How do horror movies and investing go together?
Every scary movie has certain rules that characters break regularly. We all know most of the rules. But do you know how those rules apply to your portfolio?
1. What you don't know can hurt you. Every scary movie consists of threats the characters don't know about. It's usually the one thing that gets them axed. With investing, not doing your homework can hurt you too. It's a must to investigate what you are investing in and the advisor that is consulting you. Do your due diligence because what you don't know will hurt you.
2. Be observant. In every horror movie there are signs that signal the beginning of something really bad. If you detect warnings from the media, important dates, animals behaving strangely or electronics not working, you might want to vacate immediately. With an investment it can be anything from a fund manager's departure or the first quarter of bad earnings. Ironically, the media begins talking about negative events far in advance, so this may be your earliest warning. Unless your dog runs out into the woods barking…in which case don't follow because he's dead already.
3. Don't split up. I sure wouldn't go anywhere alone if a psycho is on the loose. I just don't know how many horror movies I've seen where the characters get picked off one by one when they are alone. In your portfolio, you don't want to put too much money into one investment. Creating a portfolio is just like a scary movie. Don't go alone. Stick with diversification to survive.
4. Listen for musical changes. How many times have you been watching a scary movie and you know something bad is going to happen when the music changes? You can listen for musical changes with your investments too. Company earnings changes, domestic economic uncertainty and political instability (wow, lots of big words) all are changes that investors have to listen for.
5. If a town looks deserted, it probably is for a reason. Take the hint and stay away! The same goes with an investment. If the investment looks bad now and is losing money, it probably is not a good investment. It's losing money for a reason. Read the signs and stay away.
6. The killer is already in the house. This one is my favorite. It's a rule that everyone knows. Do the horror movie characters know it? Of course not! The killer with investing is risk. It is ever present and can ruin your portfolio. Controlling your emotions through good times and bad will help you become a better investor. Psychology plays a major role in whether you survive.
7. Scary things pop out after a long uncomfortable silence. In every scary movie there's a scene like this. Investing is no different. If things are going along just swimmingly, then it may be time to expect something to pop out of nowhere. Yep, I'm talking about a market correction. If it's been many months since a correction then it may be due. Know that they are common and expected…just like those movie pop out scenes!
8. If the creepy old lady tries to give you advice….TAKE IT! There's always that one person in every movie giving the doomed characters advice. The problem is that they never heed the advice or the warnings! Most financial advisors aren't too creepy, but they have good advice. Heed that advice, it may keep you from making more financial mistakes. An advisors true role is to develop a simple plan that you can stick to.
9. Many will never escape. Hey it's just a fact with scary movies, lots of people die. You know, the support cast of teenagers and camp counselors. The reason they don't escape is they find themselves in the wrong place at the wrong time. Don't go to cemeteries, cabins, wooded areas, lakes, anything abandoned, hostels and vacant hotels off the main highway. Some investors are just destined to let emotion play out and buy high and sell low. So sadly some will never escape. For every buy or sell, there is someone on the other side of the trade that thinks they are equally as astute as you.
10. Always expect the unexpected. Expect that everything you know or once believed will come to be questioned. Just like in horror flicks, whatever you are facing, whether it be man, beast, alien or poltergeist, will not stop pursuing you. You must adapt quickly or perish. Your portfolio requires the same. You must continually assess risks and information. No one could have predicted the unexpected 2008 Credit Crisis or the 2001 Tech Wreck. It's important that you prep your portfolio for the unexpected.
Don't break the 10 Scary Movie Rules for Investors. You could get your portfolio hacked to death. Remember, you don't have to run faster than the killer, you just have to outrun all your friends!
Disclosure: Diversification and asset allocation strategies do not assure profit or protect against loss.