it.
If drowning and floating don’t suit you, the third thing you can is swim! All of a sudden you have a direction, momentum and some control over your destiny. Good for you!
But there’s a fourth option, one that not many people think about. You can surf. Surfing is just finding a wave, letting it pick you up and falling down its face for as long as it will carry you. If you can find a wave that’s heading in your direction and ride it successfully, you can outdistance even the strongest swimmer while expending just a fraction of the effort.
So, what does this have to do with investing? (You knew there had to be a connection, right?) Well, it wasn’t what I had in mind when I first wrote the image up, but here it is.
The person who drowns is the person who does nothing with money. No budget, no plan, no savings, no investments. Nothing. This is the neighborhood of huge debts and bankruptcy, which is about as close to drowning as you can get in the financial world.
The person who floats is the person who saves. The more you save, the bigger your financial cushion is, but you hear stories every day about people whose savings have been blown away by illness or some kind of accident. Money in the cookie jar or under the mattress is better than nothing, but that’s the best you can say about it. Completely safe investments–an insured savings account or a Treasury bond–will at least allow your money to grow fast enough to keep up with inflation.
The person who swims is the one who invests. Investing in anything from an index fund to a highly leveraged derivative always involves risk, and the relationship between risk and reward always follows the same formula. Low risk investments bring low returns. The more risk you are willing to take on, the higher the potential reward.
The surfer is the investor who figures out which direction the market is going and gets in step with it. This takes skill and nerve, and there is always the chance of wiping out. But if you ask an investor who has ridden a bull market what it’s like, the answers will be ecstatic. It’s not just the money–although that’s a huge part of it. It’s the sense of being locked in to a bigger movement. Skiers and snow boarders can get the same feeling.
Cabot’s growth advisory letters–Cabot Market Letter, Cabot Top Ten Report, Cabot China & Emerging Markets Report and Cabot Green Investor–use market timing to identify positive market conditions, essentially telling you when the investment surf is up. Their advice is especially important when market conditions are negative. Knowing when to get out of the water is how surfers–and investors–stay safe.