Mathew Emmert, author of the dividend-oriented newsletter Motley Fool Income Investor, originally published this lighthearted article on 10/6/2003, but we think you'll find that the advice here is timeless.
I recently finished a most enjoyable book, My Cat Spit McGee, which was written by talented author Willie Morris (the former Harper's editor who also wrote My Dog Skip). Mr. Morris' long writing career was, sadly, not long enough.
I was initially drawn to this lighthearted yet moving tale because, like Mr. Morris, I grew up a dog person until I met the woman who would later become my wife. She, of course, was a cat person, and, well, I don't have to draw you a map to the rest of the story. Suffice it to say that a rather large tabby cat now allows us both to live in his house.
At any rate, Mr. Morris' detailed descriptions of the cat that changed his life were so captivating that they prompted me to take a closer look at my own little ornery cohort -- the cat, that is, not my wife.
After taking some quiet time to observe my furry friend, I realized that my cat is actually a master of finance, and that we can all benefit a great deal from his financial prowess. In order to share these insightful revelations with you, I've detailed below the six things that cats can teach us about investing:
1. If you can't make time to lick all your paws, it's OK to lick just one.
Foolish personal finance gurus Robert Brokamp and Dayana Yochim have said this many times (well, perhaps they didn't put it exactly like that), but I don't think it's possible to say it enough.
You don't have to figure out your entire financial life before taking your first investment step. Just get started. No excuses. No procrastinating. Open a savings account. Fund a Roth IRA. Use the Fool's Broker Center to buy your first stock or index fund.
You may never truly have the time to set up those budget spreadsheets you've been waiting for, but if you start something today, you'll be way ahead of even the best intentions.
2. Shed your fur coat.
Lint-rolling the cat hair off your favorite sweater can be a chore, so you should really end your fur-coat collection there. Perhaps everyone is entitled to wear some small woodland creatures around their necks, but resist the urge to own all of the finer things in life. (I'm not even remotely condoning the senseless slaughter of animals here, so please save your hate mail).
We live in fast times with even faster credit, and it's just too easy to swipe that card and walk out with the latest plasma flat-screen. Most people, however, end up paying for those little items for a lot longer than they think.
It's like this: Debt is the devil. OK, maybe that's a little strong, but, generally speaking, debt is not going to help you achieve your financial goals, so use it wisely, or flat out avoid it whenever possible. For tips from the Fool Community on how to save, check out the Living Below Your Means discussion board (free trial required).
3. Feed me consistently, if not constantly.
Once you've taken that first step, it's best to keep taking a bunch of little ones right after it. Making steady contributions -- be they to a 401(k), IRA, or regular old dividend reinvestment plan -- is the best way to build wealth over time.
This approach really takes the element of willpower out of investing. If your contributions are automatically deducted from your paycheck or checking account every month, the money disappears before you have time to miss it.
The results of such an approach can be powerful indeed. Consider this: If you manage to set aside just $150 per month, you'll have almost $225,000 in 30 years (assuming an 8% annual return).
4. Haughtily dismiss those things that are beneath you.
Don't be afraid to walk away from an investment that doesn't feel right, no matter the ways in which your financial planner insists "It's just right for you." It's your money, after all, and you're the one who's going to be relying on it to send your kids to college and buy that new scratching post for your golden years.
If you just can't understand how a company like Enron makes money, say so. Trust is an important part of working with a qualified financial planner, and assuming you've chosen wisely, he or she is the professional in the relationship. With that said, however, they should be able to explain every detail of the investments that they're making with your money, and if they can't, give them a discerning sniff, put your tail in the air, and move on.
5. It's OK to be a bit jumpy and suspicious of everything.
In a world that's fresh from the largest market bubble in history and overflowing with financial shenanigans, there's nothing wrong with erring on the side of caution.
Scrutinize your investments carefully and, as in the case of your financial planner, go with a leader you can trust. Just as a Dennis Kozlowski can break companies like Tyco International
If you're looking for some investment ideas that won't make your palms sweat, but will sneak a little extra income into your coffers, consider a free trial to the Fool's latest investment newsletter, Motley Fool Income Investor (now that's a plug that's as shameless as those gourmet cat food ads).
6. Bury anything that smells bad.
Many companies lurking in our portfolios are dead and buried long before we decide to clean out the litter box. Never be afraid to sell a bad investment and move on.
It's amazing how many people have told me of an awful investment that they're still holding. When I ask them why they haven't sold it, they say, "I don't want to take the loss." Some continue to say, "I've never lost money in a business in my life, and I don't want to start now." Of course, I try not to be callous in such situations, but I have to tell them that it's simply too late for all that nostalgic nonsense.
Here's the skinny: If you bought a stock at $40, and it's now trading for $3.25, I hate to clobber you with any more bad news, but you've taken a loss, buddy. The only decision left is whether to actually realize the loss for tax purposes or hold out hope that the investment can come back to life one day.
If you've lost faith in an investment's ability to bring in the tuna fish, it's best to cut your losses and move on. The truth is you'll have a much better chance of making your $36.75 back if you put the remaining funds into a proven company with skilled management.
And remember, as long as you learn from your investing mistakes, there's no such thing as a total loss.
The Foolish bottom feline
I hope, like me, you've gained a greater knowledge and understanding of the financial realm through the wisdom and grace of our feline compatriots. Frankly, we have to take our investing wisdom as it comes, one step at a time, but it's not uncommon that it chooses to come in ways that we least expect it. So, be ready, be willing, and, above all...
When he's not dangling feathers from a string or popping open cans of tuna fish, Mathew Emmert is seeking quality, dividend-paying companies for Motley Fool Income Investor. Of the companies mentioned in this article, he owns shares in General Electric. The Motley Fool is cat lovers writing for cat lovers.