How to Detach from Your Financial Wins and Losses
We never truly know whether an event is good or bad, whether it’s winning the lotto or a recession
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Bear market, high interest rates and a looming recession. What a terrible time to invest, buy a home or start a business. Or, maybe it’s a great time to invest (cheaper stocks), buy a home (fewer competing buyers) or start a business (less market competition). Everything is terrible. Or, maybe everything is great.
Most financial decisions we make are in response to events – losing a job, winning the lotto, having a baby. Instinctually, we make a judgment about those events and then act; we celebrate the good and grieve the bad. But, what if we can’t really tell the good from the bad until much later – or even never?
With the firehose of bleak financial news intensifying our emotions lately, I thought it would be appropriate to talk about detachment.
Whenever I feel strongly about an event in my life, I try to retreat into the wisdom of my own ignorance. Because life has a way of proving our initial judgments wrong. I remind myself that I don’t truly know if an event is good or bad. Over time, those labels can change. What is once misfortune can be God’s gift, and vice versa.
For instance, my family moved just when I started high school. I thought it was one of the worst moments of my life. Not only was I the “new kid”, but also an extreme introvert. It wasn’t until my senior year that I made friends. Fast forward 20 years and those friendships count as some of my strongest relationships in life, a wonderful fortune that wouldn’t have happened if this seemingly major misfortune hadn’t occurred first.
Apple fired Steve Jobs, which motivated him to make the personal and professional changes that would lead to his greatest innovations and this profound realization:
“I didn’t see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me.”
In 1915, copper miner Stephen Jenkin received one thing we all wish for when we travel: a free upgrade. His ocean liner ticket back to the U.S. was switched at the last minute to a new and more luxurious ship, which he told his family he was really looking forward to sailing on. The last time his family heard from him was via postcard sent during a brief stop before crossing the Atlantic. He wrote: “The Titanic is a lovely ship.”
I’d bet almost everyone has experienced some kind of “blessing in disguise” or the opposite, which we could call a “curse in disguise.” These moments only exist because our brains are wired to create quick assessments of events. Friend or foe. Good or bad. While that works in the wilderness, it’s less effective when trying to plan for the future.
There is no such thing as wins and losses
Outside of a charging grizzly bear or a man in a hockey mask brandishing a machete, we can’t definitively tell if something happening to us is a fortune or misfortune (though it’s possible these events could also lead to good fortune – a lucrative book deal, perhaps, if you’re not brutally murdered). At least, not until later (if ever) when we see the ultimate consequences of that event.
But our instinct is to categorize events as good or bad and then act on those flawed assumptions. Which can lead to costly mistakes. A classic financial example is an ongoing investment study that shows the average stock investor greatly underperforms the stock market. The reason is chasing performance. A stock goes down, which we think is bad, so we sell it to buy the stock that is going up, which we think is good. Except this often results in poor returns. Like a game of whack-a-mole you’re trying to hit winning stocks when it’s already too late.
The alternative? Forget about winners and losers and buy many different investments so you don’t make mistakes trying to guess which is which. As the late John Bogle put it:
“Don't look for the needle in the haystack. Just buy the haystack!”
It can feel like a philosophical or spiritual undertaking.
Reveling in a win can put you in a heightened state that blinds you to the risks. Wallowing in a loss can blind you to the good things and opportunities that abound. To avoid this trap, philosophers and spiritual thinkers suggest tossing out the concept of wins and losses entirely. In other words, detach yourself.
As the Taoism founder Lao Tzu cautions:
“Life is a series of natural and spontaneous changes. Don’t resist them – that only creates sorrow. Let reality be a reality.”
A good illustration is a parable shared by the writer and philosopher Alan Watts. You can read it in full below. But the gist is a Chinese farmer experiences a series of events – losing a horse but gaining seven more horses, having his son injured but who then avoids military service – all of which the villagers deem as misfortune or fortune, to which the farmer coolly replies: “Maybe.”
The Story of the Chinese Farmer
Once upon a time there was a Chinese farmer whose horse ran away. That evening, all of his neighbors came around to commiserate. They said, “We are so sorry to hear your horse has run away. This is most unfortunate.” The farmer said, “Maybe.” The next day the horse came back bringing seven wild horses with it, and in the evening everybody came back and said, “Oh, isn’t that lucky. What a great turn of events. You now have eight horses!” The farmer again said, “Maybe.” The following day his son tried to break one of the horses, and while riding it, he was thrown and broke his leg. The neighbors then said, “Oh dear, that’s too bad,” and the farmer responded, “Maybe.” The next day the conscription officers came around to conscript people into the army, and they rejected his son because he had a broken leg. Again all the neighbors came around and said, “Isn’t that great!” Again, he said, “Maybe.”
The farmer refrains from ascribing a quality to each event because he understands those qualities – good or bad – are not fixed. Watts explains:
“[W]e never really know whether an event is fortune or misfortune, we only know our ever-changing reactions to ever-changing events.”
This kind of agnostic worldview is also what Stoics thrived upon. Take it from Marcus Aurelius:
“Life is neither good or evil, but only a place.”
The middle ground is the way
There are plenty of financial talking heads and salespeople who are incentivized to tell you how to feel about current events. But reality is gray, never black and white. So, it’s important to consider different perspectives.
Think about the impact of a bear market on younger and older investors.
For a young investor, a stock market downturn is a fortunate event – an opportunity to buy stocks on sale. But maybe such a market decline means an economic recession that leads to losing one’s job.
For an older investor, say in or nearing retirement, a stock market downturn is generally misfortune. Withdrawing money as stocks plummet can negatively impact the longevity of your retirement savings. But maybe a market downturn is a good opportunity to transfer money into a Roth IRA that lets you withdraw money tax free – something that could provide great financial benefits later in retirement.
This works on even a larger scale. Recessions are never wanted. Yet, recessions have constantly birthed new companies that are the engines for future economic growth – General Motors (1908) Microsoft (1975) and Airbnb (2008), to name a few.
The possibility of tragedy lies within every win, and the possibility of profit lies within every loss. Win the lotto – find yourself broke and estranged from your family as the repo man drives off in your brand-new Ferrari. Miss out on a job you really wanted – find greater success doing what you were better suited for all along.
We are often told that it’s better to look on the bright side of life, to think optimistically. Pessimism only leads to pain. But positivity can be just as stifling and shortsighted as pessimism. Break free by letting reality be reality. Stake a spot in the middle.
This isn’t just a load of philosophical or spiritual talk – it’s backed by science. A study published in the Personality and Social Psychology Bulletin found realists enjoy a greater sense of long-term wellbeing than both optimists and pessimists.
Dr. Chris Dawson, co-author of the study, concluded:
"We see that being realistic about your future and making sound decisions based on evidence can bring a sense of wellbeing, without having to immerse yourself in relentless positivity.”
Detachment isn’t a mindset, it’s an action
The moral of the parable above isn’t that it’s better to feel indifferent, to simply shrug your shoulders and surrender to life’s apathetic coin flip. Rather, quite the opposite. It is to focus on the things you do, not the things that happen to you.
The way to train yourself to detach from the emotional pull of wins and losses is to put all your energy into your response. While we can’t know whether an event is good or bad, we do know the quality of our response. It is always possible to respond virtuously in any situation. It’s always possible to do good.
Good deeds can be actions associated with classic virtues – prudence, courage, temperance, patience, humility, charity, etc. In our financial lives, these virtues are manifested in acts such as consistent saving and investing, never spending above our means, hiring a financial advisor, working harder, learning new skills, and giving to others who are in need. No matter what’s happening in the market or economy, these are always good deeds.
Let reality be reality and do good.
Sorry to mix up philosophical and spiritual traditions, but St. Augustine may have said it best:
“Pray as though everything depended on God (or put your higher power here: luck, karma, Jerome Powell, etc.). Work as though everything depended on you.”
Successful and satisfied people are often those who can detach from their wins and losses. Humble yet persistent. They keep moving forward, never lost along the perilous cliff edge of greed, nor stuck in the oppressive pit of fear.
Wins and losses come and go – and we may never know which is which. They won’t determine the quality of your future – in money or life – as much as the virtue in your response.
What is the big event in your life right now?
Apple or Titanic? Win or loss?
Either way, you get to define what comes next.
Take a penny, leave a penny
Links to various things I enjoyed recently. If you have a link to anything related to the topic of this post or something you think more people should know about, please share in the comments!
You weren’t supposed to see that - Josh Brown
I was hesitant to share this piece by Josh Brown since it already went viral, so many of you may have already read it. But to avoid falling for the bystander effect, I felt it my obligation to still share it because it’s that good and that important.
Widespread prosperity, it turns out, is incompatible with the American Dream. The only way our economy works is when there are winners and losers. If everyone’s a winner, the whole thing fails. That’s what we learned at the conclusion of our experiment. You weren’t supposed to see that. Now the genie is out of the bottle. For one brief shining moment, everyone had enough money to pay their bills and the financial freedom to choose their own way of life.
And it broke the fucking economy in half.
Why Quitting Is Underrated - Annie Duke
We fear that when we quit we are admitting failure—that we have wasted our energy. But we need to start thinking about waste as a forward-looking problem, not a backward-looking one. That means realizing that spending another minute or another dollar on something that is no longer worthwhile is a far bigger waste than whatever we have already invested.
The Diminishing Returns of Calendar Culture - Anne Helen Petersen
We are starving for ways of conceiving of time that have nothing to do with mastery or optimization. They exist now, they preceded us, and they will follow us. They will not fix anyone’s life. They just promise to orient it around a different axis, with different priorities, that might not match our current understanding of “success,” but might also decouple time management and optimization from “success” altogether.
Your moment of grace
“In the long run, you make your own luck – good, bad, or indifferent.”