Race to the Bottom: Financial Lessons from Antarctica
Matters of life or death. The decisions that matter most in life are often the ones we are least prepared to make. Life offers few opportunities to train for decisions where the consequences of a poor choice are meaningful and difficult to reverse. High-stakes decisions are fraught with high levels of uncertainty and complexity. Clear solutions appear due to the intensity of the situations. Because of this, it is important to study and learn from extreme examples. Such examples are as relevant, if not more so, in our daily lives, where the problems and solutions are sometimes opaque. The following story depicts a race between two men with strong egos, operating in a harsh environment, demonstrating their planning and leadership capabilities, all while responsible for the lives of their men. The race to the South Pole is as relevant today as it was a century ago. Over 115 years ago, Robert Falcon Scott, of Great Britain and Roald Amundsen, of Norway raced to the South Pole. Ernest Shackleton, also of Great Britain previously tried and failed, famously telling his wife, “a live donkey is better than a dead lion, isn’t it?”
In 1909, men accomplished extraordinary feats with relatively little technology by 21st century standards. By this point, much of the world’s lands (from a European perspective) had been discovered, conquered or inhabited. The Nimrod Expedition led by Shackleton arrived within 97 nautical miles of the Pole, farther south than any prior expedition. Roald Amundsen greatly praised Shackleton’s achievement, noting in the South that “a little corner remained”. Following this near miss, Robert Scott immediately confirmed he would lead an expedition to the South to claim the “little corner” for the British Empire. The planning began.
The two journeys had highly overlapping time tables for the discovery of the South Pole. Scott’s ship Terra Nova sailed from Wales on June 15, 1910, to Melbourne, Australia. Here Scott continued fundraising for his Southern Journey. Terra Nova arrived on Ross Island just off the coast of Antarctica on January 4th 1911. Amundsen’s ship Fram left Norway on August 9, 1910, nearly two months after Terra Nova. After stopping in Portugal, Fram sailed to Melbourne, Australia, and finally arrived in Antarctica’s Bay of Whales on January 14, 1911. Amundsen was acutely conscious of his rival and did not want Scott to conquer the Pole first. Both parties laid base camps in their respective areas. Within a few weeks, the coastal exploration party discovered Amundsen’s camp, appropriately dubbed Framheim (Norwegian term for home of the Fram). Scott’s and Amundsen’s team spent the remainder of the year away from one another, making plans and laying depots for supplies along the journey to the pole.
The polar springtime was a month away and the weather was far from manageable. Nevertheless, in September of 1911, the Norwegian advanced South. The early departure was a disastrous decision. It caused the deaths of several valuable dogs and frostbite on the crew, which would take a month to properly heal. Amundsen recognized his foolishness and ordered the men back to Framheim. As Amundsen panicked and raced back to his base, he abandoned two companions, who struggled back to the camp nearly a day after his return. Even the most heroic explorers were not flawless.
The false start of September 1911 is a reminder that there is no such thing as an inevitable outcome. We have the ability to make choices, provided that we make them while time allows. Amundsen was methodical and careful, but he was also a man of towering ambition. He was heavily in debt and mortgaged his home to keep the expedition afloat. The state of his personal finances was wholly dependent on the expedition’s success. Despite this, four days after his premature start, he made the decision to head back and wait for spring. Quoting Amundsen:
“To risk men and animals by continuing stubbornly once we have set off is something I couldn’t consider. If we are to win the game, the pieces must be moved properly; a false move and everything could be lost.”
This quote applies to much more than Polar exploration. It is the positive definition of the sunk-cost fallacy. We commit the sunk cost fallacy when we continue a behavior or endeavor as a result of previously invested resources (time, money or effort). In an effort to justify the prior expense, we allow past investment to motivate our present decision to continue, and we do this all the time. While we recognize this issue with others almost immediately, it is much more difficult to see this in ourselves. We may throw good money after bad or waste time in a bad relationship, adding weight to an already sinking ship. The costs to a person who does not know when to quit can be enormous. It is important to ask ourselves why we continue to do the things we do? Is it because we have spent money on it and don’t want that money to go to waste? Or do we actually enjoy and/or benefit from the experience? If we quit and move on, we are not quitters, instead we are strategists.
After returning to base camp, Amundsen and his crew used the next couple of months to lay down depots of supplies and ruthlessly scrutinize every article of clothing, food and equipment to make sure everything was in working order. On October 19th, 1911 their 800-mile journey to the South Pole began. Amundsen and his four companions skied into the horizon behind four loaded sledges, each pulled by 13 dogs and weighing nearly 900 pounds. Quoting Amundsen’s diary dated December 14th, 1911:
"And so at last we reached our destination and planted our flag on the geographical South Pole, King Haakon VII's plateau. Thank God!"
At the Pole, Amundsen left a letter for Norway’s king, along with a few words to Scott, who he knew would be the next to reach the destination. The letter ensured a report of success in the event they did not return home, as well as a means of gloating his win. On the return trip, the crew would abandon surplus stores to move more quickly across the ice, some of which would be gratefully collected by Scott’s party. Early morning on January 26, 1912, Amundsen would greet his startled cook at base camp and ask for coffee. The entire trip took 99 days, 10 fewer than scheduled.
In stark contrast, Apsley Cherry-Gerrard, the chronicler of Scott’s expedition, would later call Amundsen’s operation “business-like” and Scott’s a “first-rate tragedy.” What ultimately happened to Scott? He arrived at the South Pole 34 days after Amundsen. Even worse, on the return trip Scott and his four crew men died as a result of starvation, scurvy, frostbite and inclement weather. Scott had taken a team of 65 people down to the Antarctic circle, 60 returned. Amundsen traveled only with 19 people and all made it back to Norway safely. There were numerous factors contributing to the demise of the trip, many of which are issues for us 21st century folk.
Do you want to be “business-like” or a “first-rate tragedy”?
One of Scott’s biggest problem was the supplies and rations he calculated for his trip were not sufficient. This is due to a number of factors. The original plan was to have 16 men set out on the journey towards the Pole, 12 of which were solely there to lay supplies at depots and aid the remaining four men before the final leg of the journey. At the last moment, ¾ of the way to the Pole, Scott decided to continue onward with 5 men instead of 4. This involved recalculating rations. Additionally, Scott didn’t take into account the additional energy burned by man-hauling sledges at high altitudes in cold weather. He had used the ration figures from Shackleton’s journey, which included the use of ponies to move much of the supplies around. Between this and the rapidly deteriorating health of the team on the return journey, they ultimately ran out of food. This is in stark comparison to Amundsen’s team, who actually gained weight during their journey while dropping excess supplies on their return route.
Scott also had a shortage of fuel due to leakage from stored fuel cans which used leather washers. While previous expeditions had noted this effect, Scott took no precautions to avoid this problem. Having the final five-man team also affected their fuel supply and increased their cooking time. Conversely, Amundsen decided to have his fuel cans soldered closed. One of the fuel depots he left was found 50 years later, fully stocked. This might not have been as much of a problem if Scott’s team had laid out more frequent depots. Amundsen marked his trail like a Norwegian ski course, using market flags every eight miles. He also left a noticeable empty food can at every mile in between. From 82 degrees and south, Amundsen built a 6-foot cairn every three miles. Each contained a note inside recording the cairn's position, the distance to the next depot, and direction to the next cairn. In contrast, Scott had many less depots and they were sparsely laid out. An example, for one distance where Amundsen laid seven depots, Scott laid two. Scott did not make proper preparations for his journey and paid for it with his life.
The financial version of rations is budgeting. Having control over our money (and ultimately leading to financial independence) involves applying an effective methodology to prioritize objectives, pay off debt and save more money. This approach should include budgeting for immediate obligations, true expenses, debt payments, quality of life purchases and a “just for fun” category. It should also have a “stuff you forgot to include in your budget” category as well as a replacement cost budget for depreciating assets (phones, computers, cars). The easiest way to set a budget is by evaluating your credit card and bank statements from the last six months. Categorize the different expenses and set limits on the expenses that seem egregious. Saving instead of spending is already difficult for most people. Saving instead of spending without awareness of expenses is like not having a schedule for your family’s various activities; it’s going to be difficult. Don’t let lack of mindfulness lead to a “first-rate tragedy” of your finances.
Your depots are your retirement accounts, savings accounts, investment vehicles, life insurance and estate planning documents. There are tools available to us to make sure we complete our journey. We can participate in our company’s retirement plan or if we own a business, we can create one that best suits our needs (there are quite a few!). We can use our savings accounts to make sure we have an ample emergency reserve in case something unexpected happens, we get injured or we lose our job. We can pick investments that suit our risk tolerances and time horizons to make sure our money works for us while we work. We can purchase life insurance to make sure our families are supported if something bad were to happen. Lastly, we can put proper documents into place to make sure we pass our assets to our loved ones. The most basic estate plan includes having a will, having standby guardianship in place if you have minor children, having a healthcare proxy and having a power of attorney. We have all the tools to make the proper preparations. We just need to use them.
Don’t compete for your own resources
Scott’s expedition was not solely one of exploration. Instead, the British Royal Geographical Society and other financial backers agreed to fund Scott if the journey was for scientific purposes. This seemingly small distinction caused a slew of problems, ultimately leading to an unsuccessful South Pole journey. Scott’s team had competing goals. One was to be the first to discover the South Pole. The other was to research, explore and map areas around the coast of Antarctica and neighboring islands. While “The Southern Journey” was stated to be the primary objective, resources were still split amongst the goals.
Split priorities had an ill effect on Scott’s journey. Someone needed to meet the five-man team at one of the depots, known as One Ton Depot with additional supplies. The person most qualified and available to do this duty was a physicist by the name of Wright, who was the most experienced traveler and navigator. The chief scientist stationed at the safety camp (outer edge of Antarctica) insisted that Wright’s scientific work be given priority. Cherry-Gerard (our friendly chronicler) went instead. It should be noted that Cherry-Gerard could not navigate, had never handled a dog team before and had nearsightedness. Additionally, his superior officer gave him unclear instructions about the mission. He was to leave food for the returning party, but this was not to be a rescue party. If Scott had not arrived before him, Cherry-Gerard should decide “what to do”. Additionally, the dogs used for the trip were committed to next season’s plans and were to return to the main camp in good condition. Cherry-Gerard did make it to One Ton Depot before the Polar party and he decided to wait. However, the weather began to worsen and his supplies dwindled. He returned to the safety camp.
Having competing goals is a serious problem, whether it be related to an exploration party to the South Pole in 1911 or saving for college in 2016. Let’s imagine a fictional retail investing client. We will call them George and Jill Smith (both age 40):
How should the Smith’s allocate resources while still being able to support themselves in retirement. Although the Smiths may have specific goals, the reality is they’re prioritizing their current lifestyle. If the Smith’s really want to pay for their kids’ education or retire in less than 20 years, something has to give. Here are a few tips for the Smith’s, they can: lease a budget car rather than a luxury vehicle; take inventory of their closets and basement to cut down excessive shopping expenses; eat out once per week instead of multiple times per week; use their gym membership or figure out a cheaper way to exercise. All of these small cuts would lead to the Smith’s having enough money for at least some of their goals, after which they would need to prioritize goals in order of what matters most.
“Life is really simple, but we insist on making it complicated.” -Confucius
Scott’s trip ran into issues due to the complexity of plans. For instance, the intricacy of the transportation involved using motor-sledges, ponies, dogs, and the southerly winds to assist the sledges for the first half of the trip. The sledges even had sails to take advantage of the wind. The remainder of the trip was to be covered by man-hauling and sails (weather permitting). Scott relied on man-hauling because he did not believe dogs nor ponies could make it up the distance of the steep glacier to the Pole. However, Amundsen used dogs and skis and he made it there and back with no issue. Simplicity is key. Imagine if I were to set up a complicated plan for myself involving saving for many different goals, setting many little budgets for categories that could be combined, cutting costs in lots of unlike areas, while also investing in not just the market but also individual real estate ventures (ie becoming a landlord), private equity, venture capital etc… all while running my own business. It’s easy to see how this could lead to failure rather than success. What if I changed just one thing, increasing the complexity of my plan over time at a rate that is reasonable and sustainable? I may just escape a “first-rate tragedy”! The truth is: you don’t need a 30-page financial plan. You need something simple to which you are willing to commit.
- Be a strategist, not a quitter
- Don’t get hung up on sunk costs
- Use available resources and make a budget
- Don’t compete with yourself, instead prioritize your goals
- Commit to a simple plan; follow it
- Take a helicopter to the South Pole, instead of an Iditarod dog team; bring hand warmers
Arkes and Blumer 1985, “The Psychology of Sunk Cost” http://www.communicationcache.com/uploads/1/0/8/8/10887248/the_psychology_of_sunk_cost.pdf
Apsley Cherry-Gerrard, 1922 “The Worst Journey in the World”
Anne Strathie, 2015 “From Ice Floes to Battlefields: Scott's 'Antarctics' in the First World War”
Robin McKie, 2011 “Scott of the Antarctic: the lies that doomed his race to the pole” http://www.theguardian.com/uk/2011/sep/24/scott-antarctic-lies-race-pole
This bulletin expresses the views of the author as the date indicated and such views are subject to change without notice. It is important to understand investing in general involves risk of loss that you should be prepared to bear. Please refer to our Firm’s Form ADV Part 2 Disclosure Brochure for more information regarding the risks of the investments held in your account. Our calculated perceived value is an opinion based on the information we have at the time of our forecast. The risk assumed is that the market will fail to reach expectations of perceived value. Our opinions, forecasts or predictions of future events, returns or results are subject to change and are not guarantees of future events, returns or results. This communication is intended to be distributed to current clients and certain interested parties only. This communication should not be construed as an advertisement offering our firm’s investment advisory services.