On the peak of the 2nd highest mountain in New York State, after a break for lunch, I decided to pull my topographical map from my pack. After finding our location, I used another tool, my compass, to look for other peaks and estimate whether we had enough stamina to tackle another peak or pull a hat-trick- three of the 46 Adirondack High Peaks in one day. My compass, a simple yet ingenious device was less than helpful. One minute, North was North- as far as I could tell, using landmarks- and the next it was Southeast. Some tool, right? In its defense, it cost all of $1.95 and was also a whistle. I found myself caught in a pure value trap. Lesson learned. There was more to pull from this though.
As we approached an unmarked trail-by way of following those with better tools- I rediscovered a truth that had alluded my attention for some time. It was that there is no one tool that can guide you through a journey on its own. My map is invaluable when out in the wilderness, but without a compass, it is quite imperfect. You must know that the sun rises in the east and sets in the west -a mental tool- to have an impact. Cheap tools also contain a deal of noise. Just as a socket of 15 millimeters won’t do much to a bolt that is 10, their imprecision is due to its lack of fit.
While standing above 99% of The Empire State, it is hard not to feel as though you are in possession of some timeless perspective. The trees below resemble blades of grass and the lakes appear less than a puddle. A bird’s eye view, for certain. As a group of surely friendly and neon-clad hikers approached a sister summit, there was not a face to be made out. They were ants. No name, no story, no reason to be there. They were just there. This is the fatal flaw of the aforementioned perspective. With the best macroeconomic tools we can extract the “Who?”, “What?”, “When?” and “Where?” answers. But to find out the “Why?”, we must ask directly with a “boots on the trail” approach.
On the trail you must watch for roots and rocks. You often forget how tall the trees are as they look down on you. It is not difficult to focus on the destination as opposed to the journey. All of this is applicable to investing. From the bottom up, you need to turn over stones slightly off the path. From the top down, you need to watch the storm clouds as they pass below.
Algonquin Mountain, the site of (in my estimation) the most frequent world records broken for eating a peanut butter and jelly sandwich, shares a trait with today’s equity market: it is the 2nd highest peak in New York State while we stand atop the 2nd longest bull market in equity markets. Both Algonquin and the recovery of the S&P 500 also share a moderate grade of ascent.
Source: wsj dailyshot: @jsblokland
At the trailhead there was frost and darkness. I had enough gear to protect me in all weather. It dragged me down a bit, but I knew it was worth the small price in case of an emergency. An allegory to diversification, if you will. On our way up, the spring of a hiking pole broke. There was not enough flexibility in the cheap set we settled for. A strong balance sheet and the ability to generate cash is the rigid pole material and spring of strong companies. Don’t buy cheap tools-along these same lines I am reminded not to buy weak companies.
A time later, at the top, we look back and question how we made it so far and proceed to shift focus on the path back down. A friendly Canuck urged us to proceed to Iroquois Mountain (to him, pronounced “EAR-IH-QUA”) so that we would not have to back-track on another date. We accepted his advice and proceeded to what looked like a small stroll from our high perspective.
We tracked down the backside of the peak immediately and severely. We traced a shoulder-wide path to what we assumed was the top. Not so. We shook it off and proceeded down and up again. This time, another false peak. Human persistence and a sunk-cost us kept us moving. Despite what we thought was the finish-line, we kept going much longer than we anticipated. Much like the market we are in, the market participants-who all pull the strings to some extent- can carry their optimism and persistence further than the fortunetellers jointly agree is likely.
The way down was a time of reminiscing and examining the difference between what we expected and what actually happened, and why. Lessons were learned and perspectives were gained. Would the same mistakes be made again? Possibly, if enough time passes.
As I write this post I must confess the intent of these writings: it is to get lost in these woods and hopefully, in years, find my way around with a better understanding.
What I’m reading: