The Most Dangerous Investment Word In The World

Words Make Your Reality

In case you missed it, you can watch an “At a Glance” summary of this week’s blog posting here.

The Words You Use Determine the World You Live In.

I remember my fourth grade spelling tests clearly.

I hated them.

There was nowhere to hide. I couldn’t hide behind a paper and pencil or my desk or anything. I was vulnerable and open to being embarrassed.

You see my fourth grade teacher, let’s call her Mrs. La Camp, thought spelling tests should be public.

We’d all stand up. Get in a line and then one by one shuffle to the front of the room. And there in front of everyone, Mrs. La Camp would ask us to spell a word.

If you got it right you went to the back of the line and got another turn. And If you got it wrong you sat down. This went on until there was only one person left. Good old Mid-West 1980’s education at its best.

The word I remember misspelling was “sky.”

As clear as day, I remember thinking, s-k-? How do you spell sky.  

Is it s-k-i?

Or is it s-k-y? I didn’t know and I guessed. 50/50.

Ahhhh. S…k…i?

Wrong. That’s ski, said Mrs. La Camp.

Complete embarrassment.

Years later and a lot of therapy I’d fall in love with words and what they can do for us. Good or bad.

If investors use words of desperation and fear, then the world they live into has a higher chance of feeling desperate and fearful. So what exactly are the right words to use when it comes to investing?

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If investors use words of stability and longevity, then the world they live into has a higher chance of stability and consistency.  

Listen to yourself. And listen to others. What words are they using, saying and thinking when it comes to their investments? What words are you using? What words are your pick-of-the-month newsletters using?

What words are Harry Dent, ZeroHedge and Porter using?

Words of fear? Words of Confusion? Collapse? Imminent loss?

Words Create Worlds

What Words Do You Use to Describe Your Investment Approach?

Ask yourself. And then write the answer down. How would you describe your investment approach/philosophy?

How many words does it take. Pages? Paragraphs? Books? Or is it short. “I trust and like my adviser?”

Do it, and see what happens. I’m asking you these questions because I was listening to an interview between ex Secretary of Treasury, Robert Rubin and David Swensen and what they said brought back the use of words with such clarity that I had to share with you the downside.

Robert Rubin and David Swensen

Robert Rubin and David Swensen Got it Right

Robert Rubin asked David Swensen a question. And he asked it in a way where there’s was only one way to answer.

The question happened in the third minute of a 56 minute interview.

And to me the wording of the question was the entire interview.

Below is the question asked by Robert Rubin (emphasis mine). Also my interpretation of how Rubin was acting when he asked the question was one of arrogance, as in. The only type of investor to be is one that is called, a long-term investor.

RUBIN: When you, as a long-term investor at Yale, think about your portfolio, do you take into consideration these—the possibility, at least, and whatever the probabilities you may think are—the possibility of a major downturn, given the circumstance I just cited? Or do you take the view that you’re a long-term investor and if things go down, they’ll come back up, and you don’t take that into consideration?

And then David Swensen starts to answer the question, and Rubin asks a follow up question.

RUBIN: But then I think the question, David, is this—and this is what I think myself; I’m very focused on it. I agree with what you just said. But then do you have—does that enter—since you’re not a market timer, but a long-term investor, does that enter into your asset allocation at Yale? Should it enter into my asset allocation? I’m a long-term investor. Or should you just take the view these things are going to happen, they’re pretty much unpredictable in terms of timing and duration and magnitude, and so we accept them and figure that if it goes down, it’ll go back up? Which do you do?

And then David answers Rubin’s question by first saying,

SWENSEN: So we’re absolutely NOT market timers

First, if you want to watch the interview or read the transcript you can do it here.  

Second, what stood out to me?

The way the entire interview was set up was that there are basically two types of investors in the world, (1) long-term investors and (2) market timers. And it was implied by Rubin that the only game in town is to be a long-term investor.

But what does that mean?

Aren’t we all long-term investors? I’ve never met someone who self-identifies as a short-term investor. People don’t say that. They may say “trader” but not short-term investor. ALL investors want a good long-term return. And all investors go about it differently. AND some approaches are much better than others.

I agree with the idea of thinking long term. But not with the idea that that means you never take your money out of the market. And I believe the underlying theme of the interview was that you are either one or the other. And market timers get killed… or are dumb.

Why does this matter RC? Aren’t you just making a mound out of a molehill?

Because if the listener isn’t highly vigilant, they may think (a) there are only two choices in the world of investing And (b) one of those choices is kind of stupid, which leaves one choice.

And what does the execution of “long-term investor” even look like?

What if Swensen said in answering Rubin’s question, “Robert, you said the phrase/term ‘long-term investor.’” What do you mean when you say that? What would that strategy look like? Does that mean a long-only, never get out of the market, or does that mean a 60stock/40bond approach? Diversification? Rebalancing? And then what do those mean?

And then what IF Swensen said,

“I’m not a long-term nor a short-term investor, nor a market timer. I’m just an investor. And my job is to be  “probabilistic.” My only job is to look at the research and determine what investment has the highest probability of going higher? And then not care what the answer is. There is no name for that. Isn’t that interesting?”

If Swensen would have answered that way, the interview would have been much more beneficial to everyone.

WHY?

Because so much was assumed. And it’s what we assume that will get us killed.

Words matter.

Have you heard the term Linguistic Relativity?

Linguistic Relativity holds that language determines thought and limits thinking. So according to Linguistic Relativity, the language you speak, say French over Mandarin influences how your brain works. And what you believe to be true.

There is a lot of new science around words.

Take this one study where people are put into fMRI scanners and get flashed one word for less than a second. So here the person isn’t even “owning” the word by saying the word but literally just seeing it.

You are what you speak

So what is the word that releases dozens of stress-producing hormones and neurotransmitters? What word immediately interrupts the normal function of their brain, impairing logic, reason, language processing and communication?

The word is “No.”

That’s right, “no.”

Words matter.

Imagine an investor reading a 20 page “report” filled with words like crashes, collapses, demise, drops, and catastrophes while the stock market is falling and they see their portfolio shrinking in size?

What stress-producing hormones and neurotransmitters might they be producing?

Negative thinking is self perpetuating, the more a human engages in it the more difficult it becomes to stop.

Whose thoughts are you thinking? Porters? Dents? Zero Hedges? Kramers?

If you want to dig more into this topic. This Psychology Today article is a good place to start.

And I get why people look to “pick of the month” newsletters.

The most uncertain part of life is the present moment. Not the past or the future.  There is no more uncertainty that our mind tries to resolve than “right now.”

Mindfulness

And imagine then if you have hundreds of thousands or millions of dollars on the line and someone says there’s imminent danger of the stock market crashing.

Your brain takes notices and jumps into survival mode. This “brain taking action” is good to survive a tiger attack. And bad to survive a stock market going higher.

How many “sky is falling” themed emails have you gotten the past eight days? Weeks? Months? Years?

Are you starting to get why I rail against “pick of the month” newsletters so much?

So what to do?

First, recognize the market has NEVER hurt anyone, ever. That market participant’s words have. And approach has. And newsletter subscriptions.

This is the stuff that matters and no one is talking about it. That is outside of Psychology Today and a few Phd holders that don’t know the difference between a ticker symbol and a misspelled word.

Here’s one thing I can offer.

Follow price. Study price. Become a student of price. Really understand how to view and read price.

Because price has never been restated. And theres never been a debate on what the price is. Only on whether the price “should” be that price. But price, itself, is never wrong.

Does price have ALL the answers? Of course not. Does this mean there is never any corrections in the market? Of course not.

But price is simple, agnostic and easier to understand than fundamentals.

And then all that is left, is to ask yourself, two powerfully simple questions:

  1. Should I be in or out of the market?
  2. And if IN, where? And, if OUT, where?

That’s it.

No fear. No death. No collapse. No imminent danger. Just clarity.

And to be clear. That first question is shorted to be easy to read.

What’s really behind that first question?

A slightly longer question which goes something like: “Of the four core assets on Planet Earth (stocks, fixed income (bonds/cash), commodities and real estate) which ones are in absolute uptrends? AND in relative uptrends when being compared to the other three?

Because once you know this you know the essential piece of data that explains 95% of everything else.

Simple. Clear. To the point.

And notice there’s no fear or hype or hope. Just a powerfully simple qualifying question. 

Investor’s can figure out the best place to be invested. Investor’s can figure out when to be invested. Investor’s can figure out when to be out of the market. Investor’s can figure out when large falls in the market are at their highest.

And they can have that with just asking the right first question in our “2-question strategy.” This is what we study at Fearless Wealth research.

But what’s even more important are the words investors use because that’s what determines the world they live in.

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP

P.S. Did you financially accomplish what you wanted to in 2017? If not then the answer might be on the other side of a one-on-one strategy call with me. Do you qualify?

 

 

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