Can we learn about investing from hiking?
Going hiking at this time of year is beautiful. It’s warm (but not too warm), the daylight lasts for a long time, and the streams and waterfalls are full. The only real downer is the bugs – lots and lots of bugs. From Mother’s Day until Father’s Day is typically black fly season in New England, and those little guys can hurt!
But the fresh air, exercise, and wide views are worth a few itches, in my opinion. Nothing helps me clear my mind and freshen my thinking like exposure to nature – in its simple and raw beauty.
When we head into the mountains, the first thing we learn is to respect them. No one ever “conquers” a peak. Sir Edmond Hillary didn’t “conquer” Everest; The free solo climbers don’t “conquer” El Capitan. The men and women who climbed these mountains did something no one had ever done. And we celebrate their tenacity, technical skills, and determination. But climbers come and go, and the mountains are still there.
And what we respect is the mountain’s weather, its terrain, its remoteness, its unpredictability. Mountains have a way of surprising you. Because you’re often far from help, minor issues can turn into major emergencies.
In the same way markets can be inspiring, refreshing, and surprising. Something new is always happening, whether it’s bitcoin or electric vehicles or new cures for disease or something else unprecedented. What we love about the markets is also what we should also fear about the. What should be an orderly process of buying and selling can break down. We can see a “flash crash,” or safe portfolio insurance can cause a market meltdown like October 1987, or market strategies can be whipsawed like they were a year ago, when many folks “de-risked” their portfolios just as the government was addressing the problems stemming from Covid-19. Markets are always changing; new ideas create new risks and new opportunities.
Respecting markets means working with them, not trying to outsmart them. Markets are forward-looking, and the collective knowledge of millions of investors is embedded in the marginal transactions that take place on exchanges and in capital markets every day. Respecting markets means respecting our fellow investors.
And respecting our fellow investors is a good way stay safe.