A few months ago, my wife and I celebrated our 15th anniversary. Over the years, I have tried to stick to the traditional gifts for anniversaries. For year 15, that means crystal.
I had decided that I would get her a crystal vase and fill it with 15 roses, one for each year of tolerating me. I went to a local store and found a vase I liked as soon as I walked in the door. But rather than settling for the first one I came across, I wanted to look at some others.
I saw a second vase that I liked, and I went to pull it off the shelf to look at it more closely. Little did I know that this vase was in two parts, a top and a base. When I slid the vase forward, the base part fell and headed for the ground. I reacted by sticking out my foot and letting the base (a very heavy base) land safely on my foot. Whew, no shattered crystal! What a relief. However, now my big toe hurt like hell.
As I put the vase back on the shelf, I looked at the price. Only $50. I had just risked getting a broken toe to save a $50 vase? What was I thinking?
What does this have to do with investing?
The financial sector is like that falling crystal vase. It is very fragile and falling toward a very hard floor. Investing in financial stocks right now would be similar to what I did that day… with three possible outcomes: it hits the floor and shatters, it lands on your foot and breaks your toe, or you get lucky and no damage is done.
Three possible outcomes. Two of them are bad and the other requires luck. This is not the way I invest. And it shouldn’t be the way you do it either.