09 Nov Odysseus and the Sirens – A Lesson for Investors
In Greek mythology, the shipwrecked Odysseus and his men were rescued by the Goddess Circe. After a series of mishaps, they became lovers. Odysseus and his men eventually spent an entire year being the guest of Circe and feasting on her island.
When the time came for him to return home, Circe warned him about the many dangers he would encounter on his journey and how he could escape them. Odysseus took her advice and bode Circe farewell with a heavy heart.
Circe was wise beyond words and in no time the ship of Odysseus sailed close to the Island of the Sirens. Now the Sirens were beautiful mermaids. But beyond physical beauty they also possess enchanting voices.
Unsuspecting sailors would first hear the sweet sounds drifting from across the oceans. They would be drawn and sail their ships towards the songs for a closer look. There they will see the Sirens amongst the flowery meadows of the island, their beautiful faces and long flowing hair further capturing the sailors’ hearts and souls.
They would sail closer and closer to the shore and before long, the waves would dash their ships against the treacherous rocks that lined the island. Those who eventually made it to the shore would be slain by the beautiful but evil Sirens.
Odysseus was well aware of the danger he and his crew were in. As his ship drew near and the beautiful music begun to drift across the waves from afar, he took a great piece of wax and cut it up with his sword. The wax grew warm and soft after he moulded it with his hands. He then filled the ears of his men with the wax, rendering them almost deaf.
Odysseus himself could not resist the lure of the Siren’s songs. He had heard so much about the beauty of the music and he had to hear it for himself. He got his men to tie him to the mast of his ship and further instructed them to strengthen the bonds if he were to try and break free. As the ship approached the island he was overcome by the Siren’s songs.
He ordered his men to untie him but they were unmoved. He struggled and lashed out, but the more he did so the more they held him down with more bonds. It was torturous, to hear such beautiful music but yet being unable to draw closer. He would have given everything just to be nearer to the Sirens, including his life.
As the ship sailed further and further from the island of the Sirens, the music became softer and softer. Odysseus’s men removed the wax from their ears and untied him from his post. They were thankful that they could live to see another day.
In order to get to the destination, investors have navigate the treacherous waters of the financial markets day in day out.
You could be a value investor. You study companies and buy the ones that are under valued. You have a system that works (all forms of value investing work) and you are determined to stick with it. You understand that successful investing is more about ‘time in the market’ rather than ‘timing the market’. Your strategy is long term and you are prepared to wait years for it to bear fruit.
You have done your sums and realize that growing your portfolio at a comfortable rate of return constantly will eventually get you to your retirement or financial freedom target. That is your eventual investment destination.
During a bull run you will be seduced by rising stock prices. A rising tide lifts all boats. The price of every stock will increase and many of them will double very quickly. At this point in time euphoria takes over and valuation goes out of the window. A sensible investor should take stock and act prudently.
Many of your friends will be making a killing from the market simply by buying any stock that is on the top volume list. They will question your slow and steady method, leering and edging you on to ‘invest’ together with them. Analysts will crow about sexy companies and their potential for growth. The media will highlight over and over again the low unemployment, stable economy and how the stock markets are poised to make new highs for a long time more.
Like Sirens and their beautiful songs, they will be seductive enough for you to throw caution to the wind and head towards the music.
And the exact opposite happens during a market downturn. Gloom and doom prevails in the markets. All the people around you are depressed because they have just lost a fortune in the market. Analysts no longer have anything good to say about companies that were flying high just a little while ago. The media goes into panic mode, warning about structural problems in the economy and that things will get worse before it gets better.
It is during this time that valuations are the cheapest and most attractive. It is during this time where investors need to do an Odysseus, filling their ears with wax and tying themselves down securely to their value investing strategy of buying good stocks at cheap prices.
Investing is a Journey
Investing is a Journey. Like Odysseus, the only way to get to our destination unscathed is to understand the dangers we might face along the way and do everything we can to mitigate them.
Wax in the ears to filter out distractions and good strong rope to anchor ourselves to our strategy might just do the trick!