4.2 Handling emotions
Article 2 discusses generally why mindfulness penetrates the fog of emotions and allows us to make more rational decisions. But specifically how do we use mindfulness to avoid emotional reactions when making each investment decision? Let’s look at both fear and greed through the lens of mindfulness. Again, much of this is easier to understand if you are already meditating and progressing toward a more mindful outlook. Even if you are not currently practicing being mindful, I think these concepts are still understandable, with a little imagination on your part.
Fear and greed are about the future
Although we often think our fear is about real and present dangers, if you stop and think, most of the time we wrangle with fear it’s not because of something happening right now. Sure, at some point a mugger may appear and demand your watch, and you are fearful in that moment. Similarly, if the stock market is plummeting 10% today, you are truly fearful right now. But most of the time, we worry about things that might happen in the future or over potential long-term outcomes, like having to work longer than we would like. Mark Twain was supposed to have said,
- “I’ve had a lot of worries in my life, most of which never happened”.
Handling fear is mostly about your worry over something bad that could happen, but is not necessarily going to happen in the future.
Similarly, you can’t really be greedy about something you already have. Greed is a desire to acquire something you don’t have now, so it is also all about the future. The hope of future gains drives us to do things that we might not otherwise do, like chasing a loose $100 bill blown by the wind towards a busy intersection. Handling greed is mostly about your desire for something that you might get in the future, but you aren’t really sure is attainable.
Mindfulness is about now
Mindfulness is all about being fully aware of the present moment as opposed to dwelling on past events or potential future outcomes. If you focus on the present moment, it’s actually pretty hard to generate a lot of worry about potential future events or actively desire something more than you have now. It’s like juggling and trying to worry about your upcoming tax return at the same time.
One of the key reasons that people pursue mindfulness is to reduce the daily stress related to these types of forward-looking emotions. Mindful people generally report less fear about the future and more satisfaction with what they already have. I base this statement on my experience, talking with others who practice mindfulness, and similar reports from the books noted in Article 1. However, per Article 2, you shouldn’t simply take the subjective experience of others as proof of reality. The best evidence that mindfulness will help you handle your fear and greed is to actually try daily meditation for a while, and just see if you feel less stress about the future in general.
Mindfulness is non-judgmental
What about the fear that happens when the stock market is plummeting right now? Mike Tyson is supposed to have said,
- “Everyone has a plan until they get punched in the face.”
As difficult as we find not worrying about the future, we find it even harder to stay calm when the future arrives in a nasty form.
Mindfulness is also about accepting what is happening now without judgment. Why is a barking dog a noise but chirping birds sound beautiful? It’s your judgment that differentiates. It’s that internal dialogue about the “infernal racket” of the dog that likely represents 90% of the “problem” you have with the barking. It’s your cultural conditioning (probably from all those singing birds in Disney movies) that tells you bird sounds are beautiful. In reality, they are both just animal noises.
Similarly, what if your car breaks down, and you have to walk on a muddy, slippery path through the pouring cold rain to get help? (Let’s also say your cell phone is dead for the sake of argument.) That’s a story of terrible hardship you will probably be telling your friends for weeks. But when you are actually walking through the cold rain, what makes it so bad? It’s your internal dialogue telling you “This is the worst experience ever!”, “I can’t believe how cold I am!”, and one of my favorites, “I don’t deserve this!” Yet a multitude of people enjoy a nearly identical experience in the form of extreme obstacle course races. These people pay entrance fees and find pleasure in navigating obstacles of icy water, mud, barbed wire, fire, and live electrical wires to the point of exhaustion and possible injury. The key difference is they judge those experiences as fun instead of as a hardship. When you are deeply mindful, a barking dog can sound like beautiful music! Buddhism is full of such paradoxes.
The benefits of less judgment through mindful awareness go beyond just anecdotes. Jon Kabat-Zinn founded the Center for Mindfulness in Medicine, Health Care, and Society at the University of Massachusetts Medical School. The center uses Mindfulness Based Stress Reduction (MBSR) and Mindfulness Based Cognitive Therapy (MBCT) to obtain “consistent, reliable, and reproducible demonstrations of major and clinically relevant reductions in medical and psychological symptoms across a wide range of medical diagnoses, including many different chronic pain conditions, other medical diagnoses and in medical patients with a secondary diagnosis of anxiety and/or panic.”
Patients undergoing this type of meditation therapy are better able to manage significant chronic pain and lead more productive lives. Patients learn about the judgments that we all layer on top of the actual feeling of pain and that those judgments represent a large part of how we feel. The therapy does not make the patient’s pain go away, but it reduces the impact of the pain on emotional well being and life in general. People who meditate regularly often report that many kinds of pain feel less solid and permanent. Again, I base this statement on my experience, talking with others who meditate regularly, and similar reports from books like those in Article 1.
Going back to the Mike Tyson boxing quote, if you get punched in the face, the “trick” is to recognize the pain but not let your judgment about that pain overwhelm you. If you’ve never been in a boxing match or a fight, this is almost impossible to do. Good boxers know how to stick to their plan after the first punch is landed in part because they constantly practice for it. It is the same with the practice of mindfulness through regular meditation. You are not going to make it past that first stock market plummet if you have not practiced for it.
The mindful perspective
Mindfulness is not something you attain like flipping a light switch. There is actually a wide spectrum of presence in the now and non-judgmental mindfulness (the mindful perspective). This ranges from people who occasionally meditate, to those who meditate regularly and practice toward being mindful in everyday life, to those who spend huge amounts of time meditating and are mindful of nearly every waking moment. This far end of the spectrum includes people like Buddhist monks. Obviously that level of mindfulness is probably not realistic for most of us. However, two stories from Eckhart Tolle’s book A New Earth about highly mindful people help to highlight the benefits of the mindful perspective.
- There was once a wise man who traveled on foot and did not own a car, although he was a competent driver. One day he won an expensive car in a lottery. His family and friends were very happy for him and came to celebrate. “Isn’t it great!” they said. “You are so lucky.” The man smiled and said, “Maybe.” For a few weeks he enjoyed driving the car. Then one day a drunken driver crashed into his new car and he ended up in the hospital, with multiple injuries. His family and friends came to see him and said, “That was really unfortunate.” Again the man smiled and said, “Maybe.” While he was still in the hospital, one night there was a landslide and his house fell into the sea. Again his friends came the next day and said, “Weren’t you lucky to have been here in the hospital.” Again he said, “Maybe.”
- There once was a wise man who lived in a small town and was held in high regard and many people came to him for advice. Then it happened that the teenage daughter of his next-door neighbor became pregnant. She said the wise man was the father. In great anger the parents rushed over to the wise man and told him that their daughter had confessed that he was the father. All he replied was, “Is that so?” News of the scandal spread, and the wise man lost his reputation. This did not trouble him. When the child was born, the parents brought the baby to the wise man. “You are the father, so you take care of him”, they said. The wise man took loving care of the child. A year later, the young mother remorsefully confessed to her parents that the real father of the child was the young man who worked at the local butcher shop. In great distress the parents went to see the wise man to apologize and ask for forgiveness. “We are really sorry. We have come to take the baby back. Our daughter confessed that you are not the father.” “Is that so?” is all he said as he handed the baby over to them.
The wise man’s “maybe” and “is that so?” signifies a refusal to judge anything that happens or may happen, even when most of us would judge these as very momentous events. In refusing to judge the events or worry about possible future events, it frees the wise man from a much of the potential emotional turmoil that daily life can bring.
Profound mindfulness brings tranquility in the face of even extreme events like losing all your money. If you lost your money, you would likely survive and find some way to rebuild. And mindfulness would support your rebuilding and help you recognize some happiness in that new life. In fact, “losing it all” is a favorite fiction device, which allows characters to explore new horizons and to become more fulfilled than they ever dreamed of in their earlier lives. Like most clichés, this idea originates from some deeper truth. Not caring about losing your retirement savings surely sounds crazy to some readers. But if you think of the life of some Buddhist monks (forgoing most daily pleasures and living in poverty), you also recognize there is likely some fundamental truth here. As I hope this website is clear, I am not advocating giving away all your money. I am just advocating you realize through mindfulness that your largely unrealistic fears of the future probably drive your decisions more than they should.
Greed is suffering
Mindfulness also has a particularly useful perspective on greed as an emotion. Greed is an “intense and selfish desire for something”. So greed is a form of desire, which is one of the main topics of Buddhism. (As I cover in Article 2, much of that philosophy originates from people pursing a profound degree of mindfulness.) The bedrock of Buddhism is the four noble truths. Different translations exist, but a plain English version of the four noble truths is:
1. Life is full of suffering
2. The cause of suffering is desire
3. The cure for suffering is to remove desire
4. To remove suffering follow the eightfold path
If we can abandon, or at least decrease our desire to get rich through investing, we can relieve the suffering of emotional turmoil associated with that desire (that greed). The daily skillful practice of mindfulness attained through diligent meditation is the way we can decrease our desires for riches or anything else. By the way, if the idea of removing all your suffering intrigues you as described by the fourth truth, there is much to read elsewhere on this topic. This Buddhist website might be a good starting point.
Optimism as a common sense approach
You might be thinking, “That all sounds good, but who knows when I will be so very mindful that I can ignore fear and greed.” Even if you have not attained sufficient mindfulness to handle these emotions, particularly fear, there are still pretty compelling common sense reasons for worrying less about your investments.
America’s favorite investing uncle, Warren Buffett is a well known source of investing common sense based on his long experience and enviable track record. He has consistently said,
- “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs.”
However, some might say that Buffett and other billionaires should be optimistic because their huge investment deals have intrinsic advantages over the smaller options available to the average investor. Similarly, couldn’t it just be plain self-interest that motivates him to avoid publicly pessimistic statements, which could cause his stock investments to decline? Per Article 2, skepticism is a key part of mindfulness. So, let’s look at some representative data and see whether it supports Buffett’s common sense optimism.
To start, if you look at the long-term history of the stock market, most of the time you have little to fear. The graph below shows the history of the S&P Composite Index since 1900.
It’s pretty clear from this and similar long-term stock graphs that the market has almost always gone up over time. Again, note this vertical axis is on a log scale, so the increases in stock value over time are orders of magnitude greater over decades. There are some large temporary drops, but given enough time, stock values have always regained and surpassed their past value. There is nothing in our future as a country that will likely be worse than, for example, two world wars, a major depression, and a protracted cold war. Granted, there are some pretty long periods in this history where stock values were basically flat. At these times your stock investments would have likely still been paying some dividends but would not have grown substantially, which is a problem if you have a brief investing horizon. Article 8 addresses this particular issue.
Other historical data are also compelling, including if we inflation-adjust stock prices or examine drivers of stock value like growth in U.S. Gross Domestic Product (GDP; one of Warren Buffett’s favorite measures), company earnings, or worker income. The following graphs present data on these variables.
Inflation-adjusted S&P 500 Price.
Real GDP Per Person (inflation adjusted)
S&P 500 Earnings Per Share (inflation adjusted 12-month real earnings)
U.S. Per Capita Real Income (inflation adjusted)
There is no ironclad argument for why these trends must continue. But again, considering the shocks to the U.S. economy throughout these periods (wars, recessions, depressions, etc.), it’s hard to imagine something worse occurring within the rest of our investing life times. We have good reason to believe all these upwards trends will continue over the long term. As a result, a gloomy approach to investing will consistently under-perform an optimistic approach to investing.
Despite these compelling data, it’s always been easier and more fashionable to be a pessimist rather than an optimist. John Stuart Mill wrote more than a century ago,
- “I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.”
An optimist appears ignorant of the risks, while a pessimist appears to be presciently aware. Optimists often see no need for action, which appears fatalistic, while pessimists often urge us to “proactively” prepare for future risks, even if those risks are unlikely. And of course, negative news sells media. Thus, many factors push us towards pessimism, even if all data strongly indicate, which they do, that optimism is more realistic.
Although we should be skeptical of any investing advice, it’s still compelling that the common sense advice from successful veteran investors coincides closely with an independently derived mindful approach. For example, both Warren Buffett and John Bogel (another successful investor) commonly point out that you need to control your emotions to invest successfully over the long term. They both advocate that the easiest way to handle emotions is to simply ignore the markets.
- Buffett said, “Don’t watch the market closely. The money is made in investments by investing and by owning good companies for long periods of time.”
- Bogel said, “One of my favorite rules is ‘Don’t peek.’ Don’t let all the noise drown out your common sense and your wisdom. Just try not to pay that much attention, because it will have no effect whatsoever, categorically, on your lifetime investment returns.”
If ignoring readily available data works well in other aspects of your life, this may be the only advice you need to successfully handle your emotions while investing. However, in my view, mindfulness is obviously better than the “don’t peek” approach, because mindfulness relies on data. That is, a mindful investor is fully aware of reality, like market gyrations, rather than oblivious to reality. A mindful investor can check his or her quarterly account statements, understand what is happening, and still avoid regrettable decisions driven by fear or greed.
Of course, the media repeatedly covers much of this common sense advice, and yet people somehow still fail to follow it, which is demonstrated by the dismal performance of the average investor as described in Article 4.1. Mindfulness gives us the ability to understand this common sense advice but still moderate our emotions and stick to our plans when investments do temporarily decline.
The next article (Article 4.3) addresses the link between emotions and the concept of “risk tolerance”. Unlike the common sense we have covered so far, this is one area of conventional wisdom that could lead us astray.