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Thursday, November 19, 2009

The Hare (investor) and the Tortoise (investor)

The fable about the race between the hare and the tortoise is one of the better known amongst Aesop's fables. These fables not only provide entertainment to young children, but usually end with a moral that has relevance for adults.

But does the fable have any relevance to the world of investments? To find out, let me recap the story:-

The hare once ridiculed the tortoise for its slow pace. Upset, and knowing the frivolous nature of the hare, the tortoise challenged the hare to a race. The hare promptly accepted the challenge.

On the appointed day, the race began and the hare was off and running. As it came near the finishing point, it decided to rest a bit and soon fell fast asleep. The tortoise, way behind, was slowly but surely plodding along. It didn't stop even once, and kept right on going with its measured steps till it got near the finishing point. The other animals that had gathered to witness this incongruous race, started to cheer.

The noise woke up the hare. It realised that the tortoise was about to reach the finishing point, and made a mad dash to try and win the race. But it was too late. The tortoise won. The moral of the fable? Slow and steady wins the race.

Is investing a race? Yes, it is. The race is against time, which doesn't stand still. Remember the saying, time is money? The more time you can spend in making money, saving money and investing it appropriately, the more money you will have for your enjoyment and old age.

When we are young, we tend to be frivolous about our money. And our time. We spend both on useless pursuits - haring off after a inside tip or, a sure shot winner or, a great swing trade opportunity. We end up losing money and wasting time.

In one investing lifetime, only a handful of bull and bear markets can be fully utilised for generating large profits. To be able to do that, you need to do your homework, develop proper strategies, and have the discipline to stick to stop-losses. Otherwise, you will choose exactly the wrong times to enter or exit the market.

As we grow older, we tend to value our time and money a lot more - may be because we do not have enough left of either! So, to be successful as an investor, don't be like the hare. Don't run after get-rich-quick or multi-bagger schemes. One fine day, you will realise that the slow and steady tortoise-like investing can amass a lot of wealth through sheer discipline and the ability to stick to a plan.

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