Revisiting the Wile E. Coyote Investing Method

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A few weeks ago, I wrote an article urging us all to not invest like Wile E. Coyote. I explained how the poor canine's modus operandi seemed to consist of trying one roadrunner-catching strategy after another, but attempting each one just once. That had reminded me of how we often do the same thing, in investing.

Well, I heard from a thoughtful reader who begged to differ and wanted to save me "from future humiliation." Let me share some of his good points.

• First off, our reader noted that Mr. Coyote sometimes did repeat strategies but still ended up failing, usually because of overplanning -- in other words, his strategies were often "far too complicated." In investing, many people build multimillion-dollar nest eggs by doing very little, such as buying stock in solid and growing companies and hanging on for years, if not decades. Anne Scheiber, for example, got rich on PepsiCo (NYSE: PEP), Schering-Plough (NYSE: SGP), Chrysler, and Coca-Cola (NYSE: KO). You, too, can also do rather well just by sticking with a simple index fund or two.
• Our reader also pointed out that Mr. Coyote's timing was often to blame -- he often acted too soon or too late. Likewise, we often jump into a stock without taking the time to study it. Then we'll find out it's overvalued. I've done this many times, such as with Sun Microsystems (Nasdaq: JAVA) and Martha Stewart Omnimedia (NYSE: MSO). Other times, we simply don't invest in a great company soon enough.
• Finally, our reader explained that Mr. Coyote grew increasingly desperate and manic as his attempts to catch the Roadrunner failed -- just as we investors often let our emotions get the better of us. We can panic and sell when holding on would be better. (Down markets can be the best times to buy.) We sometimes act rashly, out of desperation -- maybe when we gobble up shares of a stock we really want to own, regardless of its valuation. (Acting too quickly can kill our returns.) When we're not thinking clearly, we can miss opportunities or take the wrong ones.

Mr. Coyote's "inability to predict what was going to happen further down the road would always lead to dire consequences," our writer concluded. "Moral of the story: Don't overthink in an attempt to catch things in one place, and don't try to follow things that move too fast to follow."

Amen! (And meep-meep!)