Personal Finance

Skydiving and Investing – So Much Alike

Apr 24, 2016 | Personal Finance

Skydiving & InvestingIt was back in September of 2009. My wife and I were kind of quiet on the train ride to a little village where we were scheduled to skydive that day. I have a license to pilot a single-engine airplane, like a Cessna, and have flown in many areas of diverse landscape, weather conditions, and altitudes. But actually jumping out of a moving airplane at 12,000 feet (4 KM) is quite different. Nonetheless, we are thrill seekers, and these experiences are a true delight… when you are done with them, that is. Before that, you are a nervous wreck.

My first concern is how well-maintained the equipment is. Think about it: that gear better be flawless. The second thing is the instructor’s expertise level. In tandem skydiving, you are placing your life in the hands of a complete stranger. I asked our guide how many jumps he has under his belt, and was pleasantly surprised to hear it’s more than 3,000.

Once you board the plane, it takes about 15 minutes to reach the drop zone. I was playing it cool for my wife’s sake, but Norway was already my 2nd jump (the 1st was in New Zealand in 2007), and for some reason (maybe you can relate), the 2nd time is much more frightening, because you are thinking to yourself “I already survived this once… why am I playing with fate again?” For my wife, it was her 1st time. She didn’t know what to expect. She was a rookie.

On the ground, the guide simulates the movements of jumping out of the plane, shows you what you can expect, and makes sure you are comfortable with the equipment.

The adrenaline level is quite remarkable when the door of the plane finally opens and all the wind comes in. it gets very real very fast. The noise is unbearable, and the professional solo jumpers hit the road before the tandem clients. They make it look like it’s a natural thing to be smiling while the ground is 10 minutes away. I was in line to jump next. The photographer said my expression was priceless, like a portfolio manager who held Fannie Mae stock in 2008 – complete horror. When I hit the ground 10 minutes later, I felt such a relief. My wife touched the ground 30 seconds after me, and was ready to do it once more. I wasn’t. I can’t believe people do solo jumps. It takes lots of successful training (many hours) and a brave character. Could you imagine someone jumping solo on his first jump? I can’t, either. Even your first solo isn’t really a solo. Two other guides jump right next to you to monitor your performance.

Skydiving is a sport. A professional sport. You must be an expert to do it without a guide, or your life is at risk.

Yet when investing, people skydive alone on their first day. They are pumped with adrenaline like my wife was, but they don’t have the common sense and reasoning power to realize that investing in also risky. It takes highly-developed emotional control, knowledge about valuing companies, position sizing, allocating capital correctly, managing risk, reading financial statements, speaking with management, understanding the business model… well, you get the point. It’s a professionals’ game as well. Yet like the simulation we did on the ground does not match the real jump, demo accounts offered by brokers don’t give you the experience of buying securities. Tandem skydiving is designed to allow amateurs the brilliant feeling of skydiving successfully, just like newsletters allow amateur investors who are managing their portfolio part-time to enjoy in the great miracle of free-market economy. Without newsletters, which give novice investors the opportunity to leapfrog their learning curve and invest like winners, the new guy would be lost. Skydiving and investing are awfully similar. Both deal with important risks: life and lifestyle. Don’t take on more than you can handle in these areas of life – there is too much at stake. Make sure the equipment you use for skydiving is up to code, like you should read financial newsletters and stock recommendations thoroughly before diving into the stock market.

Here’s a suggested plan of action:
1. Subscribe to a number of free newsletters and understand the mentality of the analysts working for the firm. Pick the ones that make sense the most and emulate the greatest investors and their methodology.
2. Subscribe to a paid premium service – most companies offer a money-back guarantee if their quality doesn’t meet your standards.
3. Start investing in companies you understand, and become the master of those companies.
4. Read books by the world’s greatest investors – for the price of a McDonald’s meal, you will be light years ahead of the average investor. And when he sells you his share of fantastic companies at ridiculously low prices, be ready to skydive on them.

Once you are ready to treat investing like a profession and not a sport, you will start to compound your wealth and enjoy multi-year success. I know you will.

Get started on this path. It is the road to stock market riches you so greatly desire.