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Protect Your Investments From the Sirens Pt 1

Intro: An Old Greek Story

There is a well-known Ancient Greek story that can teach us a lesson on how to protect our investments by identifying temptations that put them at risk. The Odyssey is an ancient Greek poem depicting the 10-year journey of the Greek hero Odysseus as he makes his way back to his kingdom after the Trojan War. Among the perils encountered along the journey are monsters resembling human-headed birds. Known as Sirens, they enchant sailors with their beautiful singing and lure them to their deaths by shipwrecking on the sharp rocks of their island. A goddess warns Odysseus that he should stop his men’s ears with wax so that they will not be bewitched. She also tells him should we want to listen to the Sirens himself, he should instruct his men to bind him tightly to the mast of the ship and have them bind him tighter should he beg them to untie him. As the ship nears the island of the Sirens, Odysseus readies his men and asks them to tie him tightly to the mass. He then hears the Sirens singing and bewitched, urges his men to untie him and uses his might to try to break free and swim to his death. But his men cannot hear him and row the boat faster and tie him down harder. In the end, Odysseus and his crew are able to escape temptation and catastrophe and continue their journey home.

"Odysseus, bravest of heroes, Draw near to us, on our green island, we’ll teach you wisdom, We’ll give you love, sweeter than honey. The songs we sing, soothe away sorrow, And in our arms, you will be happy. bravest of heroes, The songs we sing, will bring you peace."

The Odyssey, Homer

The Sirens of Investing

I read the Odyssey back in high school. Back then the story was closer to a fairy tale or was used to explain the origin of the expression ‘siren song’. Now as an adult and as an investor, I have come to appreciate the Sirens story in another way – It shows how human beings can be tempted to make irrational decisions that they will regret later. This is especially apparent when money is involved.

Let me explain.

Temptation is perhaps is one of the oldest human behaviors out there – Even the bible STARTs with a story of Eve getting tempted by a serpent to try the apple from the Tree of Knowledge. Every day we find ourselves tempted by many things. I may be tempted to get a Charlie Brown Chocolate Fudge Brownie with Vanilla ice cream after a large meal when I am on a diet. As long as the stakes are low, it is okay to be tempted to do the wrong thing. However, temptation can lead us to a disaster, especially when the stakes are high: When you are putting money on something to earn more money. This happens in the world of investing where companies or projects raise the capital they need via selling shares, or parts of the company/project’s value. Stakes are also high with multiple people putting in various amounts of money with different expectations on how much money they will be able to get at the end.

There are 2 types of temptations in investing: 1) Temptation to put money in and 2) Temptation to pull money out.

Siren #1 Put Money In

When you invest your money into something, you are looking to win – to get an additional reward for the money you put in. Feelings of seeing something you invested be worth 2x of what is was is undeniably sweet. Problems start to arise when this ‘feeling’ takes over. Let’s say I am playing blackjack at a casino and I have had a 10 game winning streak. I am feeling that feeling of being on top of the world.

Sirens start talking: “Put more money and you can earn more”. “Your winning streak is not going to stop. You should go at it while your luck lasts.”

The voices are not just internal. Influencers are putting videos out like crazy with titles like, “Don’t Miss the Bitcoin Pump!”

Mainstream news outlets are busting out headlines like “Stock Market Breaks Record in Decade!” These collectively create Fear of Missing Out (FOMO).

Inexperienced investors are lured by the whispers of ‘don’t miss out on this opportunity to be a billionaire” and they pounce on the opportunity with all that they have. More often than ever, they get shipwrecked and lose all of their money. They fail to be like Odysseus and his crew who managed to resist the siren’s song.

Siren #2 Pull Money Out

As stated before investing is a high stakes game featuring multiple people who put in different amounts of money and with different expectations for a return. Although their expectations on returns can be different, nobody wants to lose the money. So if there is even the slightest rumor that there could be a potential loss, the second strain of sirens swoop in and start to whisper: “You have to pull all your money out now before its too late”, “everybody is selling so why aren’t you?” Again it does not help when surrounding are promoting headlines like or the media is talking of a “Bitcoin Slips on Economic Woes.”

Thus, again the inexperienced fail to be like Odysseus and his crew who manage to outrun the siren’s song. They let Fear Uncertainty, and Doubt (FUD) take the best of them. They fail to protect their investments.

Resist The Sirens and Protect Your Investments

The sirens of investing can ruin your wealth. They can cause you to become overconfident where you can lose all of your money in one go. You can also realize losses when the value of the cryptocurrency/stock you were investing into plummets in value. In different ways, they use your feelings to push you further away from the wealth you wish to acquire.

So how can you as an investor resist the sirens and protect your investments? What will be your version of the wax that were put into Odysseus’s men and the ropes that will tightly bind you to your investment ship incase you want to abandon it?

Stay tuned for the second post on ‘Outrunning the Sirens of Investment’

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