Yahoo Finance Here's a way for investors to avoid fear, anxiety and making outright bad decisions
A passion of mine of late is getting a better understanding of human psychology and how it impacts the decisions we make not just in life but also investing.
I recently read a speech that really opened my eyes. It’s called the Courage to be Imperfect by Rudolf Dreikurs, who was a protégé of the famous psychologist Alfred Adler. In it, Dreikurs talks about how we as society put way too much emphasis on individual achievement rather than contributing to the collective, which results in fear, anxiety and outright bad decisions being made.
More specifically, he talks about two paths we can take, one being vertical in nature while the other is horizontal.
The vertical plane is the most common. It is focused on achieving an upward trajectory by expanding our status, respect and prestige in society. The problem with this is we are constantly making ourselves vulnerable, always moving up and down, but never quite sure that we are up enough, which causes tremendous anxiety about losing it all the next morning.
Not surprisingly, this can lead to poor or even harmful behaviour since we are primarily motivated by self-interest and achieving a goal to better ourselves in the eyes of others.
A person on the horizontal plane, however, is focused on moving forward rather than upward, with the primary motivation being general interest, utility and service to others instead of achieving some form of status.
If something goes wrong, they try to find a way around and remedy it. This is because there is a detachment from the opinion of others, so mistakes are not a weakness holding them back, but rather something to learn from before moving forward.
Put another way, someone on the horizontal plane has the desire to be useful while someone on the vertical plane aims to be at the top, desiring the power to decide whether a mistake was even made.
As a result, real mistakes are ignored because the decision-making process has become all about conformity with the demands of those at the top, the kings and queens who say, “As long as you do as I tell you, there is no mistake possible because I am right. I say so.”
Those who don’t comply can count on the worst possible punishment: exclusion and confirmation of their so-called inferiority.
This is where things start to fall apart, especially for those companies with highly autocratic and controlling structures, some of which have extremely powerful and influential leaders.
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There are some extreme examples of this, such as former Enron Corp. chief executive Jeffrey Skilling, Theranos Inc. founder Elizabeth Holmes and quite possibly cryptocurrency exchange FTX‘s founder Samuel Bankman-Fried.
Other examples of these kinds of breakdowns can be found in the demise of companies like Nortel Networks Corp., Blockbuster LLC and Lehman Brothers Holdings Inc., or the recent lack of due diligence by some of the brightest institutional money managers investing in the cryptocurrency space.
Instead, we prefer companies and organizations that instil a corporate culture that empowers frontline workers, where leaders can be challenged on their opinions, and mistakes can be made without fear of reprisal. The goal is moving forward, not upward, both on an individual and collective basis.
Investors can also deploy a similar horizontal plane approach. Deploying a goals-based approach rather than one based on a benchmark can be a great place to start, since it allows investing to be a tool to help your family, or others such as a charitable foundation, instead of one where you are simply trying to beat others.
Or as Ichiro Kishimi, author of The Courage To Be Disliked, points out: “Does one choose recognition from others, or does one choose a path of freedom without recognition?”
Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc, operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning.
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