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 (NYS: 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 (NYS: 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 (NYS: 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.
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At the time thisarticle was published 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 serviceshave recommended buying shares of McDonald's, Boston Beer, and Berkshire Hathaway. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.