One of the textbooks I use in class has a story called “The Hungry Lion,” which is based on a fable by Aesop.
Basically, a hungry lion goes out looking for food. He sees a rabbit and begins chasing it. As he is about to catch it a deers runs by. The lion wants a big dinner, so begins chasing the deer, but he is tired from chasing the rabbit, so the deer gets away. The rabbit is long gone.
The story finishes with the line: “Sometimes we are like this lion.”
It got me thinking about the folly and danger of chasing returns and searching for yield.
It has been an amazing 12 month period for equities, but that doesn’t mean, by any stretch, that the next 12 months will be good. Ford is up over 450% over the past year, but you would be hard pressed to duplicate that run. Chasing the returns of the gems of the last year could very well result in little to negative growth.
Likewise, with the low-interest rate environment that we are currently in, some may try to find higher yielding securities, which may not be best for their portfolio, let alone their peace of mind. You could buy Jazz Air Income Fund for it’s 17% yield, but you should probably dig a little deeper into a company whose main source of income is the infamous Air Canada.
There is nothing wrong with changing your portfolio or plan as things change in you life. We all need to make adjustments. Just be careful that you are not giving up a perfectly good rabbit for a potentially elusive deer.