How should we look at long-term investing? It’s been said that investing is a marathon, not a sprint. But really, it’s more like a serious hike. It takes more than just physical and mental preparation. And it can also offer some real surprises along the way.
Photo: Zenzoidman. Source: Flikr. CC BY-SA-NC 2.0
My wife and I went for a hike a couple of weeks ago. The weather was clear and pleasant, with some outstanding vistas. At one point, when we stopped to catch our breath, a couple of Appalachian Trail (AT) “through-hikers” came by. These folks start in Georgia and hike 2,200 miles, mostly along the crest of the Appalachian Mountains, to finish in Maine. It’s a grueling process, and often takes 5 months or longer to complete. The AT goes right through town in Hanover, NH. At this time of year, through-hikers can be seen on the streets every day, picking up supplies or getting good night’s rest on a soft bed in a local hotel.
Map of the Appalachian Trail. Source: Wikipedia
I thought about these through-hikers recently when I looked at the peaks and valleys we’ve seen over the last few years in the financial markets. Here are some ways that investing is like hiking on the Appalachian Trail:
- It’s intimidating.
The idea of hiking every day for months on end is daunting, just like facing the markets can be. Both disciplines are filled with jargon and “expert advice,” much of which makes ua feel like we’re inadequate. But with both hiking and investing getting started is often the hardest part. Pretty soon we can establish our own pace and process that works for us, and we can work out the kinks as we go.
Mount Jefferson, Adams, and Madison on the AT. Photo: Greg Nealt. Source: Wikipedia
- Preparation is critical.
Hiking and investing require the right gear, the right support, and the right mind-set. No one just starts walking along the Appalachian Trail from end-to-end without some sort of plan. Even the legendary ultralight hiker “Grandma” Gatewood, who first hiked the AT at age 67, carried an army blanket, shower curtain, and a raincoat. She also received support from “trail angels” along the way, folks who live near the trail and provide cold drinks, granola bars, and other treats for hikers.
Investors need to have the right equipment as well – especially a plan that tells us how our investments fit into the rest of our lives. And everyone can use help from “market angels”: folks who have been through cycles, booms, busts, and panics before, and are willing to share their wisdom. Every generation of investors seems to re-discover the manias and delusions of the past.
- Watch out for predators!
When my daughter went on a long trek in California. She was unexpectedly awakened one night by a black bear rifling through her pack. The bear had sniffed some crackers she accidentally left there and was looking for more goodies. She was able to scare the scavenger off, but it was a scary lesson!
Photo: Alla Grill. Source: Goodfreephotos.com. Public Doman
In the same way, financial “scavengers” are often lurking in the shadows of the markets, looking for ways to rifle through our finances. High-fee products that promise more than they can deliver; scam artists who send “ghosted” emails that purport to come from the IRS or our boss; even legitimate financial products can carry hidden fees.
It pays to be careful, both with our campsites and our financial information. There always seems to be someone who wants to benefit from our hard work.
- The process should be the goal
The destination for most through-hikers is Mount Katahdin, and when they arrive there’s usually a lot of hooping and hollering!
Through-hiker at the end of the trail. Photo: Charles Grunti. Source: Wikipedia
But the bulk of the hike is spent in a long, green tunnel. There aren’t dramatic vistas, just a few signs and white blazes.
Photo: Doug Tengdin
If our only goal is to get to the peak, any serious hike will seem like a long, hard slog. Most of our time will be spent wishing we were there. And shortly after we finish, we’ll wish we were back there. But if we stay in the moment and focus on the hike, rather than the destination, even foul weather and a rocky campsite can be appreciated. My wife and I used to have a phrase for these unwelcome happenstances: “This is an experience I refuse to be denied.” By focusing on the process, investors — and hikers — can maintain our perspective.
Any major project requires planning, perspective, and persistence. Long-term investors and AT through-hikers have this in common. If we stick to our disciplines we’re much more likely to find success – and enjoy the view!
Douglas Tengdin, CFA
World Market Advisors