How Scared Are You?

How Scared Are You?

We closed on Thursday morning.

The ad went up a few hours later, just ahead of what was shaping up to be a sunny, enjoyable weekend.

In other words, the timing was perfect.

Except, 48 hours later, there was still no bite. Not a single one.

By the time I finished up my Saturday morning coffee, self-doubt started creeping in.

Was buying a single-family home the right strategy?

Did we list it at the right price?

What did we get into?

Fake It Till You Make It

In the modern world, fear isn’t a popular emotion. Not one you want to showcase, anyway.

You are supposed to strut around looking like you’ve got it all figured out, exuding full confidence in your every decision.

As the theory goes, at some point that confidence is bound to translate into unlimited success.

That’s when you get to pat yourself on the back, with the smug satisfaction of a true winner.

“See? Nothing to worry about here!”

Except, of course, the fact that fear has got to be one of the most valuable tools humans have ever possessed.

The reason we are around today is that our ancestors stopped twice before approaching that friendly-looking crocodile – or petting the cobra on their daily walk through the jungle.

Thousands of years have passed, and while pure survival might not top the agenda these days, fear continues to be just as helpful in the modern world.

As children, we think twice about raiding the cookie jar, mindful of the less-than-pleasant consequences when mommy finds out.

In university, the fear of not lining up a good job can actually force us to show up at the library more often than at the pub.

And when we do line up that good job, fear can be an excellent way of motivating us to go the extra mile.

Fear is also a critical tool in an investor’s arsenal.

Warren Buffett encourages us to be fearful (especially when others are greedy).

Michael Moritz attributes Sequoia’s incredible track record to a persistent “fear of going out of business”.

And Intel’s Andrew Grove put it even more bluntly when he claimed that in business, only the paranoid survive.

So far, so good, right?

Not quite – because for all its benefits, fear can also be absolutely paralyzing.

Out Of Options

If we think we cannot do something (or believe that the process will be highly unpleasant), giving up becomes so much more appealing.

Alternatively, we might choose to procrastinate and never start in the first place.

There may be a lucky escape or two.

But ultimately, this modern-day equivalent of walking the plank results in one long-term outcome only: failure.

Because of this, having your back against the wall might actually be a good starting point.

When flight is not an option, might as well fight, right?

Perhaps.

The problem is that this paradigm fails miserably when it comes to investing.

After all, it’s not like investing is mandatory – at least for you.

You are not Warren Buffett – or one of the world’s leading venture capitalists (but if you are, I want to hear from you in the comments!)

No one forces you to put your money to work.

And when you treat investing as an optional activity, it’s very easy to put it in the “too hard, too scary” category.

Punt it by a day. A week. A year.

Paralyzed – if not in form, then certainly in substance.

How does one get out of this vicious circle, where the fear of investing is leaving you further behind, every single day?

Well, here are some ideas.

#1: Avoid Catastrophic Thinking

In cognitive behavioral therapy, catastrophizing is assuming that the worst outcome will transpire – and that the results will be absolutely catastrophic (hence the name).

This is the sort of stuff that happens to people who are scared of flying, convinced that any single wobble will inevitably lead to a crash in which everyone will perish.

In investing, it manifests itself in an incorrect approach to risk.

The good news is that there are ways and techniques to stop it from interfering with your life – both investing and otherwise.

#2: Embrace The Fear

Recognize it for what it is – a very helpful emotion that protects your financial well-being.

Yes, it’s good to have confidence in your long-term investment strategy.  But it’s also very rational to be mindful of the risks that come with investing.

No one ever got wealthy by throwing their money around with no consideration as to what the outcome might be.

#3: Start Small – And Slow

Investing is a life-long endeavor. No need to dive in right away.

Start with small amounts – and work your way up. You’ll build confidence – and comfort – along the way.

#4: Learn As Much As You Can

Some people say knowledge is power.  I prefer to think that knowledge is comfort.

It’s easy to be afraid of the stock market if you don’t really understand what it is.

But if you take the time to learn how it actually works, you quickly realize that chances of losing your money are virtually non-existent.

#5: Protect The Downside

If you are contemplating riskier investments, it’s good to understand what the worst-case outcome might be.

It’s a different take on the “what have you got to lose?” question.

Nothing quite like knowing that even if everything goes haywire, you’ve got a strategy to cap your losses at a specific level (which should hopefully be manageable as compared to your overall net worth).

At the end of the day, the worst thing you can do is ignore your fear.

On the contrary, acknowledge it. Double-click on it.

Let it motivate you to do your homework, to think longer, work harder, and make better investment decisions.

Just don’t let it paralyze you.

Oh, and by the way – about that house.

By the time the weekend was over, we had four rental offers, including one above the asking price.

Happy (fearless) investing!

About Banker On FIRE

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Banker On FIRE is a London-based M&A (mergers and acquisitions) investment banker.  I am passionate about capital markets, behavioural economics, financial independence and living the best life possible.

Find out more about me and this blog here.

If you are new to investing, this is a good place to start.

6 Comments

  1. You have probably said it somewhere else on this excellent site, but it’s worth repeating — don’t pay too much attention to TV biz news. The 24-hour channels need to fill airtime and a lot of what they broadcast is just chatter, nothing more. Yellen’s comments and the resultant drop in tech stocks on Tuesday are one example. I’m betting that no-one will remember this in a few days.

    • Hah, couldn’t have said it better myself.

      I made a point a long time ago of only checking two business news websites (FT and Bloomberg) – and only because I need to stay in the flow given my day job.

      As far as TV goes, we don’t even have a package and only use it to watch the occasional movie or TV series.

      We’ve been doing this for a number of years now and I honestly feel like we are missing out on anything.

  2. No matter what you are doing, self doubt really can creep into anything. But you just have to acknowledge it and push on. It’s part of life and you are so right about embracing the fear. This is fear, and it is NORMAL. Good work, and congrats on the rental offers!

  3. I do agree with your overall message, that your approach to investing (and life itself) should generally be based on a rational approach that considers all risks without emotion. But I think there is something to be said for using the threat of catastrophes to push people into action.

    I’ll give an example from my own experience – after partially renovating our house we checked our bank account and had less than £100 to last 3 weeks. If anything at all had gone wrong with the car, our house, even if we’d needed to buy a prescription, we wouldn’t have had the money. This was what really started our journey towards FI.

    In a similar vein, getting people to think about the worst (losing your job, becoming too ill to work, partner dying etc.) can force them to really consider how robust their finances are and how they would respond to life-changing events. Again – totally agree in a rational approach to considering these risks, but a bit of catastrophising can do wonders for kickstarting the process!

    • I like your perspective!

      At the end of the day, I agree fear can be a very helpful emotion to spur one into action.

      However, it can also paralyze folks. When you’ve got your back to the wall (i.e. you’ve lost your job and have no money), there’s no option but to go out and find another one.

      But when you are facing an “optional” activity, it’s much easier to say “too scary” and punt it. That’s how people put off investing for years and decades, which eventually becomes death from a thousand of cuts.

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