Fire Hydrant Investing

What Kind of Investor Are You?

We live on a corner lot in our neighborhood, and two or three times a year, if I'm in the right place at the right time, I'm witness to an interesting and amusing scene.

Periodically, our local water company will send out a truck and open up the spigot on the fire hydrant one block up our street.

I don't know why they do this - maybe they're checking the pressure? But the result is always the same - a whole lot of water comes rushing down the street and past my house.

And that includes the intersection out in front of my house.

And that's the amusing part - watching the traffic navigate this miniature flash flood.

Two Types of Drivers, Two Types of Investors

Now, as a veteran fire hydrant traffic watcher, I've noticed that there are basically two kinds of drivers.

The first kind of driver notices all the crazy water in the street, slows down, gets through the intersection, and then cranes his or her neck looking back up the street trying to figure out where all the water is coming from.

I call those individuals Fire Hydrant Drivers - proactive, observant, and in tune to the conditions of the road and life.

But then there are the other kind of drivers - those who blindly charge through the intersection barely aware of the great waves of water jetting on either side of them as they plow their way through this small river.

From what I can tell by watching them, eyes straight ahead in a dull zombie stare, or else distracted by some kind of handheld device, it doesn't seem to occur to them to wonder where all this water is coming from, even, as is often the case, it's a completely cloudless day.

In fact, I'm not sure that most of these drivers are even cognizant of the water.

What Kind of Investor Are You?

The last time I saw this scene yet again, was when I was outside in my driveway playing basketball with my son, and it suddenly struck me what a great analogy it was for the two different ways individuals can approach their own investments.

Most investors, I would argue, are like the blind, passive drivers who are barely aware of their surroundings.

Whether you invest in index funds or actively managed mutual funds - or even if you subscribe to a newsletter or trade alert service where someone else selects your investments and you simply do what you're told - you're missing out on growing as an investor if you're not asking, or understanding, why.

Why this investment and not another? Why at this time? And more importantly, what makes Mr. Market tick in the first place?

Fire Hydrant Investors are a much different breed.

They're proactive, alert, and, above all, curious. They often search out trade ideas and research from others - not to blindly follow, but in order to compare notes and consider.

And each time they weigh a well-reasoned idea from a third party source, evaluating the merits, critically considering possible holes in the thesis, they don't simply make better returns - they become better investors.

They're probably a whole lot safer to travel with, too.

The Limited Downside Letter

One of the more popular features of The Leveraged Investing Club is the weekly Limited Downside Letter I post each week inside the private membership site.

It gets its name from the situations we look for to employ our customized put writing strategy on high quality stocks - situations where the stock in question is unlikely to trade lower, or lower by much, in the near term.

The Limited Downside Letter is unlike your typical trade alert service - each week I go into in depth detail on my entire thought process related to trade selection and set up.

It's designed for Fire Hydrant Investors over passive, unquestioning investors - because not only do members get access to solid weekly trade research, they also continue learning week in and week out.

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