This is the second part of a two-part series on how harnessing the incredible power of optimism can allow you to break through mental barriers to become financially free and also generally enjoy life. The first part of the series can be read here.
When I first started reading about investing, enthusiastically learning all I could on how to properly invest, it occurred to me that investing is 90% mental and 10% action/inaction.
And this is true in life generally.
Attitude Determines Action
Your attitude in life will affect almost everything, including the actions you take (or do not take). It’s almost always not necessarily what happens to you but how you react to something that will determine your fate. And that’s because it’s your attitude that determines how you react and what you do. Before you take action, you must think. And your thoughts will be shaped by your general outlook on life, including how optimistic you are.
I’ve certainly found this to be accurate.
As I’ve written about before, I grew up in an incredibly impoverished home in Detroit. Food was tough to come by. I often lacked any adult supervision over the course of the last two years I lived there. Drugs and alcohol surrounded me. I missed school a lot. And I often literally had my life threatened when I did make it to school.
Kids my age were selling drugs. Joining gangs. Trading weapons.
However, I didn’t go down these roads. I decided to remain optimistic instead of giving into hatred and fear.
I decided that I would always choose “and” over “but”.
But all the other kids are doing it.
And they’ll probably end up in prison.
But Versus And
The choice of but or and has showed up time and time again throughout my life.
Investing is a great example of this.
I first started investing in stocks back in early 2010. And I clearly remember the attitude a lot of people had at that time.
There was fear. After all, the country had just moved past the Great Recession. Major companies had entered bankruptcy. Credit and jobs were still hard to come by. People didn’t want to part with cash.
So there were a lot of “buts” going around:
“But what if the stock market collapses again?”
“But banks can’t be trusted, nor can the government.”
“But stocks will just wipe you out. Look what happened just a couple years ago. It could happen again tomorrow.”
“But stocks look expensive. I’d rather wait for 2009 prices to come around again.”
I instead focused on “ands”:
“And what if we never see stocks this cheap again?”
“And if I start investing now, I can start earning dividend income right away. That dividend income will boost my income and savings rate now, which can be reinvested back into more stocks, buying even more dividend income. It’s like a magical snowball of awesomeness!”
“And based on my numbers, it looks like if I can save well over half my net income, I can live off of that magically snowballing dividend income by the time I’m 40.”
“And if I can get a second job or otherwise develop a large second source of income, I can buy even more stocks.”
Funny enough, I still hear the buts to this day:
“But, Jason, you started investing near the post-crash bottom. Stocks were a lot cheaper then. Your portfolio wouldn’t be as large today if the market hadn’t gone on an epic run since then.”
Of course, my retort is an and:
“And if the stock market hadn’t gone on an epic run, I would have been able to live off of passive income even faster! See, price and yield are, all else equal, inversely correlated. Buying stocks at lower prices means the yields I’d be receiving at the time of investment would be higher, generating more dividend income right away to reinvest, which would then buy more of these cheaper shares, compounding that much faster. So I wish my portfolio were worth half and my dividend income were doubled. You are, after all, talking to the guy that is almost always happy to see lower prices on stocks. The value of my Full-Time Fund means almost nothing to me. The amount of the dividend income it generates, however, means everything.
And this goes on and on. I even hear a lot of buts when it comes time for any investor to invest in a company.
“But new competition could one day decimate them.”
“But it seems like revenue hasn’t grown much over the last couple years.”
“But what if people stop consuming X beverage or Y food?”
“But what if a new technology makes this product or service obsolete?”
“But the stock is down 20% over the last year.”
“But the (insert fundamental metric here) isn’t quite perfect.”
Look, no company is perfect. There’s always going to be something (or many things) that you won’t completely like about any business. Pros and cons both always exist in the business world. But by focusing on the buts, you miss out on the ands:
“And this company could invent something new and change the world.”
“And they could just continue rolling on like they always have, handing you increasing dividends for the next three decades.”
“And they could acquire a competitor, further bolstering their competitive position and profit.”
“And a slight tweak to the internal structure could boost margins, thus creating even more additional long-term upside to profit and dividends.”
“And the management team in place has been there, done that for years.”
“And the stock could just as easily pop 40% if the price converges with the underlying value.”
But if one buys a stock, they could lose a lot of money. And if you keep your money in the bank, you’ll likely never become financially free.
But a stock can go to zero. And a stock has, in theory, unlimited upside.
There are always going to be reasons to not buy any stock. I could look at any company I’m invested in and find things I don’t like about the business model, fundamentals, or stock. One simply has to logically and pragmatically weigh the benefits against the drawbacks and invest when the former outweighs the latter enough to make the investment advantageous over the long run.
Being an optimist doesn’t mean turning a blind eye to potential issues. Rather, an optimist simply understands that the odds of building growing wealth and income are very favorable over the long term when one invests in a high-quality business at an attractive price.
I’m an optimist. It’s served me well. I’m financially free at 33 years old, literally living out a dream.
I get to write in my pajamas on a Tuesday afternoon (as I’m doing now). I spend a lot of my time doing things that make me happy. I’m also in an incredible position to take on other challenges down the road, like working with non-profit groups to help change the world. Meanwhile, I’m doing all I can to inspire you readers, which in itself is a contribution to the world that I’m proud of.
However, I could have never done any of this if I gave into pessimism. If I had given into the dark side of the world, I might not even be alive anymore.
Instead, I see the light. I strive to become a better version of myself every day. And in that, I hope to help you readers become better versions of you.
But I think the only way one can become a better version is to be an optimist. Without the right attitude, one will never see rewarding output. If input equals output, input is largely dictated by one’s attitude. You get out what you put in. So make sure you’re putting in everything you’ve got.
Make sure to focus on the ands instead of the buts.
But if you never leave the couch, you won’t get hurt. And if you never leap, you’ll never fly.
How about you? Focus on the ands rather than the buts? Prefer optimism over pessimism?
Thanks for reading.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net.