What a Moment of Sheer Terror Taught Us About Investing

There’s some trouble in our old neck of the woods.

Floatplanes – the 1-ton pickup trucks of the Alaskan skies – seem to be having some issues staying in the air.

The death toll in Ketchikan is rising. Eight folks have died in two weeks. Three planes have crashed – two flew into each other, the other caught a wave when landing and cartwheeled into quite a mess.

It’s a sad rash of trouble for a community that often has no choice but to travel by air.

A Lesson for Investors

We spent many hours in the right-hand seat of these old planes. As most frequent fliers will tell you, 99% of the time is quite boring… while the other 1% is sheer terror.

Our heart weeps for the folks who were lost. But we can’t help but use the news as a reminder of one of the greatest investing lessons we were ever taught.

It has to do with floatplanes – and that 1% of sheer terror.

When most folks think of flying these days, they think of flipping a switch and letting the plane do all the work. It’s the same with investing… most folks are on autopilot.

But here’s the thing.

If we had relied on that switch, we’d be dead.

The rescuers would have found us entangled in wreckage on the side of a steep, snowy mountain.


Looking out the window that day, there was no indication of trouble.

It was a beautiful day, with a bright, full sun. There was not a cloud in the sky – a rare treat in Southeast Alaska. It’s why we decided to take a route over the island’s glacier-cut mountains instead of the more traditional “low and slow” route above the salt water.

As we climbed out of the valley, the pilot pushed the throttles forward. Then he pulled back on the yoke.

The plane stayed steady. It didn’t climb like it should have.

Still more power… and pulling back even harder now.

The heavy, old aircraft still didn’t rise.

We were headed into the side of a mountain at 110 knots… caught in a powerful downdraft.

Do Something!

Even the most sophisticated of autopilot systems would not have gotten us out of this problem. Had we relied on the tech, like we said, we wouldn’t be writing you today.

But our pilot knew his game. We trusted him.

He looked over his shoulder, pushed his right foot to the floor and put us in a steep turn to the south.

“Time for our backup plan,” he said.

With that, we pulled out of the downdraft and corkscrewed our way up and out of the canyon that threatened to suck us into its deadly trap.

It’s a story we tell investors anytime they’re getting complacent.

The old theory about putting your investments on autopilot is bunk.

It works… but only until your prop smashes into the cliff.

Market downdrafts can come at any time. And, most often, they sneak in when things are sunny and bright.

They can be swift and severe, like we saw in ’99 or ’08.

Or they can be slow and protracted, like the interest rate mess of the ’80s.

A diversified portfolio can help. It’s like trading a single-engine plane for one with a couple of power plants.

But even twin-engine planes end up on their roofs.

We’ve seen it.

It’s why we’ve long recommended folks invest in more than just a mixed basket of stocks and bonds.

It’s why we own land… have a pile of cash… and have started multiple businesses in multiple markets.

And it’s why we invest using multiple strategies based on momentum and market volatility.

After all, when the pilot tells you it’s time for the backup plan… you’d better have a good one ready to go.

We’re living proof.

 

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