Are You a Chicken or a Fox in the Markets?
I’m sure you know the story of Chicken Licken? You might also know it as Chicken Little or Henny Penny. It doesn’t matter either way, same story. But if you forgot it, here’s a refresher…
Chicken Licken reckons the sky is falling. So off he trots to tell his mates, Ducky Lucky, Goosey Loosey, Turkey Lurkey and a couple others depending on which version you’re reading.
As Chicken Licken gets around to each one, the story of the ‘sky is falling’ becomes ever slightly more hysterical as each of his mates buys into the idea that the sky is falling.
Soon enough all of them are charging about to the next one to let them know, and warn them, that the sky is falling.
Eventually they get to Foxy Loxy.
Now, Foxy Loxy is a pretty smart cookie. And Foxy Loxy sees this mass hysteria from these birds as an opportunity. Foxy Loxy tells them that they can take cover in his den.
Petrified of the sky falling, they each head into Foxy Loxy’s den one by one.
As they do, Foxy Loxy slaughters each and every one of them. Foxy Loxy gets a bloody good meal, and Chicken Licken and his pals all get digested. Oh, and the sky never falls.
That’s a slightly more visceral version of the children’s tale. But you get the core ethos of the story I’m sure.
It’s amazing what kids’ books can teach you
I bring up the story of Chicken Licken as I was hunting some stories to read to my son, Max. And Chicken Licken was one of those I managed to dig up from the Volkering archives. He’s only five weeks old, so he isn’t going to be scared of Foxy Loxy — heck he’s barely going to know what I’m reading to him.
Still as I was reading Chicken Licken I couldn’t help but half turn my mind to the markets. Yep, I’m one of those guys. Can be reading a children’s story and be also thinking about how it’s applicable to markets and investment.
Guess that’s why I do what I do.
Anyway, Chicken Licken got me thinking that there are a lot of chickens out there right now. You might also know of them as market ‘bears’.
You know the ones. The ones that run along screaming, ‘the markets are falling, the markets are falling’. And they can quite often get quite a head of steam going. And they can be good at building a good crowd of other chickens.
Soon enough you’ve got a bunch of people running around like a chock with its head cut off.
However, when you get chicken mayhem the good news is that there are still plenty of foxes circling, ready to take that fear and convert it into opportunity.
Right now we want to be the foxes of this world. Our view is that the sky certainly isn’t falling, in fact the sky never falls. Sure there are times when it might feel like the sky is falling. And those times are when chickens are in full force.
But most of the time when the chicken brigade gets going, you should channel your inner fox, because it can be a very lucrative time if you know how to play the contrarian view.
Take a look at the following chart:
Source: Yahoo Finance
[Click to open new window]
That chart is the ASX All Ordinaries for the last 29 years. Now I will admit, there’s one point in time there when it really did look like the sky was falling. And we certainly don’t blame you if you went full chicken during that time.
But when you look at the long game — fox style — does it really look like the sky has fallen at all over the last three decades?
That’s a fairly rhetorical question. There are periods dotted throughout that might send people over the edge. Little snapshots that the chickens might get hysterical about. But no, the sky isn’t falling, the market isn’t crashing. And when you play the long game being a fox, it works out far better.
Plan for the long game
What this takes though is discipline, a plan and the right timeframe. It also means applying the right entry strategy into the market.
Now if you had decided to lump in every penny you had right at the point in 2007 when the sky was imminently about to fall — then things haven’t worked out well for you. But, that’s only on the predication that all your money went in right at that point.
That’s really not a great investment strategy.
The good investment strategies drip feed investment money into the markets. Maybe every week, maybe every month, maybe every quarter. The higher the frequency, the better off things work out.
By feeding your investments this way over time, you help mitigate volatility. You smooth out those sky-is-falling moments. It’s a way to help mitigate (not eliminate) risk.
This is just one part of a smart, ‘foxy-loxy’ style approach to investing that I believe smart investors should be taking.
Another is making sure that you are putting those resources into stocks that not only have the potential to deliver that long game return, but also pack a little extra punch. The kinds of stocks that would feed an entire skulk of foxes.
In our view that’s why you should be playing in the small-cap region of the ASX. And be employing a smart, long, strategy finding multiple entry points into blockbuster plays. The long strategy works, the charts prove it.
And when everyone else is saying the sky is falling, bite their heads off.
Editor, Secret Crypto Network