The facts are simple. Several days ago, an Oregon man stuck his own pet rattlesnake in his mouth. The rest you can imagine. The snake bit his tongue, sending its owner to the hospital, near death. Fortunately, doctors were able to reduce the swelling, allowing the man to breathe, and he eventually recovered.
Aside from "Don't stick venomous reptiles in your mouth," what can Foolish investors learn from this episode?
Once bitten, twice shy
The stock market involves people making buy and sell decisions every day, and many of those decisions ultimately make as little sense as getting up close and personal with a decidedly unhappy rattlesnake.
Allegedly, the Oregon man meant to demonstrate to friends at a backyard barbecue that his pet snakes were friendly. A more careful reading of the circumstances reveals that alcohol may have been a factor, and that the man was trying to impress his girlfriend. While those motives may be interesting, his behavior itself was clearly irrational.
Any student of the market understands that stock movements can be equally inexplicable. Look no further than the Internet boom and crash of the late '90s, which Alan Greenspan described as "irrational exuberance," to understand how out of touch with reality investors can sometimes become.
The stock market is not a game
There are many reasons why otherwise highly intelligent people are stricken with temporary financial insanity. Far too often, I see investors treating the stock market as a game. They see a particular ticker rising and jump in, expecting that in the future, they'll be able to sell at a higher price to someone else who doesn't play the game quite as well.
I remember being afflicted with this disease in the 90's, when I bought AOL -- now owned by Time Warner
Conversely, some investors see the stocks they own falling, and decide they don't want to be the last person out, so they dump it. True, recognizing your own bad choices is a valuable investment discipline. But it too often leads investors to buy high and sell low, the opposite of what investing is all about. I think many investors have bailed out of Starbucks
Many investors buy into stocks because they have idle dollars in the portfolio and can't stand being "out of the game," even for a little while. The thrill of watching the market every day is just too much of a temptation.
Does any of this sound like you? Can you remember making choices like these, only to come to your senses several months later and quite a few dollars lighter? If so, let me suggest a few lessons from the best investors in history.
Take advantage of Mr. Market
Benjamin Graham once described an interesting fellow named Mr. Market, who offers to buy or sell a business to you every day. Some days, he's in an optimistic mood, offering the shares at a high price. Other days, he feels snakebitten, and offers you shares on the cheap. Remember, you can take advantage of his mood swings -- but only when he clearly woke up on the wrong side of the bed.
Punch the card
Warren Buffett, chairman of Berkshire Hathaway
Own great companies
Charlie Munger says, "It is far better to pay a fair price for a great company than a great price for a fair company." This always reminds me that investors should be prepared to own their stocks for a very long time. I won't dart in and out of a position just to make a few bucks; if I'm not prepared to own a company for five to 10 years, then it's not worth buying. Wal-Mart
One common theme
All these lessons contain a single truth. Smart investors should know the companies they invest in: their business models, quality of management, and the unmistakable advantages that ensure their future success. If that sounds daunting, it really isn't.
Still, if you could use a little advice from people fully devoted to identifying winning companies before they hit the big time, consider a trial subscription to Motley Fool Stock Advisor. If you're not completely satisfied after 30 days, you can cancel the subscription -- no questions asked. Sounds completely rational to me.
And the next time you're tempted to open wide for a rattlesnake, put down the beer can ... please.
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Wal-Mart, Coke, and Berkshire Hathaway are Motley Fool Inside Value recommendations. Berkshire, Time Warner, and Starbucks are Motley Fool Stock Advisor picks. Try any of our market-beating Fool newsletters free for 30 days.
Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles, and owns shares of Starbucks and Wal-Mart, but none of the other companies mentioned in this article. The Fool's disclosure policy never gets fresh with pit vipers.