Discover more from Psychology of Investing
Why your 'Positivity' may be hurting you ?
and how 'Negative Visualization' could make a difference?
“Your mind constantly seeks proof that will confirm your beliefs. If you have negative beliefs, your mind will seek to prove those negative thoughts. If you have positive beliefs, your mind will seek to prove those positive thoughts. Therefore, it is important to be mindful of our beliefs.” - Akiroq Brost
Humans are normally confident about their own beliefs and that’s the reason when they buy stocks, they believe they are doing a smart thing and it’s going to be a multi-bagger. The same applies to entrepreneurs who quit their jobs and go all in on their passions or pursuits.
But statistically, most will get their stock picks wrong, and most entrepreneurs will fail. But this doesn't stop a whole new lot of investors to try hands at investing/trading, nor would it stop ambitious people trying to build stuff.
This is good for society because some ideas stick and change the world, and some investors bring a whole different level to the game of investing. And this inspires and influences millions of future investors and entrepreneurs.
But behind all this success, there also lies a mile-deep graveyard of failed startups and miserable investors. No one talks about it because it’s depressing, doesn't make for a fascinating story, and it's kind of energy-draining.
When was the last time you got your dopamine fix listening to a sad ending?
You get my point.
The reason I share about the sorry state of affairs is only to remind you of the odds of failure in any endeavor of yours, they are goddamn high. Some examples -
If you are in a job, your odds to survive in the same company till age 60 or rise up to be the CEO is minuscule
If you are starting a restaurant, the odds for it to succeed are very low
If you are a Youtuber, the odds of your channel reaching millions of people is minuscule
If you are a blogger (like I am), our chances of building a million + reader base are minuscule
If you are going to the gym, the chances of you building a physique like Hritik Roshan / Brad Pitt is low (not minuscule though)
And once you realize the fact, once you become self-aware of the odds being against you, the most rational thing to do would be to visualize the worst-case scenario and ask yourself - what would you do in that case?
This question is critical for your mindset to be in the right place at all times. Preparation for adversity is critical and that’s what makes the difference between the best and the average performers. Because shit happens all the time, and many a time in places you least expected.
Many don't buy health insurance policies because they feel they will remain healthy for life, or their company health insurance policy will suffice for now.
No, it won't.
You may not be in the company tomorrow. You may not have coverage for your hospitalization bills which could run into thousands of dollars when you're 66 years old. You have seen enough cases of people around you or in movies/documentaries where people lose their life savings due to medical bills and healthcare. So how are you immune to it? How can you be so sure it won't happen to you?
The same logic applies to any endeavor you undertake.
And if that's understood, then you have to embrace the concept of negative visualization, to arrive at your plans in case things go wrong.
A friend of mine is filled with anxiety regarding his job and isn't sure if he will remain employed for long, since his company is restructuring. That’s the default operating mode where you get consumed by hope and fear. Another choice would be to visualize himself losing the job in a few months, and what should be his plans in case that worst-case scenario happens -
Network with peers in the same industry
Roll out his CV across Recruiters
Let friends and family know he is on the lookout for a new role
Upgrade his skills for a better role / desired role
These don't guarantee that they will produce a fantastic paying job for him in his favorite company with free organic food and Xbox in the entertainment room. But this will increase his odds of dealing with the worst-case scenario in a better fashion. It increases his odds of finding a new job before he is let go of the old one. He increases his odds of sustaining his income, instead of not having money for paying rent.
It's just about making the odds favor you. It’s about surviving irrespective of the adversity that could come. It’s also termed as ‘Cockroach Mentality’. They survived for 350 million + years, adapted to the insecticides and pesticides manufactured, survived all attempts to exterminate them, and here they are, still making their presence felt in 2023.
I was listening to Daniel Vassallo in his Small Bets Course Introductory session, and he shared that he started the business when he had enough funds for a few years and was willing to take a job again, in case things failed as an entrepreneur.
He eventually succeeded as an author, online educator, and online retailer. He earns high five figures monthly and has been very transparent about his revenue streams and their growth curve since he began building his entrepreneurial journey in public.
And the reason I mention his story is because negative visualization is your best defense against things not working out.
Just yesterday I was speaking to a friend of mine to reduce leverage in his portfolio because he may not have the income stream to pay it off, his investments may lose money in 2023-2024 also just the way it happened in 2022, he may lose his job, or any other adversity.
He was resisting the idea of reducing his loan. He was, in fact, thinking of drawing additional credit lines to invest more. And the only question I asked him that maybe made him give up on this idea was "Can you pay your whole leverage off if you lose your job? Can you afford this liability if you don't earn your targetted incentives?"
And he admitted he can't. And I said, “Then why add on liability which will cripple you financially in case of adversity?”
Leverage can be a choice to consider only when you have the means to pay it all off with your cash balances. But if you have a liability that is way beyond your cash balances today, then it is advisable to give it a pass.
Because Shit Happens !!
The same logic applies to investing as well -
Diversification helps because all assets in a portfolio don't move together (holdings of 15-20)
Allocation to Cash provides you the flexibility to pounce on ideas when the market presents you with them (2020 crash)
Seeking contrary views provides you with a different perspective to evaluate your own thesis and to conclude if you are right or if you have more work to do before going all in (Tech Valuations in 2022)
Sticking to what you understand provides you the comfort of playing the game where it won't kill you, unlike those who bet their houses on crypto coins or SPACs (2022)
So get off your eternal optimism mode, and wear a skeptic hat and ask yourself "What If ?". I am not suggesting that you use this for every decision of yours. But it must be considered for decisions that could cost you heavily if they go wrong. And that requires some thinking around decision-making - Is this crucial? Is this critical? Can it be reversed easily without much cost? Who all will it impact if it goes wrong?
This is the mark of a true investor, a true professional, a good CEO, and a good entrepreneur. As Denis Diderot once said, “Scepticism is the first step towards truth.”
It’s the same thought process that makes the most productive people in the world say “NO” to most things. It’s the same thought process that makes Warren Buffet preach his “Circle of Competence” theory. It’s the same thought process that makes Aditya Chopra skip every award function in India. This is the common thread that has laced many important lives in all domains.
This line of thinking doesn't guarantee success, but it surely guarantees a better frame of mind, which only gives you more energy, focus, and higher odds to propel you ahead of the rest in the race to the top.
Recommendations for the week #
I read a piece recently in the New York Times where it covers the lives of writers/authors in its most authentic form. Let me share an excerpt - “The public sees writers mainly in their victories but their lives are spent mostly in defeat."I suppose that’s why, in the rare moments of triumph, writers always look a little out of place — posing in magazine profiles in their half-considered outfits with their last-minute hair; desperately re-upping their most positive reviews on Instagram”. This piece will give you a bird’s eye view into the lives of many artists consumed by their creative projects, and might even make you appreciate them and their works much more than you ever did before.
Jack Raines recently wrote an article in response to Kevin O’Leary’s viral tweet which attracted a lot of attention on news channels, Twitter, and in the media. This piece is the true representation of our modern times where some people are willing to burn all bridges and sacrifice it all for success and fame. Is it even worth it? How much money is enough? How much success is real success? These questions are explored in a gentle and funny manner in true Jack Raines style.
I referred to cockroach mentality in today’s write-up and hence wanted to share with you a LinkedIn post that covers this topic at a deeper level. It’s interesting and insightful. Do give it a read if surviving matters to you.
I welcome all the new subscribers to my newsletter and as always, I look forward to your replies/comments/suggestions on the post. It’s heartwarming to see that you all are willing to take time out on weekly basis to read my posts. It means a lot to me and I am grateful for your time and attention.
I started writing more than a year back only for myself so that I could cement my learnings in my sub-conscience. It’s only with time that I have started to realize that these learnings also guide and assist many others in their decision-making frameworks. This realization also brings with it a responsibility to do a better job with my reading habits, distilling thoughts, and writing protocols.
I am up for this and looking forward to the ride ahead. And if my write-ups do land up making a difference in any way, it’s icing on the cake. It’s a reward that makes the beautiful journey even better.
Wishing you all a fantastic weekend ahead.
Sending you loads of love and luck 🤝