“Do you Want to be Right or do you Want to Make Money?”

I can’t remember the first time I saw the quote in the title of this post (maybe this Barry Ritholtz post), but it always stuck out to me. I will never forget the emotion I had following the financial crisis – that gripping fear. I went about 6 months in late 2008 and early 2009 without doing anything in the markets. I was paralyzed with fear. At points it was the right emotion, but as it ceased to wane I realized that the fear was no longer a productive part of my life. And as the markets and the economy healed in late 2009 I made a promise to myself that I would never let fear dictate my life the way it had in 2009.

In my book I describe fear as “the most destructive emotion”. Fearful people are easily manipulated, don’t take the right risks, easily fall in line with conventional thinking and never experience their full capabilities because they let their own emotions hold them back. And while this emotion is destructive in our personal lives, it can be even more destructive in our portfolios.

I’ll never forget 2009 because it was the year where I vowed to start thinking objectively rather than emotionally. This was the period when I began to obsess over the specific operations of the monetary system. It was when I realized that I needed to understand the world for what it is rather than what my emotions want it to be. That was the only way I could make objective decisions about the future.

As someone who writes a moderately popular website I’ve had to resist the urge of alarmist and “eye catching” commentary. I know exactly what works in the field of finance. If you want to have a wildly popular website you write about the following topics consistently:

• The Federal Reserve is a big scam out to screw us all.
• Government debt and spending will be the end of us all.
• The next big market crash is always right around the corner.
• High inflation is going to destroy the financial world.
• Gold is the best thing since, well, anything, ever.

The reason those topics garner so much attention is because they feed on people’s emotions. They feed on people’s fear. Of course, most of the articles about those topics are totally misleading. And I hurt my own popularity by not writing about them. In fact, I tend to write about incredibly boring stuff and often say precisely the opposite of the aforementioned topics.  It’s amazing any of you are even reading anything I write. But the objective and pragmatic view is usually a boring view. It doesn’t reside in extremes. It resides somewhere in the middle. The beauty is, I’ve noticed that a more objective and practical approach leads to far better results.  And ultimately, that’s what we’re all after. Someone who sells you fear is trying to separate you from your savings by selling you a scary story. And fear will always end up being “right” at some point because the markets are always in flux.  But that won’t necessarily help you make money.

It took me a long time to overcome my behavioral biases and stop viewing the world through a fear based lens. It took me even longer to develop my understandings of the monetary system and the financial system. But there’s no looking back for me. Irrational optimism and irrational pessimism are emotions that are no longer part of the way I live my life. Living on the extremes of your emotions creates too much risk in too many different ways. And in this business you can’t afford to let your emotional extremes get the best of you.