Imagine It's All Gone
I like to think that I am mostly an optimistic person. I tend to believe things will work out. Impartial scientific analysis of the world over the last 5,000 years tends to support this thesis.
I also believe that to be a good investor you have to be optimistic – you have to have an unwavering faith in the future.
However, I recently came across a technique that is, in some ways, the opposite of thinking things will work out. It comes from the Stoics and has been around for more than 2000 years. I figure it’s worth paying attention to anything that has been around for more than 2000 years.
The technique is called negative visualization.
Negative visualization is about imagining that you have lost all the things that you value – your home, your job, your sight, your ability to walk, your husband or wife, even your child. It’s all gone.
It’s easy to have an immediate aversion to thinking this way. Aren’t we supposed to think positively and therefore manifest all the things we want in life? Doesn’t negative thinking tempt fate?
The Stoics say absolutely not – premeditation malorum, translated as the premeditation of evils, has huge benefits.
The Stoics used it to ward off hedonic adaptation – that is our tendency as humans to quickly get used to good things (and bad things) in life. Buying a new car gives you a temporary happiness boost but after a fairly short period of time you return to your baseline level of happiness. Unfortunately, it leads to constant dissatisfaction and an inability to step off the treadmill.
Imagining everything you have being taken from you induces feelings of gratefulness. William Irvine writes in his book ‘A Guide To The Good Life’: “Most of us spend our idle moments thinking about the things we want but don’t have. We would be much better off to spend this time thinking of all the things we have and reflecting on how much we would miss them if they were not ours.”
Another benefit of negative visualization is that by anticipating disaster striking, we are more prepared for it when it does. We are psychologically toughening ourselves up. Fingers crossed the disaster doesn’t actually happen, and we don’t need it to happen in order to have the benefits. Many people who go through a catastrophe report feeling joyous and thankful to be alive after having the experience. But we can’t wait for catastrophe to strike in order to feel that way. As William Irvine explains, negative visualization can be done repeatedly, and the beneficial effects can last indefinitely. “Negative visualization is a wonderful way to regain our appreciation of life and with it our capacity for joy.”
I really felt the benefits of this exercise. After thinking about my husband not being by my side I picked up the phone and called him to tell him how thankful I am for him. When I tucked the kids into bed that night, I held them a little harder and a little longer. I imagined a life in which one of them was not there and I thought about parents who have lost a child. I walked into our house, complete with noisy dusty building works, and thought, what a beautiful house - how lucky we are to have it.
I know you might be thinking, what a way to live – walking around with all those pessimistic thoughts. However, the Stoics found that the regular practice of negative visualization had the effect of transforming them into full-blown optimists.
Irvine explains it:
“We normally characterize an optimist as someone who sees his glass as being half full rather than half empty. For a Stoic, though, this degree of optimism would only be a starting point. After expressing his appreciation that his glass is half full rather than being completely empty, he will go on to express his delight in even having a glass: It could, after all, have been broken or stolen.”
He also explains that Stoics don’t spend all their time contemplating potential catastrophes. They do it periodically – they pause in the enjoyment of life to think about how all this, all these things, could be taken away. It’s brief and practical. Furthermore, there is a difference between contemplating something bad happening and worrying about it. Contemplation is an intellectual exercise. It prevents us from taking the world for granted.
An example of the power of this in action comes from the life of James Stockdale. Stockdale was a Vietnam prisoner of war, tortured for over seven years. In a conversation with Jim Collins, Stockdale speaks about how others fared in the camp:
“Who didn’t make it out?”
“Oh, that’s easy,” he said. “The optimists.”
“The optimists? I don’t understand,” I said, now completely confused, given what he’d said a hundred meters earlier.
“The optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say, ’We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.”
Viktor Frankl survived the holocaust and wrote in his book ‘Man’s Search for Meaning’ something similar – the death rate around Christmas was always higher than the rest of the year. People died of hopelessness.
Stockdale said: “You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.” This became known as the Stockdale Paradox – the ability to maintain optimism and hope in the future whilst acknowledging and preparing for the worst. This is much like the Stoic process of negative visualization.
This is a powerful great philosophy to carry over to our financial life. Morgan Housel explains in his book ‘The Psychology of Money’ that to be financially successful you need a barbelled personality – you need to be optimistic about the future, but paranoid about what will prevent you from getting to the future. You need to save like a pessimist and invest like an optimist.
Financial planning is, to some degree, a process of negative visualization. To answer the question of how much life insurance you need we have to work through the scenario of you not waking up tomorrow and at the same time we need to acknowledge that it’s a possibility. To get your Estate Plan in place, we have to talk about how you want to look after your loved ones when you are gone, again, acknowledging that one day you will be gone. To think about liability insurance we need to talk about how disaster could strike.
To earn the luxury to invest in what can go right, you first have to protect against what can go wrong. That’s why we keep cash in the bank and leverage low. Savings are our humble acknowledgment that the future might not go according to plan.
By going through a process of negative visualization in our financial life we can prepare and plan, we can balance optimism with realism. As Morgan says: “You can be optimistic that the long-term growth trajectory is up and to the right, but equally sure that the road between now and then is filled with landmines, and always will be. Those two things are not mutually exclusive.”
“Misfortune weighs most heavily on those that expect nothing but good fortune.”
Georgie
georgie@libertywealth.ky