I finally saw Forrest Gump at the weekend.
Forrest Gump will be 21 years old in 2015. You could have been born, got married, and signed up to The Motley Fool in the time it’s taken me to see this classic.
That means I’ve had two decades of hearing everyone from Simpsons characters to my own mother shouting “Run, Forrest, run!” or comparing various things to boxes of chocolates. And I had no idea what they were on about.
At least the plot device that sees Gump become wealthy after investing in Apple is now more plausible. Apple was a busted flush by the mid-1990s when Gump was first released. Today, Apple is the most valuable company in the world.
I feel like I’ve wasted 20 years as a journalist unable to explain how anything is like a tub of Quality Street, a family-sized bag of Revels or a tin of Roses.
So here are seven ways in which investing is like a box of chocolates.
1. There are several different flavours.
There’s value investing, growth investing, momentum investing, passive investing and more.
And just like Quality Street seems to have taken out most of the nuts and replaced them with ever more chocolate options, these investing flavours come with very close cousins – deep value or crisis investing or even “great companies at a fair price”, for instance, are close variations on the value theme.
2. You’ll prefer some flavours to others
However much evidence you see that one style of investing trumps another, it won’t work for you unless it appeals to your own mentality.
Value has better track record than growth in statistical terms, for example, but investors have still made fortunes finding and backing the brightest start-ups to global domination.
Hard to believe those same investors would have been as happy or successful hunting through the market’s garbage dump.
3. Everyone goes for the same one first
To immediately contradict myself – I think it goes with the territory with these lists – I have noticed some tendencies over the years. Most new investors are seduced by blue-sky growth stocks or ‘story stocks’ that promise to transform their finances overnight, for instance. They seldom do.
Companies go in and out of fashion, too. Shares can trade at very lofty P/E multiples for a few years when everyone wants to own them, guaranteeing a mediocre result even if everything goes to plan.
Those shares are the equivalent of the Caramel Keg chocolates in my family at Christmas.
4. But it helps to like the unpopular ones
How glorious it would have been as a child if instead of the Kegs, my favourite had been those funny green ones with the nougat inside. I could have feasted untroubled until well past Boxing Day!
The same is true of shares. If you can develop a taste for what your fellow investors aren’t interested in, then you’re much more likely to bag a bargain. A few years ago everyone wanted to own miners and small-cap oil stocks, and their valuations soared.
Now those sectors are the investing equivalent of the unwanted green chocolates, I believe they’re far more likely to be rewarding investments.
5. It can be fattening and addictive
Investing can turn a small amount of money into a middle-sized pot, and a middle-sized pot into a modest fortune. True, it doesn’t happen as quickly as chocolates can turn into a spare tyre, but it does happen and it’s why we’re all here.
Or is it? You see, just like sugary food can become an insatiable addiction, so a casual interest in investing can become an all-consuming passion.
Perhaps it’s a personal choice, but investing has become utterly life-changing for me.
6. Too much is not good for you
Even if you decide that evenings spent feasting on company reports and weekends spent gorging on great investor biographies is a healthy diet for your particular proclivities, it’s still unlikely that doing a lot will be good for you.
If your addiction means you turn to risky and excessive day trading or to spread betting with leverage, it could leave your portfolio looking pretty sick as costs quickly rack up and your focus becomes too short term to beat the market’s noise.
Anyone who ever ate all the Easter Eggs in 24 hours doesn’t need me to spell out this analogy.
7. You have to get stuck in
Imagine you had to describe a box of differently flavoured chocolates to somebody who’d never eaten any. How would you even start? I think investing is like that.
We try our best to educate and amuse you into understanding investing at The Motley Fool, but experience is the only way you’ll ever really know what it feels like to have your portfolio plunge 30 per cent in a stock market crash, or to see one of your stock picks double when your investing thesis works out.
There are innumerable ways in which investing is not like a box of chocolates, too.
For a start, chocolates go off, whereas time – and patience – is the friend of a good investor.
Also, a box of tasty chocolates is rapidly depleted, whereas compound interest can grow your stash until your wealth runs over. Just think about Forrest and his high-flying Apple shares… And perhaps hang on to your exceptional winners for another 21 years!
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