Save Invest Give: What Elevators Taught Me About Investing

Waiting for the morning elevator in a crowd of people at rush hour seems a lot like investing to me.? Each person has?their own?own?method they follow while they wait, and these methods are a lot like investing strategies.

Some people simply walk over toward the nearest elevator and wait.? They don't try to game the system.? They've decided that taking the elevator is faster or more convenient than the stairs, and that is the extent of their strategy.? These people are like the index investors of the investment world, content to just hitch a ride on the overall upward movement of the elevator.

Next we have the people who (think they) know something about the general state of the elevators.? These people are easy to spot.? When an elevator leaves, they move away from that elevator and position themselves closest to elevators that haven't departed recently.? These are the value investors.? The P/E of the recently departed elevators is high.? The odds are that these elevators?won't be back as soon as the low P/E elevators that have been away for a while.? In some situations, these people?get very confident.? If 3 of the 4 elevators have recently left, they will go stand right in front of the remaining elevator, which they feel is certain to be the next to arrive.

Then there are the crowd followers.? When they arrive, they go and stand where most of the other people are standing.? If everyone is bunched together near one elevator, they still go and wait there.? They want to be next to other people and chitchat.? These people, of course, are like the investment fad followers.? If everyone is talking about bonds, they buy bonds.? If Facebook is hot, they buy that.? In short, they invest where they perceive everyone else is investing.

The elevator world also has its contrarians.? They go where the others are not.? When the value investors and the crowd followers all start clumping towards a few of the elevators, they go toward the other elevators.? Their strategy is based less on their view of the elevators and more on the view that being where others are not will pay off for them.

Perhaps the most interesting people are the ones who learn specific things about the elevators and their fellow riders.? They've heard that Elevator #2 is being repaired, so they wouldn't want to waste time standing next to that one.? They also observe that Smith and Jones are waiting next to elevator #3, and so that should be avoided because Smith and Jones get off on the second and third floors.? These people are like?the research investors, analyzing all the data for a possible edge.? Sometimes these strategies work spectacularly well; other times they do not.? All in all, it's not clear whether they do any better than the index investors who simply plunk themselves down in the middle of the elevator area and wait.

So what about you?? Do you have a strategy you use when there is a?big crowd at?the elevators?? How does it compare to your investing strategy?

Source: http://www.saveinvestgive.com/2012/08/what-elevators-taught-me-about-investing.html

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