“The Boy Who Cried Wolf” is one of Aesop’s Fables and concerns a shepherd boy who repeatedly tricks nearby villagers into thinking a wolf is attacking the town’s flock. When a wolf actually does appear and the boy again calls for help, the villagers believe that it is another false alarm and the sheep are eaten by the wolf.
This fable holds several potential lessons for investors. Consider the tendency of some prognosticators who are quick to claim credit for having warned about a recent event, such as a sharp drop in the stock markets. The key question for investors is, what does this market predictor’s record look like? Has he been right in the past? Is he a perennial bear, seeing market tops that are actually pauses? Has he been successful in calling market bottoms?
The same factors can come into play in conversations with friends or acquaintances who may be quick to tell you, after the fact, that they sold at the recent top, or bought after a dip. Perhaps they did, but without a documented track record, a casual comment may not tell the whole story and might best be ignored. How many of you know someone who has commented on a successful day at the track or in a casino, without mentioning the not so great previous visit.
Bottom line, work with your advisor(s) to develop a long term strategy that fits your circumstances, and then stay the course.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA