It is very common to describe professional investors as sharks, using an analogy between this predator and the big investors on Wall Street. However, the strategy to hunt the sharks is not the most appropriate to maximize our profitability when investing. In this article I will explain why when investing in the stock market you should not act like sharks, but use the crocodile strategy.
The Stock Market Shark Strategy
The shark is a predator whose feeding strategy consists of constantly hunting a multitude of small fish. It is a very active strategy that involves a great expenditure of energy.
This strategy would be equivalent to that used by intraday traders who are engaged in multiple small trades in the hope that profits will outweigh losses after deducting fees and taxes.
The crocodile strategy
The crocodile's strategy for feeding is very different from that of the shark.
What the crocodile does most of the time is wait without doing anything. Your strategy is based on waiting for your big break. Without wasting energy, just analyzing the situation. Once his big break arrives, he uses his full potential at the right time to hunt down big game.
In this video you can see the crocodile hunting strategy. Before seeing it, I warn you that it contains images that can hurt your sensitivity.
Warren Buffett as the greatest exponent of the crocodile strategy
The most famous investor who uses the crocodile strategy when investing in the stock market is Warren Buffett.
Both Buffett and other followers of the value investing they were harshly criticized for not investing during periods when the stock market did not stop rising. Possibly the harshest criticisms of Buffett and value investors stemmed from their deciding not to invest in investment companies during the dotcom bubble.
In the end, when the bubble burst, Buffett and prudent investors were able to buy big companies at bargain prices thanks to all the money they accumulated during the years when there were no good investment opportunities. Many investment funds in internet companies that used the shark strategy ended up going bankrupt. However, the crocodile strategy had succeeded again.
What does it take to invest like a crocodile would?
To invest like a crocodile, the key is patience. Knowing how to wait for our opportunity without losing calm. We may see opportunities pass that we have not been able to take advantage of. The important thing is not to get impatient and keep a cool mind to avoid mistakes. It seems simple in theory, but in practice it is not.
The second requirement is the ability to go against the current. Again, it seems simple, but it is not. He principle of social sanction and herd effect they will play against us. Especially when we see how people "easily" earn money around us during speculative bubbles. During the dot-com bubble, anyone could be “lined” in a short time by buying stocks on the internet. In the Spanish real estate bubble everyone "knew" that "renting was throwing money away." In the end, those who went against the crowd ended up winning once more.
In short, the next time someone asks you if you want to be a financial shark, make it clear that what really works is being a crocodile.