A powerful mental trick to master the markets

If someone is selling something, their primary goal is most often to convince you to buy what they’re selling. If you follow financial accounts on social media, your timeline is likely crowded with people touting the next big winning investment.

As we look back on market history, there is an obvious attraction to finding the big winner – the tiny tech stock that turns into the next Amazon or the virtual coin that makes overnight millionaires.

Winning is ingrained into our psyche. It’s coded into our core ideologies from formative schooling and is reinforced through our induction into adulthood and the working world. 

The class that raises the most money gets free burgers on Friday, the kid with the highest grades earns the scholarship, the student with the best performance wins the grant, and the employee with the best ratings secures the promotion.

But what if, instead of chasing the big win, we invested our money with the goal of simply not losing? It’s a powerful mental trick that doesn’t seem to ‘come naturally’.

Chances are, you’ll come out ahead, says behavioural finance expert Brian Portnoy, founder of Shaping Wealth and author of “The Geometry of Wealth.” 

He says that “Adopting inverted thinking — facing problems from the opposite point of view — is such a powerful mental trick. The world becomes a brighter and cleaner place once you get used to it.”

Here’s what he means.

Win by avoiding big mistakes. Portnoy’s perspective on investing has been around, in one form or another, for decades. In a recent Twitter thread on the topic, he cited investment consultant Charley Ellis’ 1975 research paper “The Loser’s Game,” in which Ellis argued that winning at investing was akin to winning at tennis.

There are two ways to win with a racket, Ellis wrote. If you’re a pro, you hit high-speed, well-placed shots to defeat your opponent. But for amateur players, the vast majority of points are won and lost when an opposing player makes an error. Amateurs can triumph merely by keeping the ball in play and making fewer mistakes than their opponent.

When we see someone selling “the next big sure-investment win” – we mustn’t get taken in. 

“That’s sample bias at work,” says Portnoy. “We see the winners because they’re on the cover of magazines, but there are many more losers out there. We don’t see them, but they’re there.”

If we’re honest with ourselves, “we’re amateurs at most of the games we play,” Portnoy says. “Trying not to lose is often the most prudent thing to do.”

Great thinkers, icons, and innovators think forward and backwards. They consider the opposite side of things. Occasionally, they drive their brain in reverse. This way of thinking can reveal compelling opportunities for innovation and lies at the heart of inverted thinking. It’s a powerful mental trick that can help us master the markets by seeking to stay invested for the long term rather than trying to time a winner and potentially lose everything.

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Posted in Blog, MARKET.