Editor's note: Today, as we enter the new year, we finish out our series of timeless investment essays with a personal story from our founder, Porter Stansberry. In this classic piece – originally published in the Digest back in October 2013 – Porter recounts a harrowing near-death experience... and explains why making a similar mistake is a dangerous way to handle your money today.
Today, we start with a story... a parable of sorts...
I had watched the wave carefully. It was the one I had been waiting for... the one not big enough to break on the outside sandbar. It only "feathered" as the outgoing tide and the offshore wind held up the crest. Then, traveling again over deep water, it gained size and speed.
Not many people realize that a wave's height is geometrically related to its speed. As it gets larger, it becomes much, much faster.
The outgoing tide was pulling millions of gallons of water along the nearshore current. As this huge wave approached, the water was sucked out through a small opening in the inside sandbar. Swimmers call it a "rip current." I thought of it as a kind of oceanic ski lift. It pulled me out and dropped me off right where I wanted to surf.
And so, there I was... sitting on a small, fast surfboard. All of the water from the rip current converged into the ocean wave I had been watching, doubling – sometimes even tripling – its size... all just before it rammed into the sandbar underneath my board. The water over the sandbar was around 6 feet deep. But the wave's energy would actually suck nearly half of that water up into the wave's rotation, leaving only about 3 feet of water underneath my board as I paddled into the wave.
I don't know how to explain or even measure the force of a large, ocean-going wave. I only know that if you don't catch it the right way, it can throw you with unbelievable force down onto the sandbar... or, after you're riding it... far into the air.
As the inshore current and tide added to this particular wave's power, it jacked up to about 10 feet or so... well over my head as I turned, paddled, caught the wave, and stood up. This wave wasn't nearly the biggest one I had ever caught.
I didn't know it would prove to be the most dangerous wave of my entire life.
If you had asked me why my parents told me not to go surfing that morning, I would have said it was because of the sharks. New Smyrna Beach in Florida is the shark-bite capital of the world. At this point, I had already been bitten by a shark once. A few years later, I would be attacked again, in almost the exact same spot. The sharks common to the area – spinner and sand sharks – are small, usually less than 6 feet long. Their bites aren't serious, more like a dog bite than anything else. They won't kill you.
If you had asked my parents why they didn't want me to go surfing, they would have said they didn't want me out there alone at dawn. They didn't want me to drown. But that thought never entered my mind. I was surfing on the beach where I had grown up. My family's cottage sat in the dunes less than 500 yards from where I had entered the water.
I had been swimming and surfing here nearly every day of every summer since I was born. I was also a state-champion water polo player. I didn't fear anything in the water – not even sharks. At 15 years old, I had the strength and the endurance of a grown man... but the wisdom of a child. Death never entered my mind. Ever.
The board I was surfing on was made from a piece of wood (a "stringer") running vertically through the board, from top to bottom. Glued to either side of the stringer was specialized foam – known as Clark Foam. The stringer and the foam together made the core of the board and gave it its shape, which was about 4 inches thick, 2 feet across, and 6 feet, 4 inches long. To give it strength, the core was "glassed" in several layers of clear, strong fiberglass.
On the bottom of the board, at the rear, were three "skegs" – the fins that allowed the board to "grip" into the face of the wave and steer the board. They were made from tough plastic, with a razor-sharp leading edge. They were also encased in fiberglass, which made them very, very strong. The combination of the plastic's sharp edge and the strength of the fiberglass created a dangerous weapon. Traveling at speeds around 30 miles per hour, these fins were just like swords cutting through the water, sticking out from under my board.
I had picked the biggest wave possible to catch that morning because I wanted to get a "barrel." That's when you catch a wave, stand up, and put your board right into the most turbulent, unpredictable, and powerful section of the wave – the tiny pocket that exists behind the curtain of the wave's crashing lip.
I needed a wave big enough to create room for me to maneuver my board behind the curtain. I needed a big wave so that it would have enough power to push me back out of its crashing vortex. And of course, I wanted to know that I had caught the biggest and best wave that morning. It started out well...
I stood up quickly, dropping right into the critical section. The wave bellowed, and the sky disappeared.
When you barrel... it sounds like you're in the middle of a tornado as all of the surrounding air rushes into the vortex and is pulverized into the wave. And you can only see green under the lip.
I remember looking down at that moment and seeing how shallow the sandbar looked at the bottom of the wave. And there was the wonderful sensation of speed – massive amounts of speed. The water soaring past my face, my hands skipping on top of the wave's face just behind me. And then...
In about one-tenth of a second, something happened. My board was suddenly sucked up into the face of the wave and into the crashing lip. It happened almost instantly, so I don't know if something caught my board, I lost my balance, or part of the outgoing tide hit the wave and broke the line I was on. Whatever caused it... in about two-tenths of a second, I stopped flying through the air and landed on the surface of the water just in front of the crashing wave.
I bounced once. Then at about four-tenths of a second, my board came crashing down on top of me, hard. I don't know exactly what happened next. When I regained my senses, I was about 100 yards closer to shore, in shallower water. My head was killing me. It felt like I had been hit with a crowbar. And blood was everywhere.
I felt along my scalp, trying to find where the wound was... There was more and more blood... more blood than I had ever seen. More blood than I thought I had in me. It pooled around me in the water. But my hands were clean. I had run them all through my hair... I wasn't bleeding from my head. And yet, blood was gushing down my chest.
I never felt the skeg hit my neck. I never felt it slice, like a razor, straight down from around the bottom of my ear, nearly halfway across to my Adam's apple. And of course, you can't see your own neck without a mirror. And so I just sat there bleeding... trying to figure out what had happened. A guy walking along the beach saw me. He was pointing at something right next to me... No, he was pointing at me... He started screaming.
I don't have any real facts to give you about how severe my wound really was. I couldn't see it. I know that my carotid artery wasn't severed – or else I wouldn't be here writing this. I would have died standing in 3 feet of water trying to figure out where all of the blood was coming from.
I do know that the paramedics were freaked out that my carotid artery was hanging outside of my wound. They were terrified that it may have been injured and that putting too much pressure on the wound might cause it to tear.
The sirens of the paramedics woke up my parents, who were still asleep in our cottage. My mom said she knew immediately that I had disobeyed them, gotten up early, and gone surfing by myself. Luckily, they didn't see the wound. Nor did they realize how close I had come to simply being knocked cold, which could have easily killed me, too.
Fortunately... it was only an accident. I had a concussion. I got a bunch of stitches at Fish Memorial Hospital. A few days later, I was well enough to pass my driving test and get my first driver's license.
Steve Sjuggerud still gives me grief about having a gigantic pressure bandage all around my neck in my first driver's license photo. I looked like something from the movie Highlander – like someone had tried to cut my head off with a sword. (Yes, I've known Steve since I was 12. He has been my best friend almost my entire life. He was late to meet me that morning. So I blame the whole thing on him...)
When we're 15 years old, we do incredibly stupid things. It was obvious to me, even then, that I should not have gone surfing alone. Steve and I had surfed in dangerous conditions together many, many times. We always kept an eye out for each other. We would signal "OK" after bad wipeouts. We had never had a problem.
And that wasn't the only mistake I made. Once I had decided to surf alone, I should have known that going for the biggest wave... in the shallowest water... trying to get myself into the most critical section... was not only stupid, it was crazy. Yet... that's exactly what happened.
Yes, when I was 15 years old, I took remarkably stupid risks with my body. I did incredibly foolish things with the only assets I had – my health and strength. But I was only 15. I didn't really understand the consequences of these thrills.
What's your excuse today?
How many of you invest alone? How many of you take tens of thousands of dollars and willingly put that money at risk without discussing your decisions or the risks you're taking with anyone else? How many of you take risks with your assets that you know aren't wise? How many of you break your position-size guidelines? How many of you ignore your trailing stop losses... or still don't even know what those are?
And who do you blame when you find yourself sitting on a $10,000... $50,000... or even $100,000 loss in your brokerage account? You're an adult. You should be perfectly aware of the consequences of chasing thrills instead of solid returns.
The single most valuable thing I could teach you about investing is also the simplest. It's the same thing, essentially, that my parents told me on that beautiful morning 25 years ago: Don't go surfing by yourself...
Don't buy stocks without taking a few simple precautions that can almost completely eliminate the risk that you'll suffer a catastrophic loss.
These strategies won't optimize any particular position. But they will protect you when you inevitably take off on the wrong wave at the wrong time. And if you invest for any length of time, that wave will eventually come along.
If you merely use a trailing stop loss and reasonable position sizes, I can almost guarantee that your investment results will become dramatically better.
Why wouldn't you want to optimize your results? Why wouldn't you always use trailing stops? Why wouldn't you make sure you never take a loss that's bigger than your risk parameters?
In short, why would you ever surf alone?
You're not investing for the thrills or to prove that you're tough enough to take a huge loss. You're investing to make money and build wealth. So use these tools... If you do, you will radically improve your overall results over time.
"I believe there are three things every investor in common stocks must know to succeed," Porter writes. Trailing stops and position sizing are important first steps. But to handle the market's challenges over the long haul, you need to go even further... Get the full story here.
"Plenty of people gamble without devastating losses," Dan Ferris writes. Years ago, though, you may have heard the story of a young man who did lose everything – on a carnival game. And you might be making the same mistakes in the stock market... Read more here.
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
JPMorgan Chase (JPM)... financial giant
Goldman Sachs (GS)... financial giant
American Express (AXP)... financial giant
S&P Global (SPGI)... financial analytics
Blackstone (BX)... asset management
Meta Platforms (META)... social media giant
Intel (INTC)... chipmaker
Advanced Micro Devices (AMD)... semiconductors
Micron Technology (MU)... semiconductors
Dell Technologies (DELL)... laptops and PCs
Zscaler (ZS)... cloud security
Ansys (ANSS)... engineering software
Uber Technologies (UBER)... ride hailing
Trane Technologies (TT)... HVAC manufacturer
Parker-Hannifin (PH)... motion and control technologies
Caterpillar (CAT)... heavy machinery
Ingersoll Rand (IR)... manufacturing
Stellantis (STLA)... automaker
Sherwin-Williams (SHW)... paint
NEW LOWS OF NOTE LAST WEEK
H World (HTHT)... Chinese hotel operator
Cricut (CRCT)... digital die-cutting machines