Okay, so May has been kinda rough for us long-only investors…
What to do? Well, let’s invert the question, as Charlie Munger would say. What shouldn’t we do?
For inspiration, we turn to Paul Watzlawick (1921-2007), a psychologist and philosopher and all-around wise egg...
Watzlawick once wrote a book that turned the search for happiness on its head. Instead of writing a book on how to be happy, he wrote a book on how to be unhappy:
“Our world, drowning as it is in a tidal wave of ‘how to’ instructions for the attainment of happiness, must no longer be deprived of a life-saver for those in pursuit of unhappiness…
The number of persons talented enough to create their own hell may seem relatively large. But many more are in need of help and encouragement. This little book is dedicated to them as an introductory text and the guideline.”
The title of that book is The Situation is Hopeless But Not Serious: The Pursuit of Unhappiness. With tongue-in-cheek, he writes about the various ways people make themselves unhappy, backed by psychological research and his own experience.
For example, glorifying the past at the expense of the present. (Things were always better in the old days…) Or thinking you will be happier in the future after you attain something or other. (Leads to a regular diet of disappointment…) Or ignoring the power of self-fulfilling prophecies. “Self-fulfilling prophecies,” he writes, “have a truly magical, ‘reality’ -creating affect and are thus of the upmost importance for our subject.”
This latter point reminds me of my golf coach, who does not tolerate negative thinking. If, for instance, you voice some concern about a sand trap in front of you, he’ll say “bad attitude!” Don’t think about the sand. Think about putting the ball on the green. It is amazing how this works. I can tell you from experience, good things happen when you think good thoughts. And I would suggest good investing, like good golf, starts -- not with technique or analysis – but with a proper mindset.
Anyway, all this gets to a question I’ve been thinking about lately with the downdraft in stock markets in May.
What are some ways you can make yourself unhappy as an investor?
Here are some ideas, though I’m sure you can add to the list:
1. Watch stock prices during the day – and check in frequently!
This is the worst! I’m telling you. Everybody thinks they are immune to the siren-like power of those blinking stock prices. You are not. When I started my fund in January, I found myself glued to my computer screen. I couldn’t help it. I was putting money to work, but still. It was awful. I’d actually feel tired at the end of the day. I quickly cut that out.
And it’s funny how watching prices really magnifies their perceived moves. A stock moves 1% and it seems like a lot when you’re watching it. Of course, over the long-term, these don’t mean anything.
I generally check my portfolio in the morning and again at the close. (I have automated alerts in place to ping me if a stock moves by a certain amount). Maybe that’s still too frequent. Otherwise, I try to disentangle myself from the daily drama of the stock market – which frequently doesn’t amount to a thing.
Instead, I put my attention more on what I own. I am always trying to understand these assets better – how they create value, how to think about what they are worth, etc. Ideally, I’d own my stocks for years and years.
And, of course, I am always on the hunt for new ideas. The hunt is a big part of the fun.
2. Watch financial coverage on TV or online
This is somewhat related to the above. The problem with all media is this: the aim is, always, to put on a show. Every day. Naturally, this means they have to regularly make tornados out of zephyrs and floods out of spring showers.
As Louis Lowenstein put it, “one would think that something important is happening every day… The subliminal message is that you can’t afford to relax, even for a moment… Nonsense.” (This is from his book What’s Wrong with Wall Street, a forgotten classic. You may know Roger Lowenstein, who wrote the famous biography of Warren Buffett, among other things. Louis was his dad).
Not only that, the media focuses on lots of things that just don’t really matter much as a long-term investor. You know, the roll call of economic reports. The guesses of forecasters, economists, etc. Upgrades and downgrades. Quarterly earnings beats and misses. You want to be unhappy, pay attention to all that and try to invest well.
3. Look at all the top-performing stocks you don’t own
Recently, I saw Facebook was up 35% year-to-date. Of course, I don’t own it. In fact, I don't have anything up 35% year-to-date. And Facebook is not even the best-performing stock in the S&P500 -- all big stocks that are right out in the open. You want be unhappy, check on that list regularly and see all what you’re missing.
Related to this: Think about how many investors are better and smarter than you are. Guaranteed unhappiness. I like to read quarterly letters of other investors. Of course, there are always people that seem to be doing better than I am.
What you have to recognize is that there will always be somebody who is “better.” And there are always stocks that will be moving faster than yours. So what. That’s life. Stay with your game. Stick with what you do well. Trust in your process and the results will come. If you try to play “catch-up” or try to be someone you are not, well… that’s a path for misery.
4. Agonize over stocks you didn’t buy but wish you did
Go through your watch list and look at all the stocks you didn’t buy that went up the most. This is a great way to ruin an afternoon. My friends have a tendency to do this. “Man, did you see XYZ?! It’s up 30% since we talked about it in January!”
Now, there is nothing wrong with learning from a stock you missed. But learn your lesson and then move on. Drop it. It does no good to stew over things you cannot change.
5. Focus on what “should” happen
If you want to be unhappy, think about how the world “should” work. Write investment reports that say things like “the market should value this company at 20x earnings, not 12.” Say things like, “the market should go down because it’s over-valued according to such and such.” You get the idea.
The world doesn’t need to follow any of your “shoulds.” The sooner you realize that, the happier you’ll be.
This point is in Watzlawick’s book. He writes about how a happier person just sort of shrugs and gets on with life, accepting that things won’t work as he or she thinks they should. By contrast, the unhappy person is one who is always battling the world because it’s not as it “should” be.
In investing terms, I suppose this translates into accepting that you could be wrong and having a willingness to re-visit assumptions, etc.
Anyway, that’s my list. As I say, I’m sure there are many more.
My portfolio took a bit of a hit in May. I put cash to work, adding to my favorites. I’ve stayed true to my process and I’m confident good results will come. Watzalwick would approve.
Watzlawick: A Bit More on Him, Plus a Joke He Tells
Watzlawick, by the way, is pronounced something like Vaht-slavic. Which reminds me of a joke he tells about his name. He once visited a psychiatric center and introduced himself to the receptionist. Comedy ensues:
Watzlawick: “I’m Watzlawick.”
Receptionist: “I didn’t say you were.”
Watzlawick: “But I am.”
Receptionist: “Then why did you deny it?”
He then realized what happened. The receptionist heard “Watzlawick” as “Not Slavic.”
Watzlawick was among a group of thinkers who argued – persuasively, I’d say – that we invent our own “realities.” He edited a book titled The Invented Reality: How Do We Know What We Believe We Know?
This may sound a bit familiar. I wrote a book called How Do You Know? which also dealt with basic problems of how do we know what we think we know.
These sorts of questions generally fall in that tub of philosophy that goes by the name epistemology. I fail to see how anyone can be a serious thinker on any subject without addressing this tangle of issues. You cannot ignore them. As Gregory Bateson once said, to have no epistemology is to have a bad one. (Bateson himself wrote a few fine, if difficult, books on the subject).
My book, if I may so without being immodest, is a good start on the subject from an investing point of view.
Thanks for reading. You can write me at info [at] woodlockhousefamilycapital.com
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Published May 30, 2019
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