One of the two copies of Ben Graham’s book, The Intelligent Investor that Your Survival Guy keeps in his office contains a forward by longtime market columnist Jason Zweig. This spiralbound version of Graham’s book is easy to lay out on my desk and examine in depth. Zweig has always been a keen student of the market. The book explains in depth the difference between investing and speculative techniques like market timing. In a recent column for The Wall Street Journal, he explains the dangers of market timing using a story from his childhood. He writes:
I grew up on an old farm in rural northern New York state. One day when I was about seven years old, I went up behind the barn with a book of matches I’d snitched from my dad and a firecracker that a friend had given me. I had the weird, fearless curiosity of a little kid. I’d never lit a firecracker. I thought it would be fun to light it and test my toughness by holding it until it went off.
I struck the match, which made a satisfying fwoop as it flared up. Then I lit the firecracker: sssttttttt!
I held it in my left hand, watching the fuse ignite, then spit and sparkle as it burned, hypnotizing me with its gradual downward progress as time seemed to slow to an infinitesimal crawl.
At the last possible instant, I let go with a flick of my fingers. A split second later, the firecracker went off, impossibly loud, as if I’d simultaneously been clobbered with baseball bats on both sides of my head.
My ears rang for a week, and the fingers on my left hand tingled and buzzed for hours afterward. Thank goodness my parents hadn’t been home.
To this day, I don’t know why I let go. I was too young to understand ahead of time that if I’d held on until the firecracker detonated, it would have blown my fingers off. Some instinct for self-preservation must have kicked in, prompting me to let go without even knowing that I needed to.
I’m grateful to be typing this with two hands.
Whenever I see people speculating in the financial markets for kicks, I remember that firecracker. Do the folks trading one-day options and farcical cryptocurrencies think they know exactly when they can safely let go?
This kind of high-risk trading is fun—while it lasts.
But you’d better not still be holding on when the fuse runs down to nothing.
Action Line: Are you holding a firecracker in your portfolio? How long until it goes off? When you want to talk about market timing and not doing so, email me at ejsmith@yoursurvivalguy.com. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.
