Sometimes, the sweetest rewards lie on the other side of the chocolate river. Investors who dismiss yesterday's 30th anniversary video re-release of Willy Wonka and the Chocolate Factory as just another sugary holiday classic are selling short the modern day financial applications.
Yes, the tale of the poor boy who wins the chance tour of a lifetime and makes the most of it gives reality a run for its money. But look harder into the screen adaptation of Roald Dahl's classic Charlie and the Chocolate Factory and there is so much worth learning.
After all, investing, my dear friends, is 93% perspiration, 6% electricity, 4% evaporation, and 2% butterscotch ripple.
Three years ago, I took up the Cash King stage, singing the relevance of Searching for Charlie Buckets. I broke down the traits of Charlie and his four fellow Golden Ticket winners and applied them to the qualities of different stocks at the time. It now occurs to me that the better comparisons lie between the Wonka kids and investors themselves.
Naturally, we'll start with Augustus Gloop, the overeating German lad who promised that he would cost Wonka a fortune in fudge. Like many fallen investors, Gloop falls victim to his gluttony. How many times have you seen someone hold on to a stock with deteriorating fundamentals, rather than take a loss? How many times have you seen folks feasting on high interest debt, only to leverage themselves to the hilt in the market like a Vegas junkie slumped over a slot machine at four in the morning? Greed is good only to the extent that the effort justifies the expectations. An ounce of moderation is worth more than a pound of fudge.
Veruca Salt wanted it all and she wanted it now, daddy. You've seen the Verucas in the marketplace, haven't you? These are the ones who won't settle for traditional market returns of 12% to 15% a year. They lack the patience to see things through or the desire to earn it outright. They roll the dice on penny stocks and day trade stock options. They live at a different speed that doesn't afford them the luxury of being able to take the time to add up how commissions, spreads, and random gyrations are cutting against the grain of their speculating discipline. The golden goose isn't for sale, Veruca. The guy with the funny hat says so.
Then we have Violet Beaureguard, whose quest to better her friends had her chewing the same piece of gum for ages. If she were simply chewing for the sake of chewing, maybe one would applaud the perseverance. However, while her gums might cry out otherwise, Violet was no Buy-and-Hold model. She chewed because someone threatened to chew longer. That kind of trend-hopping vanity rarely rewards the fickle. If hearing that someone owns 100 shares of a certain stock at a cocktail party is reason alone to make you want to phone in a buy order for 200, you are not twice as smart. If a classmate at a school reunion brags about making a killing in the futures market, angling for some heating oil and soybean contracts is not going to make you the toast of the next get-together. Well, maybe it will make you toast. Don't follow and then attempt to take the lead in a race when you have no idea where the finish line is.
The last of the lot was television addict Mike Teevee. How many people are glued to the tube, mere inches away from the CNBC anchors, ready to dive into whatever stocks are discussed on the show? This goes for those who blindly follow the writing heads as well as the talking ones. A magazine tout piece will not give you the full story. Even our own Rule Maker and fool.com content can be misconstrued as dance step floor prints when you really have to do your own dance.
So bring on our hero Charlie Bucket. His focused attention and honorable intentions kept him away from the traps that knocked the other children off the tour. Just as we seek out Rule Makers that have sustainable competitive advantages and managerial integrity, young Charlie Bucket had this in strides. While a pauper he still managed to live beneath his means and save. Granted, we have to knock off some points for the poor lad blowing it all on glorified lottery tickets, but at least there was chocolate sustenance attached.
Charlie's devotion to his paper route and commitment to his family were also noteworthy. Even if he wouldn't have inherited the chocolate factory, it's easy to see where he would have made a difference. It's that kind of mindset that won't be easily swayed nor quickly betrayed.
This, naturally, leads us to Wall Street's greatest thinker: Willy Wonka himself. Who? What? The man who thought he could bring out the worst in every child selling the myth of the everlasting gobstopper? The twisted and cynical cocoa magnate with a fleet of Oompa Loompas ready to break out in song after every moral misstep?
Yes, hear me out on this. Wonka produced some great nuggets of wisdom in the movie. They might not seem obvious now. We're all still a little shell-shocked over the recent market carnage. In many ways, we only have ourselves to blame. We stole the fizzy lifting drinks. We bumped into the ceiling which now has to be cleaned and sterilized. But we do get something. We don't lose. We have some Wonka-isms to ponder. Here are four in particular you might enjoy:
Bubbles, bubbles, everywhere and not a drop to drink, yet.
I know, it sounds very circa March 2000. We can't claim clean hands here. We saw Yahoo! (Nasdaq: YHOO) and JDS Uniphase (Nasdaq: JDSU) burst and crumble within our Rule Maker hands. I'm sure that you probably had a bubble or two as well. But the last word is critical. Yet. You see, even when bubbles burst, they still leave soapy residue. There is substance. A bubble is more than air. Growth stocks can become value stocks, usually the hard way.
The suspense is terrible, I hope it will last.
I trust you are reading tonight's column for more than therapeutic reasons. Odds are you truly do relish the stock market -- or at the very least find it intriguing enough to stay current. Anyone who brands investing as boring and investors as bores has never taken the time to truly enjoy the good times and learn from the bad times.
Little surprises around every corner, but nothing dangerous.
I hope no one is margined to the hilt. I hope everyone is relatively diversified. That said, the stock market is a historical creator of wealth. There will be potholes on the path. There will be corrections and bear markets. They will come. They will go. These are the little surprises. To an investor with a long-term roadmap they are not dangerous. Sometimes, they can even be advantageous.
There's no earthly way of knowing,
Which direction we are going,
There's no knowing where we're rowing,
Or which way the river's flowing.
While it's been argued that in the long run we're all dead, I'd like to argue that in the short run all logic is dead. There has never been anyone, no one at all, who has been able to consistently call every market top and every market bottom. So while history tells us that there is no earthly way of knowing whether the market will close higher or lower tomorrow or next week, the degree of comfort in calling a higher market increases with every year you add to your timeframe. So, let the rowers row and rivers flow. They ultimately begin heading upstream.
Besides, that water flowing beneath you? It's a chocolate river. Sweet and rich, it knows the way home. So shines a good deed in a weary world.
Rick Aristotle Munarriz really does rank Willy Wonka & the Chocolate Factory as his favorite movie of all time. The one Rule Maker he does own is Yahoo! Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.