Earnest Shackleton was a man seeking adventure. He was a member of the first expedition to reach the South Pole in 1901. The expedition failed but it was the farthest south anyone had gone before.
Shackleton would return to Antarctica two more times in 1907 and 1914. His last attempt was to be the first to cross Antarctica on foot. The expedition failed before it began. Within two months of leaving South Georgia Island for Antarctica, his ship the Endurance, sat trapped in pack ice. It marked the start of a 20-month ordeal to survive.
Shackleton is lauded for his leadership skills for good reason. The lessons stand out throughout his story. He raised his crew’s spirits, staved off doubt, and kept them focused throughout setbacks and adversity in the toughest of conditions.
But Shackleton’s harrowing story offers some lessons for investing as well.
Survival is Key
Shackleton wanted to be the first to the South Pole. He tried it twice and failed. Before he could try a third time, Roald Amundsen beat him to it.
Shackleton’s first attempt was led by Robert Scott. It was the first-ever attempt at the South Pole. Scurvy, hunger, and poor preparation slowed their march but they turned back in time to try again.
Shackleton led the second attempt himself. Frostbite, snow blindness, and starvation stopped their progress within 100 miles of the South Pole when they turned around and barely made it back to the ship.
Shackleton could have persisted on each of his expeditions. He could have marched forward — sick, frostbitten, and hungry — to the prize but with a dwindling chance of living to tell the tail. Instead, Shackleton chose to turn back and try again. Which, of course, he took. Survival gave him another chance at greatness.
Survival is not something investors think about often. Especially those investors chasing greatness. Most investments are made with confidence. We expect them to work out. Rarely do we consider, “What if we’re wrong?” We also don’t consider, “What if we’re unlucky?”
Investing is one of the few endeavors where being wrong is unavoidable and being right can still lose you money. And it’s not always obvious whether you were wrong or unlucky.
How are you going to position your portfolio to survive those moments? Done wrong and you could lose everything. But if you can limit your losses, your portfolio gets a second chance. Avoiding margin loans, not making oversized bets in a single stock or asset class, and diversification are three ways to go about this.
Diversification, for example, is the best way to protect your portfolio from market surprises and the consequences of being wrong. It gives you a second, third, fourth chance, and more to try again. It’s the key to survival.
Ability to Endure Pain and Come Back for More.
Antarctica is the coldest place on Earth. If you’re planning to visit, you should know that it’s entirely covered by ice and snow. Temperatures on the coast of the continent average just below freezing at 14.0 °F (-10 °C). As you get closer to the South Pole, the average temperature drops to -46 °F (-43 °C). Extremes exceeding -100 °F (-73 °C) have been recorded.
Antarctica also happens to be the windiest place on Earth with average winds of 50 mph. Over 150 mph winds are not uncommon. And sunlight disappears in the winter for six months of the year.
It’s so cold that the ocean around the continent freezes in the winter into pack ice. The pack ice moves with the wind and currents. It’s in a constant state of change. The winds and currents push huge jagged chunks of ice high into the air that dot the landscape making travel impossible. So it’s not a top vacation spot.
It takes a special kind of person to travel not once, not twice, but three times to the most inhospitable place on Earth. Shackleton was that person.
Of course, Shackleton didn’t know what he was getting into the first time he went. But then he went back…twice. He knew he’d spend months in a painfully cold environment and he went anyway. But he survived it before and he knew what to expect so there was a better chance he’d survive it again.
Investing has its painful moments too. Not physically painful like frostbite and starvation but emotionally painful nonetheless.
Market crashes and corrections are traumatic enough that they lead to a common mistake — selling at a deep loss and only reinvesting after the market has recovered and things look clear. Missing the recovery produces worse-than-market returns.
Unfortunately, market crashes and corrections are common. They’re difficult to avoid. It’s something every investor must face.
Stomaching market pain is the price of investing. Enduring market drawdowns is the cost of earning a market return.
“Optimism is True Moral Courage.”
You don’t embark on an expedition to the South Pole, much less cross Antarctica on foot if you believe it’s impossible. Shackleton knew that optimism was a must. It was a characteristic he sought out when choosing his crew.
Of course, Shackleton knew the journey would be tough. They’d face extreme hardship. They’d go months without seeing the sun, in below-freezing temperatures, crossing uncharted territory.
And then the worst happened. They lost the ship to the ice. Stranded for months on the pack ice, with nothing but lifeboats, Shackleton’s optimism and patience kept hopes alive and the crew pressing forward.
While investing is not quite as dire as being stranded below the Antarctic circle, long-term investing is an expedition marked with uncertainty. We simply don’t know what the future holds. Not knowing allows pessimism and doubt to seep into the daily discourse on markets.
Yet, long-term investors must believe in the future. Optimism and patience are key to investing success.
If history was ever a guide, it’s on the importance of optimism in investing. Despite a Great Depression sandwiched between two World Wars, oil crises, double-digit inflation, a 23% single-day market drop (1987), the Asian financial crisis (1997), the Dotcom crash, 9/11, the subprime crisis, the Great Recession, a pandemic, and numerous smaller wars and panics in between, the market has proved all the doomsayers and doubters wrong.
The market is resilient. It is higher today because companies make more money today than a century ago. Businesses innovated. Existing companies grew. New businesses emerged, grew, and replaced the old stalwarts.
Nothing suggests that won’t continue going forward. The future will likely follow a similar bumpy, sometimes uncomfortable path, and long-term investors who believe in that future will reap the benefits.
Related Reading:
The Endurance: Shackleton’s Legendary Antarctic Expedition by Caroline Alexander