Money Sundays: Productive Worrying

I stumbled onto this insightful quote from Seth Klarman, a well-regarded value investor[1] who I follow (and occasionally even steal from).[2] It offers an interesting perspective on how to think about the things that worry us:

While we believe it is crucial to worry about what can go wrong, unproductive worrying will not and cannot make a difference. Worrying that your favorite team will lose is obviously unproductive. Worrying that you might have an ulcer could even prove counterproductive.

Productive worrying, on the other hand, enables you to identify action that reduces or eliminates the source of concern, often at little or no cost
[NB: emphasis added]. Concerned that it might rain? Pack a raincoat and umbrella. Worried you will be late? Leave earlier than originally planned.

Successful investing goes hand in hand with productive worrying. Worried that a stock you hold might fall sharply? Reduce your holdings or buy some puts. Concerned that interest rates may rise or the dollar fall? Establish an appropriate hedge. Worried that the stock you bought on a tip might be a bad idea? Sell it and move on. Worry enough during the day and you can, in fact, sleep justifiably well at night.

All of us are subject to biases that can impair our objectivity in investment decision-making. Striving to overcome these biases is crucial for long-term investment success. Have we been too optimistic in our assumptions? Have we blindly ignored new information because we are clinging too tightly to our original thesis? Have we held onto an investment because it keeps going up, irrationally ignoring that it has become overvalued? Without a healthy dose of reflective worry, we are unlikely even to identify our lapses in judgment, let alone correct them. In other words, only by actively, productively, relentlessly worrying about what can go wrong can we maximize the odds that things will go right, by doing everything within our control to perfect our decision-making. You rarely, if ever, make money from worrying; it does not typically enhance return. But by avoiding loss, you are able to hang on to what you have accumulated, which is a cornerstone of successful investing.

What I like about this quote is how it takes the vague, undifferentiated emotion of worry--an emotion that weakens, distracts and disempowers us--and completely inverts it. The quote gets us to identify specific sources of worry and then (most importantly) it gets us to take positive action to solve those sources of worry.

Voila: we take our power, our agency, back into our own hands.

I'm guessing readers can easily come up with additional applications of the concept of "productive worrying." Here are a few humble examples I thought up on my own:

1) Worried you might not have enough money to fund a happy, healthy retirement? As painfully obvious as it might sound: save more money. Embrace the ideas of people like Jacob Lund Fisker and Mr. Money Mustache, re-ingest amazingly useful books like Your Money Or Your Life, and crush your expenses and dramatically increase your personal savings rate.

2) Worried that it costs too much to eat well? Pick up some of the easy and healthy (and laughably cheap!) recipes here at Casual Kitchen, or from many other frugal healthy food blogs. Embrace intermittent fasting, and strip a few extra carbs out of your diet for good measure.

3) Worried about the fate of the free world now that candidate X won an election in Country Y? Stop wringing your hands, stop virtue-signalling on Facebook... and instead take actual physical action to help people in the real world. Get out of your circle of concern and get into your circle of control, and ask yourself: what can I do in my own community, among my personal locus of control, to help make the world a better place? And then go and do those things.

Finally, how about a meta-question?

4) Are you worried about the overall level of stress in your life, (essentially) worrying about your worries? Cut back dramatically on your media consumption. Remember: the media is an entire industry that profits by giving us things to worry about or be angry about. Don't give the bastards any more of your time or mental bandwidth. Also: read up on Stoicism. A good place to start is William Irvine's excellent and readable A Guide to the Good Life: The Ancient Art of Stoic Joy.

Readers, what would you add?

[1] H/T to another value investor I follow, Whitney Tilson, for sharing Klarman's quote with his readers.

[2] A striking, unexpected thing about value investors: many are quite happy to share their ideas and their investing methods--and often for free or nearly free. Consider the free investor letters from Warren Buffett and Charlie Munger, or the insightful books from well-known value investors like Mohnish Pabrai (author of the readable and highly useful The Dhandho Investor) or Joel Greenblatt (author of The Little Book That Beats the Market).

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1 comment:

chacha1 said...

To help with my brand-new worries in category 1, I redesigned the prospective retirement residence to come in under 1000 square feet instead of over 1500.

That was tough. A lot of our treasures won't be able to come along, if the worst happens and we can't save as much as we thought or my 401(k) tanks in a recession.

I got it done though, which proved that it was possible.