The Power of Negative Thinking: How It Robs and Bleeds You

The Power of Negative Thinking: How It Drains and Devastates You

Updated June 30, 2024

When the market trend is positive, it’s crucial to view strong pullbacks, corrections, and other adverse developments through a bullish lens. While anyone can panic in trouble, only astute individuals can stand still and direct their energy towards spotting opportunities. Avoid following the masses, who, despite years of panic, have nothing to show for it.

The human mindset is hardwired towards negativity, thriving in misery. This is due to the brain’s “negativity bias,” which makes it more sensitive to unpleasant news. Research by John Cacioppo, PhD, has shown that the brain responds more strongly to harmful stimuli, with a tremendous surge in electrical activity. As a result, our attitudes and perspectives are more profoundly influenced by negative experiences than positive ones.

Media outlets capitalize on this negativity bias, giving 3 to 5 times more coverage to stories with negative connotations. This contributes to the masses consistently losing in the market, as they focus on the wrong things and miss opportunities right before them.

The Danger of Wearing Your Emotions on Your Sleeve

As the philosopher Erasmus once said, “The most disadvantageous peace is better than the most just war.” In investing, it’s better to remain calm and rational, even in adversity, than to let emotions dictate your actions.

Polarized individuals are the easiest to manipulate, so the crowd never wins. To succeed, you must shed this herd mentality. Many new investors succumb to this, begging for stocks to drop in price but running away when they do, perpetuating a vicious cycle.

The big players understand the effects of fear and negativity and use them to their advantage. They blow adverse events out of proportion, knowing that the masses will react emotionally. As Machiavelli noted in “The Prince,” “Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions.”

A Simple Solution to Negative Thinking

To find a solution, you must first understand the problem. The masses often seek temporary patches, such as running from troubling situations, even if the problem isn’t real. However, as Plato argued in The Republic, “The beginning is the most important part of the work.” Investing means taking the time to understand the root of the problem and develop a long-term strategy.

One of the best things an investor can do to improve their skills is to understand what investing is not. It’s not about learning technical analysis, studying fundamentals, or following expert advice blindly. Instead, it’s about understanding the mass mindset and reprogramming your mind to think differently.

As Warren Buffett’s business partner Charlie Munger once said, “The best way to get what you want is to deserve what you want.” Investing means understanding the market, developing a solid strategy, and sticking to it, even in the face of adversity.

The Importance of Patience and Discipline

Patience and discipline are essential virtues in investing. As the legendary investor Jesse Livermore noted, “The big money is not in the buying and selling, but in the waiting.” The best course of action is often to do nothing and let your investments grow over time.

This can be challenging, especially when the market is volatile, or emotions are running high. However, as Plato said, “Good actions give strength to ourselves and inspire good actions in others.” By remaining patient and disciplined, you improve your investment outcomes and set a positive example for others.

Embracing Contrarian Thinking

One way to combat negative thinking and emotional decision-making is to embrace contrarian thinking. This means going against the crowd and seeking opportunities others may overlook.

As Munger has said, “You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced.” By thinking independently and researching, you can identify undervalued assets and capitalize on market inefficiencies.

This approach requires a firm conviction and a willingness to stand apart from the crowd. As Livermore put it, “There is only one side to the stock market, and it is not the bull or bear sides, but the right side.” By focusing on what’s right rather than what’s popular, you can position yourself for long-term success.

Conclusion

Negative thinking and emotional decision-making are significant obstacles to investment success. By understanding the brain’s negativity bias, the media’s role in perpetuating it, and the dangers of following the crowd, you can develop a more rational and disciplined approach to investing.

In “The Republic” Plato argued that “The beginning is the most important part of the work.” This highlights the importance of taking the time to understand the root of the problem and developing a long-term strategy rather than seeking temporary patches.

Machiavelli noted in “The Prince” that “Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions.” This underscores the dangers of following the crowd and the importance of independent thinking.

Warren Buffett’s business partner, Charlie Munger, once said, “The best way to get what you want is to deserve what you want.” In investing, this means putting in the work to understand the market, develop a solid strategy, and stick to it, even in the face of adversity.

Finally, the legendary investor Jesse Livermore noted, “The big money is not in the buying and selling but in the waiting.” This emphasizes the importance of patience and discipline in investing and the value of a long-term perspective.

By embracing the wisdom of these great thinkers and cultivating the virtues of patience, discipline, and independent thinking, investors can navigate the complexities of the market and achieve their long-term financial goals. The path to success lies in understanding the mass mindset, reprogramming your mind, and having the courage to stand apart from the crowd.