I recently had a conversation with three friends in very different situations. All had just hit a milestone achievement.
One had successfully sold her business after a 30-year grind, and suffice to say - she “got her number.” She’s set for life; she could set her kids up for life (although she likely won’t), and she will retain the optionality of doing whatever she wants for the remainder of her days.
She’s had strong cash flow for the previous decade and has lived a very comfortable life but never lost her modesty. Nice cars, but not luxury. She wants to invest the cash in a conservative vehicle. She hopes to grow the principal and maintain her life of comfort, living on a percentage of the interest. However, she is looking at the macro landscape and is terrified about where this wealth can be stored safely.
My other friend is much younger and is an aspiring tradesman. He recently came into some money, about $50,000. He presently lives paycheque to paycheque and has not been able to put much away for the future. For the first time in his life, he is staring at a material sum of cash and debating how best to leverage this money. However, he is looking at the macro landscape and is terrified about where this wealth can be stored safely.
What struck me most about the conversation with each friend was how their anxiety seemed to have increased since receiving their relative increases in wealth.
I have another close friend who recently achieved a different milestone - a gold medal in Ironman.
He is a full-time entrepreneur and father of young children. He took up Ironman a few years ago. He is an abnormal human being - when he attacks a new task or passion, he does so with ruthless intensity.
Because of his dedication, after doing the sport for only two years, he realized that a podium spot was within reach. Surely enough, two weeks ago, he won first place in his age group for Ironman Canada. He also took first place in the master division - all athletes over 40, and 9th pace overall, out of 1400 athletes. This qualifies him for the world championships in Kona, Hawaii - a highly coveted and extraordinarily challenging race to win an entry into.
I chatted with him many times in advance of his recent race. Each time, he was relaxed and calm. He knew he had done the work; he was mentally fit, physically fit, and confident that a podium spot was possible.
Ironman, for anyone unfamiliar, is a 3.8-kilometre swim, a 180-kilometre bike, followed by a full marathon.
During the race, he came out of the swim in 10th place. By the time he completed the bike, he was in 5th place. During the run, with 20km still in front of him, he took first.
And this is when the anxiety hit him. This was when he realized that it was his race to lose.
What struck me about all three of the above scenarios was the increase in anxiety and nerves - after an advantage had been achieved.
My entrepreneur friend was scared of losing her ticket to freedom, her worst nightmare ever being that she should be forced to go back to work.
My young blue-collar buddy was scared to lose his safety net and an opportunity to leverage himself into an asset owner.
My athlete friend was scared to lose first place; he knew that for 20km, on exhausted legs, he would have to defend his lead. Once in the front, he knew that anything less than the top podium spot would be a crushing disappointment.
In each case, after gaining an advantage, the discomfort level went up…
It’s counterintuitive. But it is also human nature.
Our fear of loss is more potent than our desire to win.
Pioneers of behavioural economics, Daniel Kahneman and Amos Tversky argue that humans are more likely to take a risk or be dishonest, to avoid a loss than to receive a gain.
We intuitively seem to understand and accept this behaviour - crimes in response to a loss are more socially acceptable than crimes committed in pursuit of a gain.
This has been true for thousands of years:
“In comparing sins (the way people do), Theophrastus says that the ones committed out of desire are worse than the ones committed out of anger: which is good philosophy. The angry man seems to turn his back on reason out of a kind of pain and inner convulsion. But the man motivated by desire, who is mastered by pleasure, seems somehow more self-indulgent…
The angry man is more like a victim of wrongdoing, provoked by pain to anger. The other man rushes into wrongdoing on his own, moved to action by desire.”
- Marcus Aurelius, 121 - 180 AD
How does the fear of losing impact investors?
Simple. Nobody wants to be wrong, and nobody wants to lose money.
Any seasoned investor has sat in a losing position longer than they should have to avoid (delay) the pain of loss.
If we bought 100,000 shares, no matter the price, we still own 100,000 shares. The financial loss isn’t confirmed until we hit sell.
But nobody wants to be wrong, and nobody wants to lose money.
Why is this?
Humans are unique in our loss aversion for one key reason: Hubris. We want to look good and avoid looking bad. I firmly believe this statement directs a significant percentage of human behaviour.
The best (and truest) realization is that no one is looking. We are not as significant as we tend to believe. This is excellent news.
Lessons from a sociopath.
A sociopath is “someone who has little regard for another person's emotions, rights, or experiences.”
Now, of course, you should not be a sociopath… of course…
But maybe… detaching yourself from the emotional experience of others can be valuable within the confines of a specific time and place…
“Everyone says, "Well, you should be harmless, virtuous, you shouldn't do anyone any harm, you should sheath your competitive instinct. You don't want to be too assertive." No. Wrong. You should be a monster, an absolute monster, and then you should learn how to control it.”
- Jordan Peterson
When this letter is published tomorrow (Sunday), I will be competing in an Ultra Marathon.
We run from the base of Whistler Mountain, up to the top, down the backside along Singing Pass and back to Whistler Village. Then we run up Blackcomb Mountain, over to Decker Peak and the alpine lakes, and drop back down to Rendezvous Gondola.
If you are reading this during your morning coffee, I will be running. If you are reading this while eating lunch, I will be running. If you are reading this while getting ready for dinner, I will still be running.
I am a nice person. But today, within the confines of this race, I promise you; I am a monster.
Be a monster.