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Thursday, December 17, 1998

Foolish Commuting

by Dan O'Brien ([email protected])

As I was driving home from work recently, it occurred to me that almost everyone on the road has a goal and an implicit strategy for achieving that goal. But is that goal as simple as "getting home," or is it more nuanced, such as getting home as quickly as possible, getting home safely, or getting home with nerves unrattled? And what behavior results from the chosen strategy?

Depending on your goal and personal temperament, you make decisions about how to drive -- speed, lane choices, distance between you and the car ahead, and so on.

So what's a Foolish way to drive?

Over a year of driving the same route in all kinds of weather, I've discovered that staying in the leftmost lane is the quickest way home. It sounds obvious, but few
drivers-in-a-rush stick to this simple strategy. I'm moving with the flow, a few mph over the posted limit, while Manic Manny barrels up behind me, waits a few milliseconds, then pulls into the next lane to pass on the right. Although I don't like to drive that way, I used to think that he was indeed making better time. However, I began to notice that I'd see him boxed in by a truck and a clunker a few miles down the road, while I cruised by.

The ebb and flow of highway traffic sometimes comes to a complete stop. Instead of trying to second-guess the queuing gods and betting on this lane or that, I just stick with my lane and, sooner or later, I get back up to speed. What, me worry about a correction?

In a similar way, investors who stick with a proven approach and resist the temptation to chase temporary advantage ultimately reach their financial goals and maintain their sanity. Sometimes they even exceed their goals.

The dodgers are the short-term traders, swerving to ride a trend before it reverses, trying to time what is fundamentally a random event. They get ticketed regularly, and they have accidents, sometimes catastrophic ones. To be fair, the approach works often enough to keep people at it, but its arena is really gambling (aiming to beat the house), not investing (owning the company). I wonder: do these drivers further delay their arrival by stopping to buy lottery tickets?

Those in the slow lane fancy themselves solid citizens observing every law, but they find themselves constantly readjusting to the flow of traffic on and off the highway, braking to avoid those who remember their exit at the last moment and those who don't understand the concept of "yield." They scan the personal finance magazines, trying to find "where to put money now." They're buying mutual funds because they're convinced that direct stock ownership is too risky, difficult, and time-consuming. Because they travel in a congested zone, they have fender-benders -- and they pay for the privilege with too many fees and taxes.

Every driver wants to get home; every investor wants to preserve and grow his or her money for the future. But some strategies work better than others, and some let you sleep at night. How's your driving?

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