Are You a Cat Investor or a Dog Investor?
The behavior of unrushed versus impulsive investors often mimics those of our pets
When I was a young boy we had a family pet, a Dalmatian named Gypsy, unique because she had only one spot, a patch over one of her eyes. My most vivid memory of Gypsy was the time she spotted six frozen uncooked hot dogs that my mother left on the countertop to thaw. Before anyone could react, Gypsy grabbed the hot dogs and wolfed them all down. Needless to say, Gypsy wasn’t feeling well for a while after that.
Today we share our family home with Jasper, a Siamese cat. Unfortunately, Jasper recently had an accident that required hip surgery and a leg cast. We’ve been giving her 24/7 attention and she is recovering nicely. Since she is less mobile than she was, my wife offered up her iPad for Jasper’s use, and we found an eight-hour video for cats on YouTube, mostly showing birds coming and going, and the occasional squirrel. Jasper loves it and sits quietly for hours watching the video.
It occurred to me that many investors are a lot like either Gypsy or Jasper, and the type of investor you are matter a lot. Let’s start with the dog investors. They have a short attention span. Whatever is currently in front of them catches their interest, the hot stocks of the moment. We’ve recently seen a lot of them, like GameStop, AMC, Blackberry, and many others. These otherwise sleepy stocks were left out on the countertop, and for no easily discernable reason related to fundamental values, many investors gobbled them up.
For these dog investors there was short-term euphoria as the stock prices climbed to unimaginable heights. But then the reckoning came as the prices fell back to earth. Why buy these stocks in the first place, if there wasn’t a fundamental valuation reason for doing so? For many of these dog investors, there wasn’t any thought of the long-term and fundamental value, but rather the price paid today didn’t matter if they thought they could sell the stock to someone else at a higher price than they bought it for. Burton Malkiel, author of the classic book A Random Walk Down Wall Street referred to this as the “castles in the air” phenomenon, thinking one could get rich quick based on hopes and dreams.
