Cockroach theory – are you kidding me?
What comes to your mind when I say ‘Cockroach’? A slimy, dirty, ugly creature that you want to stay as far as possible from. And yet, much to our irritation, it appears just about everywhere.
Do you know that a cockroach can survive a nuclear attack? Yes, a nuclear attack!
The ‘keeda‘ or cockroach has amazing resilience. It can go without air for close to an hour, withstand freezing temperatures and survive underwater for half an hour.
No wonder, these special features have given rise to a cockroach theory and become an inspiration for a cockroach portfolio.
Let’s see how the cockroach theory gets applied to markets, investing and life.
Cockroach theory applied to markets
In the markets, the cockroach theory suggests that if there is a bad news emerging from a company or market or government, expect more to come. What’s cockroach got to do with it? Well, you know, will never see a cockroach alone. If you see one, there will be others around too.
Remember the Satyam episode of mega corporate fraud. When it happened, there was a series of unwelcome news that came out one after one. There have been several other such episodes, not to mention, those of high level corruption cases.
Cockroach theory applied to investing
Dylan Grice, an investment strategist and financial commentator, applied the theory to investing. How?
Now you see, you don’t expect a cockroach to understand stock markets, interest rates, economic conditions, foreign exchange reserves, the government’s socialist or capitalist leanings or asset allocation and pricing for that matter.
Without all this burden, how would a cockroach build its portfolio? Simple, it would divide the portfolio into 4 equal parts: Equity, Bonds, Gold and Cash – 25% in each.
Let the apocalypse come or let global warming sink the world – the cockroach portfolio would come out unscathed – just like the cockroach.
And the best part – this portfolio involves absolutely no emotion, no views on the market, no guessing the interest rates; just a stable proportion between the four asset classes.
Looks like an absolute winning strategy!
Cockroach theory applied to life
Here’s a story. Once in a restaurant, suddenly from no where, a cockroach jumped on to a lady, who was dining there. The lady, as soon as she realised that she has been pounced upon upon by a slimy creature, panicked. She aimlessly used her two hands to get it off her. But the cockroach just kept moving on her saree.
The other guests there turned around and looked at the lady, not understanding, what was going on. In no time, the cockroach flew and found itself, this time, on a lady at the next table. The drama ensued further. All hell broke loose!
The waiter, who by now got some sense of the situation, jumped forward to help. The cockroach seemed to be in a different mood. It took no time to fly and land straight onto the shiny white shirt of the waiter.
The waiter stopped in his tracks, standstill and held his breath. He did not let out a single voice nor moved a single limb. For the next 2 seconds, his eyes were sharply focused on the cockroach. With absolutely no warning, he grabbed the cockroach in his palm and threw it into the dustbin.
Finally, the chaos was over.
Who do you think was responsible for the chaos? The cockroach? The ladies? The waiter?
If it was the cockroach, then why did the waiter not react the way the two ladies did? In fact, it was the waiter who understood the situation first and then resolved it. In other words, he didn’t react. He responded.
Most of our problems resemble this ‘cockroach in a restaurant‘ situation. In our everyday lives, we tend to ‘react’ – to the boss, to the traffic, to honking, to markets falling, to a sudden emergency.
What we need is to give time to the issue at hand, understand it and then respond to it appropriately. There is no problem that cannot be solved.
An important life lesson indeed.
I am wondering if you really want to use that ‘HIT’ to clean out the cockroaches in your house. 
