Friday, October 25, 1996
Lessons from The Donner Party
by MF Selena
History buffs out there will surely have heard of The Donner Party. I suspect that tales as full of pathos and misery as this one might make history buffs think about becoming investing buffs, as the stock market seems less grisly and depressing. But the world of investing does have its pitfalls. And the Donner Party has a lot to teach us, if we think about it.
For those who haven't heard this tragic story, let me summarize it. Picture it. America, the mid-1800s. People have begun moving West. And this is way, way before the days of the iron horse or People's Express. Beasts of burden were used to carry people and their burdens across the country, on treks which lasted months and months. One such group of travelers numbers 87 people, both wealthy and poor, and is led by Jacob and George Donner. They leave Illinois, headed for California. The Donner Party is fully aware that time is an important concern. They must not take too long in their travels, lest they end up stuck in snowy mountains before reaching the West coast. They decide to eschew the usual route and opt for a revolutionary shortcut described by a guide named Lansford W. Hastings.
How does this shortcut work out? Not too well. The troupe ends up losing a lot of time, livestock, wagons, and belongings. They squabble. They end up just where they didn't want to be -- stuck in the Sierra Nevada mountains in Winter, weak and ill-prepared. (Did I mention that many of them have died along the way, stricken by illness and fatigue? Well, they have.) After spending a month or two snowbound, 17 healthier pioneers leave what's left of the group, heading toward civilization on their own to try and bring back a rescue party. Only seven of these ever make it to California. Meanwhile, some of the Donner faction left behind starve to death, while others resort to eating human flesh. Of the original 87 people, only 47 survive this gutsy trip West. 40 of them perish.
Yikes! How lucky we are that we can cross the country in a matter of hours, traveling thousands of feet above those treacherous mountains, nibbling on a few salted peanuts. But what does the experience of The Donner Party teach us? A lot of things, actually.
Think of the 87 original pioneers as investors. They want to achieve a certain goal -- earning handsome returns on their investments. What are their choices? Well, they can either follow the well-worn route, which they know isn't that efficient. Or they can try this newfangled path described by a Mr. Hastings who seems to know an awful lot about the terrain -- he's a "guide," after all. The well-worn path might represent options like mutual funds, bonds, CDs, baseball cards, antiques, and/or savings accounts. The exciting new alternative might be day-trading, options and futures, newsletter recommendations, or looking for shapes of barnyard animals in trading-volume charts.
Not a very appealing set of choices, is it? Did the Donner Party really know what they were doing? I don't think so. What were some of their mistakes? Well, for one thing, they relied on the word of a total stranger -- Mr. Hastings. (Can't you just see him on CNBC, touting his amazing new path West? Or issuing a popular newsletter, with an exciting new map in each issue? "Save 18% of your time!!! Shave 211 miles off your trip!!!") Did the Donners take the time to learn more about him and to examine objectively the successes and failures of his past trips? Was his new-and-improved route tested many times, successfully?
The Donner Party, not unlike most of us, fell for the lure of a shortcut. But does this mean that they should have just taken the "long-cut"? Should they have set their wagon wheels in the tracks of their predecessors? Perhaps. But perhaps not. Just because people have been doing something one way for a long time doesn't mean that it's the best way to do it. Take the way most people invest. They put much of their money in mutual funds, not knowing that most funds under-perform the market. They would rather put the responsibility of managing their life's savings in the hands of some "professional" than in their own hands. They think that investing is too complicated and mysterious and time-consuming for them. Well, we know better than that, don't we, fellow Fools?
Tragically, what the Donner Party might have benefited from was something some 150 years away. Imagine an electronic community of daring travelers, who share their experiences on trips West. Together, they discuss the pros and cons of this approach and that. In separate folders, they discuss the Durdulian Pass and the Hoplamazian Gorge in great detail. Remarkably, some of these cyber-pioneers even take their laptops along on their trips, and issue reports along the way. The community distills all the information, sorting out which paths are the most efficient and the most safe. They compile records of how many people have taken each path, and study how well each path has proven over many years. If the ill-fated Donner Party had had access to such information, perhaps we would know less about them. In another time, perhaps a touch of Foolishness might have saved them.