In his book, “Who Moved My Cheese?”, Spencer Johnson wrote about four characters, Sniff, Scurry, Haw and Hem.
The characters were mice; Sniff and Scurry, and Little-people; Haw and Hem.
The four characters lived in a maze. Everyday, in pairs, they would spend most of their time running up and down the corridors of the maze, looking for cheese to nourish and make them happy.
They eventually found the cheese at Cheese Station C. There was a significant amount of cheese, that Haw and Hem relaxed and forgot about ever looking for cheese again. To them, having cheese to eat everyday was now guaranteed.
But Sniff and Scurry did not relax as much. They realised that one day the cheese might run out or get mouldy. With that knowledge, Sniff continued to sniff around for new supplies of cheese. When cheese at Cheese Station C finally ran out, together with Scurry, Sniff quickly looked for another source of cheese.
On the other hand, Haw and Hem were so relaxed. They never expected or anticipated that one day the cheese will get depleted and they would be no more supplies. They were in a comfort zone. Cheese will always be there, they thought.
The cheese fest they indulged in everyday soon became the centre of their lives. They were so preoccupied with the cheese that they didn’t notice how it was disappearing, one piece at a time, and how some corners of it even got mouldy. One morning, they woke up, only to find there was no more cheese.
But Sniff and Scurry were pro-active. They would smell and inspect the cheese often and this helped them know it was fast depleting. They kept paying attention. They continued to sniff and run around in search for new sources of cheese. When cheese finally ran out, they were prepared to look for new sources.
But not Haw and Hem. Even when the cheese had run out, they didn’t believe it. They were slow in letting go old cheese, and as a result, it took them more time to find new cheese.
The reality for all characters in the book is that even the biggest cheese doesn’t last forever. But it’s something one has to anticipate and take action in preparation.
The stock market has been like that in the last two years. The rally that characterised the last two years is like Cheese Station C. The safe haven and great gains it provided is similar to cheese in abundance that was found at Cheese Section C.
Different types of investors flocked to the stock market in the last two years. Some had characteristics similar to that of Sniff and Scurry while others are like Haw and Hem.
Investors who behave like Sniff and Scurry, know that the stock market operates in cycles. They know the market is characterised by bulls and bears, diamonds and dogs, blue chips and laggards.
Despite the rally and good returns they were enjoying, the investors kept on sniffing for quality stocks. Just like Sniff and Scurry who kept on looking for new cheese, they kept on looking for new investment opportunities within and outside the stock market. Just like Sniff and Scurry, who kept on looking for signs of depletion and rotting, they kept on looking for signs of weakness on the market and took positions.
Just like Sniff and Scurry who did not take the cheese found in abundance at Cheese Station C as a cue to relax, the investors did not see the bull run as a comfort zone where investment was not based on research. Sniff kept on sniffing for a good supply of cheese, savvy investors kept on looking for quality stocks or other investment vehicles.
But other investors were similar to Haw and Hem. When they found cheese at Cheese Station C, they thought they had arrived. They abandoned the need to continuously search the maze for new sources of cheese. Even if there was plenty of cheese at Cheese Station C, to last for a while, there were still new sources out there. There were new types of cheese, as Haw later discovered.
The ZSE has investors similar to Haw and Hem. They thought the bull run would continue forever. As long as there was inflation and a depreciating local currency, the stock market would always give them good returns, they thought.
However, the last two months have proven otherwise. Despite a year-to-date record turnover of $14 billion that was pumped into the stock market in June, the ZSE still lost close to 30 percent off its peak value, in two months.
Like Hem who continued to stay at “Cheese-less” Station C, there are some investors that still don’t know what to do amid a falling market. They are paralysed. Hem remained in denial, thinking the cheese would be returned. It never happened!
Haw on the other hand finally realised the folly of remaining at “Cheese-less” Station C. He laughed at himself for staying too long in one position when the cheese was long finished. He laughed at himself for not making a decision to run through the maze and look for other sources of cheese whilst supplies at Cheese Station C were yet to run out. He laughed at his paralysis when faced with a depleted source of cheese. He finally decided to act and ran into the maze to look for new cheese which he eventually found.
Investors like Haw
Investors with similar characteristics to Sniff and Scurry are not worried about the market downturn. They saw it coming and prepared for it. Investors with similar characteristics to Hem are in deep trouble, paralysed and suffering heavy losses. But all is not lost for investors similar to Haw. They have since seen their folly and are out in the maze looking for new cheese.
The market has significantly come off and some stocks are oversold. Investors similar to Sniff are busy doing their research.
Those like Scurry are busy taking action. Investors like Haw have since seen the folly of being paralysed in one position and are now actively looking for opportunities within and outside the market.