Dining with the Cannibals

Written by Jimmy Mengel
Posted November 29, 2018 at 4:26PM

The market has been unpredictable lately…and I’m sure more twists and turns lie ahead.

But unless you’re cashing out tomorrow, you should be fine. Let’s keep things in perspective:

• October 28, 1929: The “great crash” knocked Wall Street down 12.82% and jumpstarted the Great Depression.

• October 19, 1987: The Black Monday crash dropped stocks by 22%.

• September 17, 2001: The Dow fell 885 points and continued to fall, losing over 4% within a week.

• September 29, 2008: The housing bubble burst and sent us into the latest recession. The Dow fell 777.68 points.

These things happen. But if you play your cards right, you’ll always come out ahead.

Here’s how things worked after each crash:

1987: The Dow closed 1987 at 1,939, gaining back all of the loss and ending the year up by 2%.

• 2001: The Dow closed the year at 10,021, a 21% rebound in less than three months.

• 2008: From the March 9th lows to the end of 2009, the S&P 500 soared 64.83%, the Nasdaq gained 78.87%, and the Dow gained 59.28%.

And it’s important to remember that things could always be worse. Much worse...

I’ve been reading a historical book about the Donner Party. It’s called The Best Land Under Heaven: The Donner Party in the Age of Manifest Destiny by Michael Wallis.

It tells the tale of the ill-fated Donner Party’s harrowing expedition from Independence, Missouri, to the Sierra Nevada mountains in California, where many members of the group met a grisly end.

Spoiler alert: They had to survive by eating people.

Had they been properly prepared and educated about their trip, many more would have made it out alive. There are a few takeaways from the experiences of the Donner Party that investors can apply to our current situation…

Know Your Route

The Donner Party knew that they wanted to start a new life in California. But they decided to take a shortcut, called the Hastings Cutoff, which was developed by a huckster named Langston W. Hastings.

Hastings had also written the “authoritative” guidebook for westbound travelers, called The Emigrants’ Guide to Oregon and California.

They were told that the Hastings Cutoff would shave several days off their trip. They’d had two options:

They could stick to the “old road,” which meant staying on the Oregon Trail all the way up into present-day Idaho, then dropping down to follow the Humboldt River across present-day Nevada, and then—finally—crossing the rugged Sierra Nevada and descending into California.

Or they could avoid the long, tedious detour north of the Great Salt Lake by taking a shortcut that had just been discovered the previous year but that no train of covered wagons had ever before attempted.

This new route left the Oregon Trail just west of the Continental Divide, not far from an isolated trading post called Fort Bridger. From there it ran straight west through the Wasatch Mountains, skirted the south end of the Great Salt Lake, crossed the Great Salt Lake Desert and the Ruby Mountains, and finally came to the Humboldt River, where it rejoined the main California Trail for the rest of the way.

The new route was called Hastings’ Cutoff...

On paper, the cutoff promised to save 350, maybe 400 miles—an almost irresistible prospect for bone-weary overlanders only halfway through their journey and with more than 1,000 miles still to go. When spring came, Hastings headed out onto the Oregon Trail to persuade as many people as possible to take his route. His machinations that summer would make Hastings’ Cutoff perhaps the most notorious trail ever carved through the American wilderness.

Along their journey, the party was warned that the Hastings Cutoff was incredibly dangerous and untested.

Many travelers were apprehensive of the less traveled shortcut.

James Reed, one of the founding members of the party, was so enthralled by Hastings’ pitch that he decided to go full speed through the Hastings Cutoff. Sadly, he also ended up convincing most of the wagon party to join him.

It would prove to be the worst decision of his life, and it cost many people their lives.

You can guess what happened next...

The travelers who took the tried-and-true Oregon to California trail eventually made it to their destination and started exciting new lives that were filled with prosperity and fulfillment.

The Donner-Reed Party ended up freezing to death in 60-foot snowdrifts and eventually resorted to eating members of their party.

The key to this is when someone offers you a shortcut that sounds too good to be true, it likely is. And not to be too dramatic, but I do believe that investing wisely really is a life-and-death decision. The moves you make now will eventually end up rewarding you or haunting you down the line.

Like the old frog in boiling water fable, you usually don’t know you’re in danger until you’re alread cooked.

And that leads us right into the next point…

Timing Is Very Important

What are you seeking to accomplish, and when do you plan to arrive? Can you take your time and amble away, enjoying the scenery? Do you have the time to keep loading up on supplies? Or are you on a mad dash to retirement?

The Donner Party was doomed from their lack of timing. For one, they left too late. The ideal time to leave would have been around mid- to late-April. But the Donner Party didn’t leave Independence, Missouri, until May 12th. They were the last major wagon train of 1846, and their late start helped doom them.

They’d also spent too much time resting, gathering supplies, and generally holding themselves up. They then waited too long to cross the snowy mountains. Many of the members had been either too old or too young and had had to rest their understandably weary bones. Sometimes, like in the idyllic Alcove Spring where they’d stopped to rest and even carved their initials into the rocks, they just lingered too long in comfort and beauty when they should have kept moving.

“I am beginning to feel alarmed at the tardiness of our movements,” one member wrote, “and fearful that winter will find us in the snowy mountains of California.” Each of these decisions cost them in the end. In the dead of winter, they found themselves in the grips of epic snowstorms that just kept coming. Most of the wagon crew thought it wise to bunker down for the winter and wait out the horrific snowstorms that were to follow.

Lucky for us, we’re only dealing with the stock market going down a little bit. If you panic and freeze up every time the market takes a dive, you’ll likely end up falling far short of your retirement goals. If you stick to the route, time your investments right, and don’t sit around idly when things seem scary, you’ll be just fine in the end.

As long as you buy stocks that will see you through winter. You can read about 27 income sources in this free book I wrote. They all pay you during times of feast or famine.

I'll be back next week with my top 5 "Oregon Trail" picks...suitable for any season or market.

And – of course – the grisly ending of the Donner Party saga.

Godspeed,
jimmy-mengel-signature-fixed

Jimmy Mengel

follow basic @mengeled on Twitter

Jimmy is a managing editor for Outsider Club and the investment director of the personal finance advisory, The Crow's Nest, and cannabis stocks advisory, The Marijuana Manifesto. For more on Jimmy, check out his editor's page.

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