When we decide to play a game, we understand that we have no control over the rules of the game.¹  But to be fun, the rules allow players control over a limited set of actions.  In chess, I’m allowed to decide which of my pieces to move in any given turn.  This is control.  But I can’t suddenly decide that pawns can move backward.  This is acceptance.

I’ve pointed out before that games imitate life.  There are certain things in life that we must learn to accept and certain things that we can try to control.  We can control our level of COVID exposure by avoiding crowded bars, but we have to accept the sad fact that we might contract COVID just by going to the grocery store.

Some people work hard to control as many aspects of their lives as possible.  Conversely, many forms of mindfulness, and most Buddhists, practice accepting that much of life is beyond our control.  Mindfully Investing is all about applying mindfulness principles to that small slice of life that touches on investing.  So, it would seem to follow that mindful investing is fundamentally about accepting a lack of control over our investing outcomes.  If that’s true, what place does control have in mindful investing?

Given we’re all playing in the same free-market game, with the same rules, is control or acceptance more important to investing success?

What Might We Control?

We can start by asking what aspects of investing might potentially be controllable to some extent.  And Sherlock Holmes would say that whatever aspects of investing that remain must logically be met with acceptance; they are the unavoidable rules of the investing game.

So, I looked back through past Mindfully Investing posts and found these major aspects of investing that might be within our control:

• Whether to invest – As savings become available, we can decide whether to invest them in potentially higher returning assets² (such as stocks and bonds) or spend those savings instead.
• Level of costs – While investing costs can’t be avoided entirely, we can choose options with relatively lower or higher costs.  The main costs of investing are transaction fees, fund fees, and adviser fees.
• Level of taxes on returns – Like costs, taxes can’t be avoided entirely, but they can be minimized.  The main sources of taxes on investment returns are capital gains, dividend/interest, and fund turnover.  The main ways to avoid some of those taxes are by using tax-advantaged accounts (such as certain retirement, education, and health savings accounts), tax-loss harvesting, avoiding short-term capital gains, and selecting funds or assets (like municipal bonds) with lower tax rates.
• Asset allocation (diversification) – We can decide what proportions of our investments should be in various kinds of assets such as stocks, bonds, real estate, gold, and other alternatives.  Because some assets may increase in value when others decline (or the rate of change may vary in the same direction), a portfolio containing an array of assets can often produce potentially better long-term returns and less severe drawdowns (risk).
• Level of return and risk – Usually the prospect of higher returns comes with the potential for higher risks of losses.  So, we can choose to gamble with higher return assets or play it safe with lower return assets.  And of course, there’s an entire spectrum of asset allocations from the extremely risky to the incredibly safe.
• Reinvesting and rebalancing – We can choose to reinvest dividends or use them for something else, which is really just a specific case of deciding whether to invest (the first bullet above).  We can also choose when and how to rebalance our asset allocations, which is a specific case of asset allocation.
• Address specific risks – Through the investing choices so far noted, we can emphasize or de-emphasize certain types of risk.  The most salient example is that we can address temporary risks, such as sequence-of-return risk, which crops up when we retire and are no longer earning new money to invest.
• Our reactions to market or life events – It’s often assumed that investors can’t avoid destructive cognitive biases and emotional reactions to market swings or unexpected life events.  However, the central thesis of Mindfully Investing is that by using mindful practices, we can limit the negative impacts of our emotions on our investments.  This includes related techniques such as building a written investing plan and committing to follow it.
• How long we invest – We obviously can’t choose to invest for 200 years.  But within a reasonable lifespan, we can choose to jump in and out of the market or buy and hold for the long-term, which I define as 10 years or more.  And history has shown that the longer you invest, the lower your chances of losing money.

What Must We Accept?

So, what parts of investing are left over?  The major aspects of investing that we must accept appear to include:

• • We must invest – Assuming you’re not set to inherit a bundle from a rich uncle, most of us need to invest to achieve goals like a comfortable retirement and funding our kids’ college education.  While we have the option to avoid investing entirely, that’s an obvious failure to address the future in any meaningful way.
  • You can’t decide when to start investing – I would have loved to start investing in 1988 because the stock market sky-rocketed for the next 12 years.  In fact, I had accumulated enough savings by 1999 to start seriously investing, after which the market went nowhere for 10 years.  Because you can’t choose when you were born, you have to accept the prevailing market conditions, whether they’re bull, bear, or something in between.  And you can’t pick when a windfall like an inheritance might occur.
  • Risk cannot be avoided – I noted above that we have some control over certain types of risks.  But there’s an old saying that risk cannot be destroyed, it can only be transformed.  Unfortunately, all investments have some potential for loss of principal, although these losses can manifest to varying degrees and in many different ways.
  • Rates of return are variable – The returns generated by all investments are unpredictable to some degree.  In fact, the average annual returns for stocks and bonds almost never happens in any given year.  Various assets have “expected” long-term returns but rarely offer “guaranteed” returns.  And temporary negative returns are possible for most assets.
  • Markets are unpredictable – Proponents of inefficient markets will want to tear their hair out over this one.  But regardless of whether markets are entirely efficient or not, for most individual investors, it’s impossible to predict the trajectory of the markets or individual stocks.  The corollary to this rule is that successful short-term market timing (such as attempts to “buy low and sell high”) is impossible.  Another corollary is that crashes (both big and small) are inevitable, but fortunately, history has shown them to be temporary aberrations.

Read more

I was a bit surprised to read an article the other day noting that men are less likely to wear face masks than women, despite recent Centers for Disease Control (CDC) guidance to wear face coverings in public spaces.  So, I did some searching and found some intriguing statistics on mask usage and gender:

• Several pre-coronavirus studies found a statistically higher rate of face mask usage among women during previous epidemics in multiple countries.
• An April Morning Consult poll found that 25% of U.S. men, but only 14% of women, refuse to wear masks.
• An April Gallup poll found that 67% of U.S. women, but only 56% of men, wore a mask in the prior week.
• A late April Salt Lake Tribune informal survey of local shoppers found 51% of women, but only 34% of men, were wearing masks.

Setting aside your opinion on face masks as an effective pandemic control, what would possibly cause men to be more skeptical of masks?  I’m certainly no expert, but to me, it seems like wearing a mask could be easily perceived as wimpy, or even effeminate.

There are plenty of studies showing that society tangibly penalizes men that stray from their expected gender roles including examples like:

• Male leaders who show vulnerability by asking for help are perceived as less competent.
• “Nice guys” are perceived as less hirable and have 18% lower income than “less agreeable” men.
• Empathetic women are perceived as performing better at work, while empathetic men are not.
• Men who are modest when expressing their qualifications are less likely to be hired than similarly modest women.

Because of the clear social penalties to “sensitive men”, many guys probably believe (perhaps unconsciously) that wearing a mask erodes their machismo and might have social repercussions.  And this creates a hugely obvious problem; more men will contract COVID-19 and spread the disease to others.¹  While the evidence here is too circumstantial to prove a link between gender roles and mask compliance, it’s theoretically a great example of how culture can interfere with achieving our shared goals.

Gender and Investing

You’re probably thinking why in the world is an investing blog discussing gender roles and mask usage?  The answer: if men’s view of their masculinity can drive them toward potentially life-threatening decisions, what role might masculinity play in less dire topics like investing?

Do you think that most men are better investors than women?  According to a Fidelity survey, 91%(!) of respondents believe that men are better investors.  But in fact, a mountain of evidence shows the opposite:

• A Cal-Berkeley study found that women outperformed men by a return of 0.9% per year.
• A Warwick Business school study found that women outperformed men by 1.8% per year.
• A Fidelity study found that women outperformed men by 0.4% per year.
• A user data review by OpenFolio found that women outperformed men by 0.3% to 0.4% per year over the last few years.

This investing gender gap may seem small, but when compounded over decades, it can generate substantial differences in final account values.  Further, Fidelity found that women are slightly better savers too.  When the investing and saving gaps are combined, the difference in long-term wealth growth is huge, as this graphic from the Fidelity Study shows.

Why would women be better investors?  There’s no shortage of pop-psychology commentary on this question.  For example, one of these studies cites generic research that men are more confident than women in various situations.  The study authors then draw a link between generic male over-confidence and the observation that men trade more often than women.  And trading more usually produces worse returns.

But just as the generic existence of male gender role penalties doesn’t prove a causal link specifically to men’s poor mask compliance, the generic existence of male over-confidence doesn’t prove a causal link specifically to the investing gender gap.  Maybe men are worse investors because they have more fear, greed, anger, or cognitive biases unrelated to over-confidence.

Keeping these pitfalls in mind, what might be some of the more likely reasons that women outperform men in investing?  Here are a few of the less hypothetical and more convincing reasons I found:

1. As I noted above, the Cal-Berkeley study found that men trade 45% more often than women and receive lower returns as a result.  More trading means lower returns because timing the market is impossible, and more trading increases investing costs.
2. The Fidelity study found that women’s portfolios tend to be less volatile than men’s, meaning women are investing in less “risky”² combinations of stocks, bonds, and cash.  For long-term buy-and-hold investing, lower risk typically results in lower returns.  But combining higher risk-taking with more trading (the first reason above) usually generates lower returns.
3. A Merrill Lynch survey found that only 45% of women report they are confident in their investing knowledge, as compared to 73% of men³.
4. A LearnVest survey found that women are 5 times less likely than men to name investing as their top financial goal, which suggests that women place less importance on investing than men.
5. A Wells Fargo survey found that women are 2 times more likely to say they want to be educated by financial advisers, while the Fidelity study found that 90% of women expressed an interest in learning more about investing.

While I’m not going to argue that these are the “proven” reasons for the investing gender gap, it’s interesting that all of these reasons are consistent with the four cornerstones of mindful investing (Rationality, Empiricism, Humility, and Patience):

1. Less trading by women suggests more Patience with buy-and-hold investing and more Humility about whether the next trade is likely to turn out well.
2. Less risk-taking by women suggests more Humility when trying to decide which risks are relatively prudent.
3. Less reported self-confidence about investing knowledge by women suggests Humility, while men seem more likely to feel they’ve learned enough already.
4. Placing less importance on investing suggests a more Rational perspective on financial priorities.  For example, the math irrefutably shows that how much you save is way more important than how you invest.  And many folks are objectively better off paying down debt, building an emergency fund, etc. before trying to invest.
5. A greater interest in education suggests women place a higher premium on Empiricism and Rationality.

Could it be that women are better investors because they’re more mindful than men?

Gender and Mindfulness

The internet certainly seems to think that women are the more mindful gender:

• A Brown University study found that women reaped more benefits from meditation than men, even though men in the study clocked more meditation hours on average.
• A study reported in the Journal of Women’s Health found that in the United States 10% of women practice meditation but only 5% of men.
• A literature review of research on mindfulness-based treatments for substance abuse found that 4 of 6 studies showed evidence that women gravitate more towards mindfulness or that women benefit more from mindfulness treatment.
• A Victoria University study found that in New Zealand, women reported higher levels of mindfulness than men.
• A Journal of School Psychology study found that female students were more mindful than male students after taking the same meditation class.

In case you think I’m cherry-picking these studies, I found a few studies that observed no difference in men’s and women’s levels of mindfulness.  And I found only a couple of instances where men were found to be more mindful than women, but only for one or two out of five specific measures of mindfulness.  Regardless, in my opinion, most of these studies have quality problems such as poor controls, small sample sizes, and questionable data gathering techniques.  Also, almost every popular article on this topic that I found relied almost entirely on that one Brown University Study.

Conclusions

Given the uncertainties associated with all this information, I won’t take my conclusions too far.  But the evidence is suggestive that women may be better at both investing and mindfulness for similar reasons.  That is, women may be more inclined towards rationality, empiricism, humility, and patience.  And some of these studies suggest women are more mindful in other ways as well.  However, the evidence is insufficient to tell us whether this mindful inclination might be cultural versus genetic or cause versus effect.

Many of my posts so far this year have been about investing and emotions.  And I’ve concluded that in many instances we don’t know exactly why we decide to buy, hold, or sell, and we don’t know exactly how our feelings influence these decisions.

I’ve previously covered the following surprising factors that can impact our emotions and resulting decisions:

• The timeframes we focus on
• Differences in how we assess emotions in-the-moment versus after-the-fact
• Minor situational factors that are entirely irrelevant
• What we choose to pay attention to at any given moment
• And even our genetically pre-determined temperaments.

The fact that women appear to be more mindful investors and quantitatively better investors is yet another example of how our emotions and decisions can be driven by hidden factors.  On the surface, the gender gap implies that men should beware of “masculine” thinking and reactions while investing, and women should consider whether their investing behaviors align well with the more “feminine” traits listed above.

More specifically, it seems we should all strive to:

• Be more patient buy-and-hold investors
• Approach investing risk with humility
• Keep our self-confidence in check (stay humble)
• Treat investing as no more important than it objectively is
• Keep educating ourselves even after we think we’ve learned it all.

In other words, we should all strive to invest more like women and less like men, because that means investing more mindfully and with greater success.

---

1 – I’m aware that the evidence regarding masks and pandemics is equivocal, so I’m purposefully avoiding the mask effectiveness debate.  Regardless, the CDC recommends face masks in public spaces, because it at least has the potential to decrease community health risks.

2 – Here at Mindfully Investing, we don’t put much stock in the idea that volatility equals risk, for reasons I discuss here.  But the reality is that most investors are taught and believe that volatility equals risk.  

3 – Note that this self-reported confidence is different than the derailed logic train about generic male over-confidence that I discussed above.  In this case, men and women are responding to surveys about how they view their level of investing confidence, which is a step closer to a causal link as compared to saying that the literature shows men are over-confident in general.

In my last post, I presented a way to systematically assess an investor’s cumulative mood in response to market returns and volatility over the history of the U.S. stock market.  Because emotions are inherently subjective, I called this a “semi-quantitative” assessment, which I dubbed the “Happy-Crappy Investometer” (H-C Meter for short).  Because mindful investors are long-term investors, I applied the H-C Meter over 10-year periods and examined three popular portfolios: all-stock (S&P 500), all-bond (U.S. 10-year Treasury Bond), and 60% stocks/40% bonds.

I detailed my methods for building the H-C Meter in my last post.  The rolling 10-year results for every possible investing decade from 1927 through the end of 2019 are shown in this graph.

It turns out that most of the time the theoretical mood of the all-stock investor was substantially better than either the all-bond investor or the 60/40 investor.  Assuming that the historical returns feeding the H-C Meter tell us something about future returns, the probabilities of various possible moods for investors in these three portfolios are summarized in this graph.

If past is prologue, then the H-C Meter says there’s a 70% probability of feeling “good” or “great” when investing in an all-stock portfolio and only a 20% to 30% probability of these positive moods with the other two portfolios.  And surprisingly, all-bond investors can expect to endure some degree of negative mood 19% of the time, while all-stock investors can expect negative moods only 11% of the time.  I concluded in my last post that, if your investing goal is to maximize your mood over the long term, then the all-stock portfolio seems like the best pick.

What Does This Tell Us About Emotional Reality?

I find the H-C Meter results pretty consistent with my own investing experience over the last 20 years.  But as I noted last time, some readers may feel like the H-C Meter results are overly optimistic, particularly with the stock market drenched in fear right now.  We all recognize that emotions are inherently subjective, and probably no two people feel exactly the same when put in a similar situation.  So, this post examines several cognitive factors popularized by Daniel Kahneman in “Thinking, Fast and Slow” that may cause your view of your own investing emotions to differ from mine or the H-C Meter results.

My goal here is not to defend the H-C Meter as depicting emotional reality because it has clear limitations as I discussed last time.  But the H-C Meter provides a decent yardstick that might help us, along with some mindful introspection, to better measure how we really feel about current market events and why.

What’s Your Emotional Time Frame?

Due to data availability, the above H-C Meter calculations stop on December 31, 2019, and we all know what happened right after that.  And right now, most stock investors would probably describe their current mood as substantially worse than it was three months ago.  So, I added year-to-date returns as of March 31, 2020, for the S&P 500 (-19.6%) and 10-year U.S. Treasury Bond (+10.5%) indices to extend my rolling 10-year graph into the recent bear market as shown in this graph.

The right-most data point on the blue line suggests that stock investors experienced a major dip in long-term mood over the last three months, but their mood is still firmly in the “good” range with a score of +86.

Perhaps you’re surprised that the H-C Meter score for stocks didn’t dive even lower in the last three months.  But recall that each point on this graph represents the cumulative mood score for someone investing over 10 years.  Over the 10 years ending December 31, 2019, the stock market produced a stellar annualized return of 13.5%.  A $10,000 lump sum invested at the start of 2010 would have been worth over $35,000 at the end of 2019.  And as of the end of March, that investment would still be worth about $29,000, or nearly 3 times the original value.  So, the most recent H-C Meter reading reasonably reflects the mood of a stock investor who is still way ahead of where they were 10 years ago.

However, someone who just started stock investing would reasonably feel way worse than the H-C Meter would suggest.  If we focus the H-C Meter on just the last three months (and ignore the previous 10 years), the mood scores look considerably different:

• All-stock portfolio score = -63 (bad)
• All-bond portfolio score = +31 (tolerable)
• 60/40 portfolio score = -9 (tolerable)

When confined to a 3-month time frame, the H-C Meter results suggest the mood of the short-term stock investor is well into the “bad” range, though not yet in the “terrible” range.  But I’d guess that almost no one reading this post had the supremely bad luck of first investing within the last 3 months¹; most of us have been investing for a few years at least.

So, when you think about your overall investing mood, ask yourself whether you’re focused on the last three months or your entire investing lifetime.

Whose Emotions Are These?

At its core, the H-C Meter is a “hedonometer”, an idea proposed by British economist Francis Edgeworth in the 19th century.  A hedonometer is an imaginary instrument that measures the level of pleasure or pain for a person at any given moment.  The cumulative measurements across many moments can be used to quantify an experience like a typical workday or an activity like a round of golf.  Because they’re imaginary, hedonometers are usually informed by survey questions posed at regular intervals to study subjects about their current mood or specific emotional states.  But in this case, the H-C Meter uses stock/bond returns and volatility as an indicator of an investor’s mood.

The inherent problem with hedonometers is that people generally don’t report their emotional state consistent with a cumulative hedonometer result.  Rationally speaking, it makes perfect sense that our aggregate mood over a day would be determined by the summation of our moods from each minute of that day.  But alas, emotions aren’t rational.

Daniel Kahneman presents data from colonoscopies where the patients reported their subjective discomfort levels each minute during the procedure.  You’d think that the level of unpleasantness for the entire colonoscopy reported by the test subjects would align with the intensity (vertical axis) and duration (horizontal axis) of discomfort reported throughout the procedure as shown in these graphs.

 

Consistent with my H-C meter calculation, you’d expect Patient B to report a worse experience than Patient A.  That’s because the area under the curve, or the cumulative pain intensity across the time of the procedure, is larger for Patient B than Patient A.  But surprisingly, at the end of the procedure Patient A reported a worse experience than Patient B.

A statistical analysis of all the data showed that the best predictors of a patient’s reported experience were the combined metrics of peak pain intensity and pain intensity at the end of the session.  Because pain duration was a poor predictor, Kahneman calls this cognitive effect “duration neglect”.  Duration neglect appears in other experiments too.  For example, when test subjects were exposed to two benign procedures², one of which had a longer duration of pain, 80% of the subjects selected the objectively more painful procedure for a repeat experiment!

Kahneman concludes that we have two selves.  One part of us assesses our emotions as we experience them, and another part of us assesses emotions as we remember them.  If Kahneman is right, the experiencing self will report investing emotions relatively consistent with my H-C Meter graphs.  But when asked to look back at how a past decade of investing felt, the remembering self might disagree with the H-C Meter graph.  The remembering self might report that a decade scored as “happy” by the H-C Meter was actually pretty “crappy”, particularly if the mood briefly plunged to “terrible” levels and there was a slight downswing in returns performance at the end of the decade.

Kahneman notes that the opinions of both selves can be important to us under different circumstances.  For example, most parents report a poor mood when actively taking care of children, which is the view of the experiencing self.  On average, those same parents report the overall effect of child-rearing on their life as highly positive, which is the remembering self looking back at child-rearing so far.  Even though the remembering self sometimes makes objectively wrong decisions, like picking a more painful procedure, few us like the idea of heeding the experiencing self’s opinion about child-rearing.  Some times we value the experienced view and sometimes we value the remembered view.

However, while most of us cherish the idea of child-rearing, few of us cherish the idea of investing, which is considered an unpleasant chore by all but the most enthusiastic hobby investors.  This implies that the remembering self may be biased towards a gloomy outlook about investing in general.

Further, the concept of mindfulness, as advocated here at Mindfully Investing, has a natural affinity with the experiencing self.  Mindfulness focuses on the experienced but only acknowledges the brief passage of the remembered through our minds.  Mindfulness teachers go so far as to say that the only thing that’s real is what’s happening in the present moment.  Because the past no longer exists, our memories and how we feel about those memories are imaginary in the most fundamental sense.  And because I share that view, I feel like the H-C Meter results, which take the more objective view of the experiencing self, are a good approximation of my own investing emotions over the last couple of decades.

When you think about your investing mood, which of you is making the assessment?  The current bear market has been underway for less than three months, which is a brief glimmer as compared to the minimum prudent holding period of 10 years for stocks.  Is your current mood focused on the peak pain?  Are you neglecting the duration of the bear market so far?  If you feel like the last few years of stellar stock returns were totally “ruined” by the last three months, whose view is that?

How Much Thought Have You Given It?

Kahneman’s research also indicates that the perception of our emotions and moods can be altered by many factors, some of which appear almost entirely irrelevant.  In one example, Kahneman describes an experiment in which the test subjects (single students) first answer a question about how many dates they’ve had in the last month and then answer a question about how happy they’ve been over the last month.  It turns out that the first answer (number of dates) is correlated with the second answer (happiness level), but only when the question about dating is asked first.  Otherwise, there was no correlation between the two answers.  The pairing of the happiness question with other questions about finances or family relationships elicited the same pattern of responses.  Kahneman calls this effect a type of “substitution”, where we substitute a readily available answer in place of a more difficult answer.

If you stop and think about it, answering a seemingly simple question about your level of happiness is a complex undertaking, assuming you’re trying to give an accurate answer.  Think about all the different ways you might go about assessing your happiness and the many different factors that you might want to weigh and inter-balance.  Perhaps last month you broke your leg, got a pay raise, your neighbor yelled at you, your child got a good grade in math, you got a jury summons, you found five dollars on the sidewalk, etc.  What’s the summation of all that good and bad?  And how do you factor in all the stuff that didn’t even make it on the list?

Further, Kahneman found that our reported level of happiness can be easily swayed by seemingly inconsequential events.  In another experiment, half the test subjects “luckily” found a dime (planted by the researcher) before answering a life-happiness questionnaire.  And of course, the folks who found the dime before completing the questionnaire reported significantly happier lives than those who found no dime.

When I read stuff like this, I wonder if any of us understand much at all about how we truly feel, regardless of whether we’re considering one hour or the entirety of life.  Our feelings seem to be a slave to the slightest suggestions of daily circumstances.

So, how much thought have you really given to your current investing mood?  How do you know that your current mood isn’t an overreaction to the situation?  What extraneous factors might be driving your investing mood?

What Are You Focused On?

When looking at the myriad trivialities that can affect our moods, it seems impossible to identify which trivialities matter most.  If I find a dime but then stub my toe, do the two events cancel each other out, causing me to report a “tolerable” level of life happiness?  Or does one thing matter much more than the other?  These sorts of questions compound exponentially when we consider the thousands of events that occur in a day, week, or year.

Kahneman proposes that what we focus on—what we pay attention to—is key to understanding our moods.  He says, “Any aspect of life to which attention is directed will loom large in a global evaluation [of happiness]…which can be described in a single sentence:

• Nothing in life is as important as you think it is when you are thinking about it.“

Kahneman gives plenty of supporting examples from experiments including:

• When focused on the idea of weather, people think Californians are happier than midwesterners.  Instead, surveys show that Californians and mid-westerners report roughly equivalent levels of happiness.
• When focused on a car they enjoy driving, people overrate the contribution of the car to their life happiness.
• When asked about the happiness of a paraplegic, people focus on the medical condition and assume that paraplegics are much less happy than the paraplegics themselves report.

One theme that Kahneman finds in these examples is that attention is usually withdrawn from a new situation as it becomes more familiar.  And as the attention withdraws, the impact of the situation on our emotions diminishes.

What aspects of your investing life are you currently focused on?  Do you think you will be focused on these same things three months from now?  Are there other objective data about your current investment situation that you could focus on instead?

How Do Your Genes Feel?

If that wasn’t enough, there’s good evidence showing that we’re born with a certain temperament that’s dictated by genetics.  Some studies estimate that 20% to 60% of our temperaments are determined by our genes.  This may help to explain why income level is often uncorrelated with reported happiness above a certain income threshold, which is about $75,000 for people in relatively high-cost-of-living areas in the U.S.  In this case, the money we earn (an environmental factor) is important to happiness, but only below a certain income level, and above that level, genetic factors may take over.  Similarly, researchers have shown that perceived happiness is less related than might be expected to other environmental factors including employment, family stability, education level, and health.  And a few specific genes have been identified that significantly correlate with reported levels of happiness in surveys.

Do you find that you usually feel similarly about your investments regardless of how the markets are doing?

Conclusions: Guided by Our Better Selves

If recent market events are making you feel down in the dumps, I’m hoping that this review of emotional factors will make you stop and reflect.  The factors I’ve described suggest some ways we might help ourselves feel a bit better about the ongoing market crisis:

• Focus on your total returns since you’ve started investing, instead of the short-term top-to-drop statistics that media headlines usually cite.
• Focus on metrics that speak to the experiencing self like duration of the pain, and pay less (no) attention to metrics that speak to the remembering self, like peak pain and the most recent trend.
• Focus on the present situation rather than the story you’re telling yourself about what happened to your investments over time.
• Consider extraneous or minor events that may be having a disproportionate impact on your mood.  Briefly list all the most objective and most important facts about the current status of your investments and focus on those.
• Consider where you’re currently focused and consciously try to shift your attention to (and show gratitude for) the aspects of your investments, or life in general, that contribute to your happiness.

Can you simply think yourself into feeling better?  I submit that it’s far from impossible.  It seems like a trite example, but I find that just by consciously keeping a smile on my face, I can often boost my mood regardless of what’s happening around me.  I’d say that the above suggestions for feeling better should work at least as well as smiling.

I’ve argued in the past that emotional and cognitive biases are sometimes avoidable with prolonged rational thought.  Recall that in one Kahneman experiment 80% of the subjects picked the more painful of two procedures to repeat; they made the “wrong” choice.  And Kahneman notes that the experimenters had to follow careful procedures to not inadvertently tip off the subjects as to the “right” answer.  Even with all that, 20% of the people made the “right” choice anyway.  Further, after reading all this, I doubt that you would pick the more painful of the two procedures if you went into the experiment tomorrow.  While clearly, we’re prone to many emotional factors and biases, there’s evidence to suggest that at least some of the time we’re able to avoid those biases.

However, I agree with Kahneman’s opinion that most cognitive biases are nearly impossible to avoid on a daily or routine basis.  And giving prolonged rational thought to every decision we make in a day would be tiresome and infeasible.  But I think we can approach important long-term decisions like mindful investing more deliberately and avoid many of the most consequential emotional and cognitive biases.  And because long-term investing is measured in decades, we have plenty of time to fully consider when to change or maintain our current investment strategy for objective reasons.

---

1 – If you did start investing in the last three months, you have my sincere condolences.  But take solace in the fact that even investors that always buy at stock market peaks generally do pretty well, if they hold on to their investments for the long-term.

2 – The experiment required the subjects to voluntarily immerse their hands in cold water for a set period.

Mindfully Investing is predicated on the idea that individual investors can meet their long-term investing goals without paying an investment adviser.  I’ve also written that there’s nothing fundamentally wrong with using an adviser, just so long as you understand what they charge in fees and/or a cut of the returns, and you’re knowledgeable enough to critically assess their advice.  But that’s a pretty vague assessment.

Because many life events can impact our investment decisions, I wanted to provide more details about when to consider using an adviser.  Further, you’ve probably seen scary news, blog posts, and opinion pieces urging investors to seek professional advice lest they ruin their finances.  Unfortunately, these scare pieces can assert some pretty questionable reasons for using an adviser.

So, today I’ll present some “good” and “bad” reasons to hire an investment adviser, based on a critical review of some of the investment industry advice out there.  Below I describe some common reasons in bold and then briefly explain why I think they’re good or bad using the precepts of mindful investing.

Good Reasons

Good reasons to use an investment adviser that I’ve written about before include:

1. You need advice that’s more applicable to your specific situation than can be gleaned from generic books and websites.  But don’t reach this conclusion too hastily.  People like to assume they’re super special and need more tailored advice.  However, the content on Mindfully Investing suggests that the most useful investment tactics apply to the vast majority of investors.
2. You hate spending time selecting and tracking your investments and prefer to hire someone to perform this annoying task for you.  If you have no interest in something, you’ll likely do a bad job.
3. You need help beyond mindfulness to avoid emotionally charged or biased investing decisions (like panic selling in a crash).  If you have to call an adviser before you can “sell everything”, the adviser may be able to talk you out of it.

More Good Reasons

Other good reasons that I found on the internet that I’ve not written about include:

4. You need to sync up a simple investing plan with a more complex financial plan.  Mindful investing is surprisingly simple at its core, but financial planning involves an array of linked issues including, but not limited to: retirement planning, asset protection, estate planning, tax planning, Social Security decisions, and insurance planning.  However, you should make sure your adviser is taking a mindful approach to the investing side of the equation, which should involve holding a moderately diversified set of low-cost stock index funds for the long-term.
5. You’re old enough that declining cognition (like dementia) or other health issues could potentially cloud your thinking.  This one is pretty obvious.  If you can’t think straight, you need help with a lot of things, including investing.
6. If you intend to give investments to relatives (including a spouse after your death) that don’t share your interest in investing, an adviser can help make a smooth transition and advise your relatives once you’re gone.

Bad Reasons

Bad reasons that are often touted by the adviser industry include:

1. Using a professional ensures that the “job is done right”.  Put another way, they think you’re too stupid or unfocused to do it yourself.  Judging by all the adviser horror stories out there, using a professional in no way ensures a good job.  And you can’t assume that government oversight is catching most of the bad actors, as the recent scuttling of the Fiduciary Rule in the U.S. showed all too plainly.  When the adviser industry is investigated, they usually find way more malfeasance and incompetence than “anyone ever imagined”.  I guess most regulators have dismal imaginations.
2. Doctors don’t operate on themselves and good lawyers don’t represent themselves.  I could rebut this one all day, but I’ll try to keep it short.  Roughly 88% of the time, professional money managers fail to beat an amateur who invested exclusively in index funds.  I wouldn’t hire a surgeon who botched 88% of their operations or a lawyer who lost 88% of their cases against amateurs.  Enough said.
3. You won’t be able to “beat the market” by yourself.  But there’s no evidence that professionals can beat the market either, as I just noted.  Further, for the vast majority of people, there’s no need to beat the market to be a successful investor.  Most reasonable investing goals can be met by reaping the readily available market return.
4. Managing a sound investment portfolio well is a full-time job.  Personally, I see no evidence of this.  I’ve certainly spent a lot of time developing my investing strategy, but even at my peak level of effort, I was spending way less than 8 hours a day.  And now that my investing plan is set up, my “management” takes less than 20 hours per year.  And if managing one person’s investments is a full-time job, how can investment advisers manage dozens or hundreds of clients at the same time?
5. Retired investors seeking regular income may over-concentrate in tax-inefficient or risky investments, like trying to live off of dividends from high-yield stocks.  I find this reason confused.  Mindful retirement investing focuses on total-returns (not dividends or interest alone), and with today’s tax code, capital gains are taxed at a lower rate than dividends in most income brackets.  The concept of total-return income is so simple that I’m unsure why an adviser is needed to guide you to this mindful retirement strategy.
6. Because you’re managing your own investments, any losses will be felt much more acutely than if you used an adviser.  In my view, the opposite is truer.  I would feel the losses more acutely if I knew I had thrown away a bunch of money on an adviser that dropped the ball.  I could get myself into that same mess for free.
7. An adviser will be more removed from emotionally questionable decisions.  Again, the evidence regarding active management suggests that advisers are no better than lay-people at avoiding emotionally biased investing.  And advisers have to handle both their own emotions and the emotions of potentially irate or despondent clients.
8. The control you feel managing your own investments is false, given all the unpredictable things that can happen.  While true, that statement in no way proves that the adviser has any more meaningful control or a more realistic view of their lack of control.  And mindful investors don’t put much stock in feeling either in or out of control.  Any Buddhist will tell you that a sense of control in life is just an illusion.
9. Advisers have access to investment vehicles you do not.  When this is brought up, people are typically talking about institutional class mutual funds or certain ETFs that are only sold through advisers.  This is the “beat the market” reason in disguise.  The premise is that you might need something “better” than a vanilla index fund.  But for the vast majority of investors, simple index funds are all that’s needed to meet reasonable investing goals.
10. Once you are retired, the ball game is entirely different and more complicated than simply saving and investing when you were young.  Mindfully Investing covers two types of investors (young and old).  While I agree a mindful investing plan is more complicated for the older retired investor, it’s certainly not rocket science.

It’s hard to imagine anyone being convinced by some of these lame pitches.  But I took every one of these bad reasons from a blog or website of an adviser.  I didn’t provide links because I don’t want to start a useless debate with any of these advisers (not that any of them would pay attention to my opinions).

Conclusions

The four cornerstones of mindful investing (rationality, empiricism, humility, and patience) are the common theme that sorts the good reasons from the bad.  All the good reasons are fairly rational, supported by empirical data, and/or rely on a relatively humble and patient outlook.  Like most advertising, all the bad reasons try to press our emotional hot buttons.  Don’t you want to “do the job right” (fear button) or “beat the market” (greed button)?  And even worse, Bad Reason #6 about “acute feelings” and #7 about being “emotionally removed” are just emotional appeals to avoid emotional consequences.  They want you to fear, fear itself.  Interestingly, you can easily put every one of the Bad Reasons into either the category of greed (#3 and #9) or fear (all the other bad reasons).

Further, all my rebuttals are driven by the mindful investing cornerstones that best reveal the false rhetoric.  For example, the false rhetoric in Bad Reason #1 about “doing the job right” is revealed through a little rational consideration of some empirical data about the failings of the investment advice industry.  Likewise, Bad Reason #3 on “beating the market” is highly questionable from a humility standpoint, and backed up by copious empirical data on how hard it is for professionals to beat the market.

To avoid getting tedious, I’ll stop with these examples.  But feel free to play the cornerstones-of-mindful-investing game at home for the rest of these bad reasons to use an investment adviser.

My dad worked in the oil industry.  So, among the many quirks of my childhood, I knew about the idea of “peak oil” before I was a teenager.  My dad told me that there must be a finite amount of oil inside the earth.  It logically follows that at some point humans will have extracted half the oil reserves hidden underground.  And after that peak, oil production will necessarily decrease.

Peaks

A guy named Marion King Hubbert* first figured out the idea of peak oil way back in 1956 and confidently predicted that global oil production would peak around the year 2000.  He made similar estimates for other fossil fuels like coal and natural gas.  Here’s the graph of peak oil from Hubbert’s original paper.

Peak oil gave birth to the generic concept of peaks elsewhere in our culture.  Peaks became a flourishing meme.  Search the internet for “Have we reached peak” and you’ll find entries on peak smart phone, peak car, peak suburbs, peak travel, peak beer, peak narcissism, peak hipster, peak beard, peak Beyoncé, and even peak peak.  And among the many food peaks, such as peak bacon, personal finance bloggers love peak Avocado Toast.

Peak Mindfulness?

The whole peak meme climbed to the peak of my thoughts, when I saw a Fast Company article by freelance journalist Jared Lindzon entitled, “Stop forcing your mindfulness on me.”

My first reaction was laughter.  Whoever’s “forcing” mindfulness on poor Jared needs to stop it now.  And honestly, my second reaction was anger.  The headline conjures images of rouge Buddhist monks roaming the country side and forcing people to meditate.  It seems purposefully misleading just to get a few more clicks.  Of course, in the main body of the article Lindzon doesn’t present any evidence of mindfulness being forced on people.  Instead, he emphasizes its ubiquity: “‘[M]indfulness’ has taken on an almost cult-like status, becoming nearly inescapable in conversations about mental health and personal well-being, especially within the tech world.”

Lindzon speaks for many people who feel like we’ve reached an irritating level of peak mindfulness.  In fact, the irritation levels are so high that someone actually researched how often mindfulness was mentioned in scientific literature and the media to generate this graph.

The graph implies that we’ve reached peak mindfulness, but we can’t quite see the downward leg of the curve yet.

Mindfulness Myths

Lindzon’s forced-mindfulness article is a good example of some increasingly popular myths about mindfulness.  I gleaned three major “problems” with mindfulness from the article.

It’s Inauthentic – Lindzon points out, “[T]here isn’t a single word in the [Buddhist] text[s] that translates to ‘now’ or ‘present,’ which is central to its modern application.”  The myth here is that the absence of the word “now” in the earliest Buddhist writings somehow invalidates the modern application of mindfulness.

Buddhist texts are full or all sorts of confusing, fantastical, and even contradictory concepts that aren’t particularly helpful to the modern application of mindfulness.  For example, the idea of reincarnation is a central pillar of ancient Buddhism, but no one supposes that you have to believe in reincarnation in order to practice mindfulness today.

Further, most modern-day Buddhists find the concept of “now” entirely consistent with the history of mindfulness and have fully integrated the term into their practice.  Check out videos or text from the teacher and Buddhist monk Thich Nhat Hanh.  He often uses the term “present moment” and similar variations, and he’s obviously well-versed in ancient Buddhist texts.

It’s Potentially Harmful – Lindzon next claims that mindfulness is harmful by interviewing professor emerita of management at California State University, East Bay, Loretta Breuning.  “[M]indfulness often seeks to silence those nagging thoughts that humans developed to motivate their quest for survival….Often when they do mindfulness practice, they’re not focused on their needs, they’re focused on denying their needs.”**  The idea that mindfulness seeks to silence nagging thoughts or deny our biological needs is exactly the opposite of modern mindfulness practice.

The point of meditation and a focus on the present is to recognize our needs, thoughts, and emotions rather than avoiding them by reminiscing about the past or fantasizing about potential future events.  Meditation teachers commonly instruct us to embrace uncomfortable emotions or negative thoughts and explore them with curiosity.  In retreat settings, teachers often suggest skipping a meal.  This might seem like trying to “deny” our body’s needs.  But in reality, this practice is an opportunity to study the needs, emotions, and suffering that may accompany core biological functions like hunger.  Mindfully studying our thoughts also helps reveal that our internal monologues often magnify the suffering associated with biological needs.  Personally, I see absolutely no harm caused by studying our negative emotions, needs, and suffering from a purposefully calm and balanced view-point.

Other Options – Having mistakenly established that mindfulness is a “harmful escape” from reality, the article argues for better ways to escape stress.  “Rather than meditating away negative emotions, Breuning says there are a lot of other activities that offer the same temporary escape, without attempting to establish a more permanent detachment from the ego.”  Breuning seems to define “detachment from the ego” as the mechanism that denies our needs.  But most mindfulness practitioners will tell you that detachment from our egos helps us better understand and explore our needs, for the reasons I noted above.

The article advises that superior stress relief can come from, “Exercising, listening to music, playing sports, practicing art, or engaging in any activity that helps temporarily shut out the rest of the world…”  These are good examples of pure distraction.  Breuning says, “Whatever it is that you love, find a way to make it convenient to use in those moments of anxiety.”  The advice exposes that Breuning’s mindfulness critique is hollow.  What if someone loves to relieve anxiety by binge eating, drinking in excess, or sitting in front of the television for hours on end?  No one supposes that such distractions are a healthy way to relieve stress.  Breuning and Lindzon simply cherry-pick the more productive-sounding distractions and ignore the unproductive distractions that cause so much harm.

I agree that healthy activities likes sports and art are excellent forms of stress relief.   But it’s exactly their similarities with meditation (concentration, awareness of the present moment, awareness of the body, lack of consumption), rather than their differences (pure distraction versus mindful attention) that make them helpful.

Unfortunately, I find that most complaints in the media about peak mindfulness simply mischaracterize the nature and practice of mindfulness.  The only defensible criticism I see in this article is that the ongoing barrage of mindfulness messages can be annoying.  It can be particularly frustrating for those who’ve tried meditation and found it difficult or seemingly impossible, which is a common hurdle for novice meditators.

Peak Myths

The rise of mindfulness in western culture and the subsequent popular backlash, echos the rise and fall of past psychological fads.  Ever heard of EST therapy or The Secret?  These fads were once widely thought to offer great potential.  But that view slowly morphed into criticism, and then ridicule, until these fads were largely forgotten.

The peak meme is alluring, because it seems logical and is easy to apply to almost anything.  But easy things can also be mostly wrong.  Is the concept of peak mindfulness wrong?

Perhaps recent developments in peak oil, the origin of the peak meme, might tell us whether peak mindfulness is real.  I noted above that Hubbert originally predicted peak oil production around the year 2000.  Given that we’re nearly 20 years past that date, we can compare the prediction to actual oil production data before and after 2000.  This graph of oil production extends through 2015, the latest data I could easily find.  As best I can tell, the y-axis is in millions of barrels per day.

Similar to the mindfulness graph above, oil production has not yet reached a perceptible peak.  It turns out that Hubbert was wrong by at least 15 years, and counting.  You can find more recent predictions of peak oil ranging anywhere from now to after 2100.  In other words, each time peak oil fails to arrive, the researchers push back the predicted date.***

There are many surprising complications with making accurate peak oil predictions.  One of the biggest complications is that exploration and extraction technology keeps improving.  The amount of fossil fuels in the ground are still finite, but we keep finding new pockets that we never dreamed existed before.  And we keep devising better ways to extract ever deeper and more diffuse deposits.  Environmental disasters like Deep Water Horizon and the Alberta Tar Sands are examples of the collateral damage caused by pushing the bounds of oil recovery technology.

The original instance of the alluring peak meme failed to describe reality, which tell us two things.  One, it’s impossible to predict meaningful things about the future with any consistency.  Two, our inability to predict the future is mostly a failure of the imagination.  We simply can’t conjure up all the possible changes in all the variables that may become significant to a future outcome.

Conclusion

At first glance, mindfulness seems like an obvious fad that’s nearing peak popularity.  But like a magic trick, the most obvious events on the stage are often the most misleading.  When properly understood, mindfulness offers something bigger than a fad.  The concepts of mindfulness and breathing meditation have endured for at least 2500 years.  In that time, mindfulness migrated between ancient civilizations and became fully integrated into stunningly different cultures.  Hundreds of millions of people across time have found mindfulness essential to a fulfilling life.  Some have suggested that the Western mindset is uniquely incapable of accepting mindfulness, but that sounds mostly like cultural pride talking.

Hubbert likely never dreamed of anything like Global Warming, which is the newest complication for peak oil predictions.  The oil production debate has evolved in the last two decades from a question of when oil will peak, to how we can best transcend the peak by quickly converting to alternative energy sources.  Our “need” to extract, refine, and burn more crude oil becomes increasingly questionable with each year’s uptick in global average temperatures.  Perhaps we’ll be collectively smart enough to see beyond the peak oil debate and decide to leave the remaining oil deposits moldering deep underground for a few more million years.  In the same vein, perhaps people will realize that mischaracterizing mindfulness as a harmful peak fad is unproductive, both for those who already pursue mindfulness and those who might want to try it in the future.

Change is stressful for most people.  And the rapid pace of technological change in modern society spurs ever-increasing environmental changes, economic changes, and public anxiety about those changes.  Mindfulness may become a nearly universal tool to help heal our anxieties about modern life.  Or it may dwindle into a niche hobby, like building ships in a bottle, that only a few eccentrics find therapeutic.  The folks dwelling on peak mindfulness could eventually be proven right, or they may be as wrong as the peak oil alarmists of the past.  Regardless, labeling mindfulness harmful because it “denies our needs”, is like labeling alternative energy initiatives harmful because they deny our traditional need to burn every drop of oil we can find.  Mindfulness helps show that our perceived “needs” are often just “wants” spawned by our bad habits.

---

* Showing a decent sense of self-preservation in the macho oil industry, he wisely went by the more masculine variation of “M. King Hubbert”.

** Note that only the second half of this is an actual quote from Breuning.  My simplified quotation marks here denote any content that I took directly from the article.

*** It reminds of when doomsday cults set a date for the end of the world.  When the world awakes the next day, they inevitably set a new date or give some lame excuse for why nothing happened.