Editor's note: This time of year, we try to share some of the investment wisdom we've accumulated over decades in the market. Over the next few days, we'll be diving into some classic essays from our founder Porter Stansberry to do just that. Originally published in a 2015 Stansberry Digest, he begins this story of why experience matters in investing by describing a truly amazing feat...
Let's start here... in the desert...
Imagine you had to walk across the Rub' al Khali – the "Empty Quarter" – of the Arabian Peninsula.
This 250,000-square-mile desert is the largest sand desert in the world. Sand dunes there reach as high as 800 feet. It rains less than two inches a year. The surface temperatures reach 125 degrees.
Think about the three most important pieces of equipment you'd need, beyond the most basic stuff like shoes, clothes, food, water, etc.
This isn't hypothetical. Three guys decided to try and walk across this desert... In 2013, South Africans Dave Joyce, Marco Broccardo, and Alex Harris became the first humans to walk completely unassisted through the Empty Quarter.
They plotted a 1,000-kilometer course from Salalah, Oman to Dubai. Their story is completely nuts... but fascinating.
The most obvious piece of advanced equipment you'd need? A GPS, right? Nope. What they needed most wasn't a GPS... or even a map. What they had to have to make it across 1,000 kilometers of desert in 40 days (after which they would have quickly starved to death) was Google Earth.
They needed to know their precise position in the desert relative to the giant sand dunes, which you can only see using Google Earth's satellite photos. Before the advent of publicly available satellite photos, walking across this desert would have been impossible. GPS alone wouldn't have been enough.
The second item Joyce, Broccardo, and Harris needed was a strong, lightweight, easy-to-pull cart, so they could carry enough water for the journey. Obviously, they needed food, too. But the water was far more critical and heavy to carry. (You can survive for up to three weeks without food. But most people would only make it three days without water.)
They spent about three years testing various designs for carrying enough water. The key to success was using mountain bike tires on their cart, rather than wide full tires, which were too difficult to pull through the sand.
And finally... to make sure they had continuous access to Google Earth, they needed to use a solar-based charger to power up a satellite phone. They lost the charger on the 10th day of the trip. So one of them had to turn around and follow their tracks for 25 kilometers to find the charger before it got dark. Without it, they probably would have died.
Imagine trying to find that charger... before dark... in the desert... by yourself... knowing that if you couldn't find it, you and your friends would probably die.
So what the heck do three crazy South Africans hiking across a giant desert have to do with investing? It's obvious (to me).
For most individual investors, the process of trying to manage their savings in the stock market is a lot like trying to cross the Rub' al Khali desert on foot. You have few landmarks to guide your way. And there are lots of ways to die. Most people don't make it.
Learning the story about the guys crossing the desert, I started thinking about the most important things investors need to understand if they're going to be successful in the stock market.
I'm not talking about the obvious stuff... like the way dividends compound returns or the time-value-money formula (which explains that your returns will be driven by how much time your investments have to compound and how much money you save).
I'm not talking about the more advanced, but still simple, concepts like position sizing, trailing stop losses, and avoiding taxes (where possible).
It's not that these things are unnecessary. They're critical. But they're like shoes, hats, and sunglasses when you're crossing a desert. Nobody would go without them, and they really don't require much foresight or wisdom. Instead, I wanted to answer two more difficult questions...
What are the three things every investor in common stocks must know to succeed, but that you believe most people don't know how to do? Where is the greatest gap between the value of knowledge and the inexperience of most individual investors?
I thought about these questions for a long time... And in tomorrow's essay, I'll share the three things you must know to succeed in investing.
"To grow your net worth, you have to start by knowing that you are NOT going to win every time in investing," Steve writes. Once you understand that not every position will be a winner, you need to adjust your strategy accordingly... Get the full story here: It's Time to Change Your Thinking About Making Money.
"You can't get through life without accepting the things you can't change during hard times," Dr. David Eifrig says. That goes for investing as well. And it's important to remember when volatility strikes... Read more here: How to Ride out a Correction Like a 'Market Stoic.'
NEW HIGHS OF NOTE LAST WEEK
Broadcom (AVGO)… semiconductors
Cisco Systems (CSCO)… Internet “plumber”
Palo Alto Networks (PANW)… cybersecurity
Paychex (PAYX)… payroll processing
AbbVie (ABBV)… pharmaceuticals
Vocera Communications (VCRA)… medical devices
Abbott Laboratories (ABT)… health care giant
Invitation Homes (INVH)… real estate “landlord”
Extra Space Storage (EXR)… self-storage
National Storage Affiliates Trust (NSA)… self-storage
Nestlé (NSRGY)… snacks and candy
Hostess Brands (TWNK)… snack cakes
Constellation Brands (STZ)… beer and wine
CF Industries (CF)… fertilizer
Nutrien (NTR)… fertilizer
NEW LOWS OF NOTE LAST WEEK
Not many… It’s a bull market, you know!
Editor’s note: We’re taking a holiday break from market notes this week. Keep an eye out for more investment themes and notable charts in the New Year… We hope you enjoy our regular DailyWealth essays as the week continues!