3 Ways a Beginner Can Invest Like a Backpacker

I was bitten by the backpacking bug almost 10 years ago. A college student with an affinity for Henry David Thoreau and Ernest Hemingway, I sought the simplicity and adventure of the great outdoors.

In the woods, things seemed simpler, less chaotic. Days consisted of hiking, eating, drinking, and sleeping. That's all. No cars, no cellphones. But a four- or five-day backpacking trip isn't all sunshine and vistas. Problems arise and storms crop up, so without careful planning and the proper mentality, seemingly minor problems (oops, I forgot my tent poles) snowball into calamities.

Nearly a decade after my first backpacking trip, those same lessons learned on a mountain trail have helped me become a better investor.

1. Think long term
Not to sound too trite, but a backpacking trip is very much about the journey as a whole rather than the specifics. When reflecting on a trip, I don't dwell on the precise events that happen during it (getting soaked in a thunderstorm, eating the most delicious Snickers bar I've ever had). Instead, I look at the big picture and remember an overarching positive feeling. If I only remembered the sleepless nights and aching muscles, I'd never take to the trail again.

The same is true of investing. Companies make mistakes and miss earnings estimates. But those specific events often have little bearing on the decades of company history. It's easy to get caught up with the constant gyrations of the market, but like any good Fool, we want to avoid buying or selling on one piece of good or bad news. If I only focused on every negative movement one of my investments made, I'd never hit that buy button again. Instead, look at the company's fundamentals and consider its track record. Berkshire Hathaway (NYSE: BRK-B  ) , which has slowly and methodically made strong acquisitions (think GEICO or See's Candies), wasn't created overnight. Warren Buffett has spent decades creating that empire -- a long time.

While Buffett is a mortal like you or me, he's created a company that will continue to thrive even after his eventual death. Let's look at Buffett's Berkshire Owner's Manual (link opens PDF) for guidance:

I think it's appropriate that I conclude with a discussion of Berkshire's management, today and in the future. As our first owner-related principle tells you, Charlie and I are the managing partners of Berkshire. But we subcontract all of the heavy lifting in this business to the managers of our subsidiaries. In fact, we delegate almost to the point of abdication: Though Berkshire has about 260,000 employees, only 21 of these are at headquarters.

This is a company that decentralizes to the nth degree. While Buffett can't lead Berkshire forever, he has put in place a system that will continue to operate and make money even after he's gone.

2. Prepare, prepare, prepare
It's impossible to be ready for every single contingency on the trail, but without preparation, a trip quickly falls into chaos. Before going on a trip, I create a spreadsheet listing supplies and calorie needs. My backpacking counterparts and I pour over the topographical map to anticipate tough parts of the trail and identify potential water sources while charting out a rough estimate of daily mileage we hope to cover.

Investing also requires ample preparation. Company filings offer a wealth of information. As the famed investor Peter Lynch has said, "Invest in what you know." That's why I chose McDonald's (NYSE: MCD  ) as my very first stock purchase about eight months ago. I've thought through what I expect from the stock and the reasons I would sell, and I plan to hold on to the stock for many, many years. McDonald's sells something tangible, and the business model is easily understood. I can visit the stores and see first-hand what the company does at its most basic level -- it's an excellent fast-food purveyor. And with a growing dividend and push for international expansion, McDonald's is heading in the right direction.

By doing your homework and creating a watchlist, when the price falls within an acceptable range, you'll be ready to pull the trigger and buy.

3. Simplify your life
Minimizing weight is very important on a backpacking trip. You can only bring with you what you can carry on your back, and while having that full mattress would make sleeping a lot more comfortable, you'd kill yourself trying to carry it. Therefore, one must weigh the benefits versus the costs of carrying each of the supplies. And the simpler the gear, the better. Forget the bowl, plate, and silverware. All you need is a cup and spork. Those multiple hiking outfits you recently picked up? Opt for layers instead and get ready for repeat use.

In the investing world, stick to the basics. Invest in quality companies with a strong financial track record. High-speed trading isn't worth the stress, and we all know timing the market is impossible. When investing, I tend to focus on companies with simple business plans, ones that clearly show how they make money. That's one reason I've shied away from the banking sector as a whole. Too much complexity!

Instead, I've bought stock in a company such as Boston Beer (NYSE: SAM  ) . How does the Sam Adams brewer make money? It concocts more than 25 quality beers and sells them to eager consumers. Simple. Boston Beer is in a position to gain market share as the craft beer craze continues. While a program to offer the freshest beer possible (aka Freshest Beer Program) cost the company more in the short term, beer drinkers will be getting the best beer they can, which improves quality and customer experience.

Backpacking has helped me think differently about life, which in turn has given me a new perspective on investing. While I have a ways to go on my investing journey, the stock-picking trek is done best taking one step at a time.

All investors, beginners or otherwise, could use a leg up for the year ahead -- click here to download a new free report, "The Motley Fool's Top Stock for 2012," hand-picked from the Fool's chief investment officer.

Mike Klesta owns shares of Berkshire Hathaway, Boston Beer, and McDonald's, and while he hasn't forgotten his tent poles, he has been drenched by a torrential downpour on the trail. Remember: Cotton kills. The Motley Fool owns shares of Berkshire Hathaway and Boston Beer. Motley Fool newsletter services have recommended buying shares of McDonald's, Boston Beer, and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 14, 2011, at 4:19 PM, elpollogrande wrote:

    Excellent article. Nothing new here but a sober reminder amidst the flood of absurd end-of-the-year offerings from the stock/fund hype machines and publications

    BEST MUTUAL FUNDS OF 2011!

    BEST PICKS FOR 2012!

    Ugh.

    Stick with a backpack and Buffet. And Jeremy Grantham.

  • Report this Comment On December 14, 2011, at 4:57 PM, TMFKlesta wrote:

    Many thanks, elpollogrande. A little backpacking and some down-to-earth investing advice keep things in perspective.

    Mike

  • Report this Comment On December 14, 2011, at 6:08 PM, Bobjitsu wrote:

    Great article Mike! I've got BRK-B as my largest holding and have been thinking of adding MCD's for a while. I only buy companies I plan on holding till I retire which is decades from now.

  • Report this Comment On December 14, 2011, at 8:10 PM, TMFKlesta wrote:

    Thanks, Bobjitsu. I agree with the focus on stocks to hold for the long haul. While I personally think MCD is a bit pricey right now, I think it makes a solid long-term investment. The dividend also helps.

    Thanks for reading!

    Mike

  • Report this Comment On December 15, 2011, at 2:10 AM, Chemsoldier88 wrote:

    Mike,

    A very refreshing article. I'm fairly new to investing, and this article simplifies good long term strategies. Keep up the good work.

  • Report this Comment On December 15, 2011, at 2:31 AM, strelna wrote:

    Over three decades of investing, I have become convinced the statement 'we all know you can't time the market' is so false as to be risible. In particular, I recall averaging down into long-term international ETFs at the nadir of the market collapse 2007-9. You mention the value of a watchlist. In what way does that differ from timing the market? For example on my watchlist is BMW. I am waiting for the macro event (breakup of the eurozone) which will give me my opportunity. I am using 5 different stalwart dividend vehicles to trade volatility. And so on. With respect, I believe in these new conditions, timing the market is one of the ways the investor will make money. This is not a time for making things easy, or even necessarily simple. It is a time for hard work! Which is annoying because I too would rather be out in the mountains.

  • Report this Comment On December 15, 2011, at 4:51 AM, stumptownbro wrote:

    I went on a beautiful 10 day trip Sept. 14-24 of this year that took me from my home in Portland, OR to Olympic National Park, down 101 to Redwoods National Park and then up and over to Crater Lake before coming home. It was a solo trip and there were definitely some hiccups along the way.

    The worst part was logging back onto Fool.com, checking My Scorecard, and discovering that about half-way though my trip Reed Hastings and Netflix had announced that they were spinning off the entire DVD business as something called Qwikster. Back to reality!

    I'm still trying to figure out what the lesson is there...

  • Report this Comment On December 15, 2011, at 9:26 AM, TMFKlesta wrote:

    @Chemsoldier88

    Thanks so much for the kind words!

    Mike

  • Report this Comment On December 15, 2011, at 9:34 AM, TMFKlesta wrote:

    @strelna

    To further explain my point about not being able to time the market... In short, it's impossible to know whether the market (and your stocks) have either hit their absolute peak or their nadir, so you will never be able to sell or buy at exactly the right moment. That being said, a watchlist allows investors to take advantage of opportunities like the ones you mentioned -- those periods of time when the company's valuation and the market's valuation of that company don't jibe.

    And always make time for the mountains :)

    Thanks for reading!

    Mike

  • Report this Comment On December 15, 2011, at 10:11 AM, tweenthelines wrote:

    Concurring wholeheartedly, staying above the fray is paramount. Buffet acheived success by looking around to see what was going on.

Add your comment.

DocumentId: 1742044, ~/Articles/ArticleHandler.aspx, 7/24/2014 4:40:15 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement