I have interviewed some great investors on this show and one thing comes to mind... While all the greats are using a form of mindfulness, they never describe it that way. This interview with Jonathan Deyoe dives into the concept of how mindfulness can help you become a better investor. We also discuss some wall street myths, meditation, and why simplicity in financial planning is better than complex... And if that isn't enough we talk about how to create a happiness dividend.
Can Mindfulness Produce a Better Investment Experience?
If you do a google search with terms such as “saving for retirement,” “investing,” or “the stock market,” you will be buried by an avalanche of results. At the top, you will find ads posing as information. You will discover all the things you are doing wrong. You will be told you aren’t saving enough and reminded of “better” investments. How helpful is that?
How helpful are all those articles about the retirement income crises? What exactly is a fiduciary? Who is the DOL again? Which hot stock of the thousands being recommended by a hundred pundits will make us richer quicker? Is it just plain crazy to pay a fee for financial advice, or is it absolutely essential? When will this economic catastrophe come to an end? What will cause the next one? Since the world is going to hell, should we bury our cash? Or should we buy gold… or bitcoin? Is there anything useful in all the self-promotion and misinformation? How do you know what to trust?
We have unparalleled access to data, but little of it helps actual people in real life. We are more confused and anxious about our financial futures than ever. Pundits talk, bloggers blog, podcasters pontificate, regulators write new rules, and financial firms create new products, while ordinary folks get more worried and further behind. Something in our approach to personal finance is broken.
We do not need more information. We certainly don’t need another sales pitch disguised as market wisdom. We need emotional intelligence. At Mindful Money, we believe we benefit from incorporating mindfulness into financial education and planning.
Most definitions of mindfulness describe a non-judgmental awareness of reality as seen through our senses and thoughts. When we contemplate money, it is often our misunderstanding of reality that hurts us. Our vision of reality is clouded by how we WISH it were and how we mistakenly BELIEVE it to be. But, when we pay attention to our experiences without judging them as “good” or “bad,” we can see the present moment more clearly and avoid making the big mistakes that derail most people.
Mindfulness creates a space between our experience of reality and our reaction to reality. This space enables better decision-making.
Mindfulness is not a gimmick. It will not magically attract dollars into your life or unveil “the secret” to financial success. Instead, it’s a practice that enables us to strip away mistaken beliefs and problematic behaviors that impede our progress. It enables us to stop chasing things we don’t need, choose what we actually want, and then take meaningful steps towards achieving real life goals.
After years of practicing meditation, I have learned I don’t control which thoughts arise, I can only choose whether (or not) they warrant my attention. Thoughts pop into our stream of our consciousness and we have to decide which to attend to and which to let go. This is pivotal when applied to personal finance in general and investing specifically.
When every ounce of your being is screaming “Buy TESLA now before it goes up another 100%” or “Sell stocks now because they just dropped 34% in 20 days and you can’t see how it gets better,” you can choose to not listen.
On some days, it seems to me that our whole society unconsciously subscribes to a series of collective beliefs (fallacies) poised to tip one another over like dominoes, toppling our financial lives. Watch the “dominoes” fall:
1. We believe that markets and the economies surrounding them are fragile, unstable, and vulnerable. While “unprecedented” is a media favorite, all investors have to recognize that markets are volatile in the short term but results smooth out over time.
2. This mistaken belief in fragility demands we focus on today’s financial headlines. Too much attention to the moment makes us see demons where none exist. It turns our focus away from stuff that matters and towards THIS election, THIS Fed meeting, THIS earnings report, and THIS war.
3. We come to believe that market VOLATILITY = RISK to be avoided – rather than accepting volatility as the natural condition of the markets.
4. The belief that downside volatility is to be avoided engenders hyper-vigilance. This both wears us out and impedes good decision-making. We seek the “best” investment approach because we won’t accept the future as unknowable.
5. The headline fear and the constant search for the “best” investment approach leads us to focus on evermore short-term performance of our portfolio as the dominant variable in our financial success. When our portfolio doesn’t perform as we expect, we change it.
The more we repeat this process, the further we get from our desired outcomes. As the last domino falls, we become more trapped in our mistaken belief that we should run from volatility because the world is so fragile.
In practice, the experience goes something like this:
Enter Covid19. (Could be anything really, Covid is the most recent example)
Headline: “OMG Covid.” Stories start about the disease describe how bad it could get.
Economy does slow and markets dive.
“Yup, Media said that would happen.”
Headline: “Time to get out of equities.”
“Yes, that feels right to me because I don’t know how this resolves and all the models are saying it is really going to be bad. I’ll sit in cash for awhile and stay ‘safe’”
The economy starts to get better and markets recover way faster than anyone expected. Buffet buys a company… or 2 or 3.
Headline: “Market Is Way Ahead of Economy.”
Headline: “Has Warren Buffett lost his touch?”
“The market is ahead of itself, it’s going to fall again. I’ll wait to buy back in.”
Market continues to climb, reaching new highs.
People realize their mistake – or their fear shifts from loss to missing out – and re-buy pushing markets higher still. Buffett, again, looks like a genius.
NOTE: Headlines never apologize.
Look at history and discover that this process repeats. Replace “Covid” with “dot-com” or “great-recession” or “election” or any crisis du jour. Are the markets and the economy fragile? They are volatile for sure… but fragile? With hind-site, we learn that the ability to NOT react to these stories is the key to our investing success.
It isn’t the market or the economy that is hurting us. Our accepting the belief that they will fail and the behaviors we employ to protect ourselves from their failure are hurting us.
The rational investor can see the pattern repeat crisis after crisis. The rational investor sees that in the absence of an actual economic or market crisis, the financial media may simply invent one. Any problem can be blown out of proportion in regards to its effect on markets and economies. I would never minimize the real damage of a crisis, but the rational investor sees the market and economic damage as temporary. Collapse is followed by recovery – Every Single Time.
If we want a better personal finance experience, we have to access rational non-action. Mindfulness becomes a doorway to rationality. Becoming mindful allows us to achieve the stillness in the face of the unknown. We can avoid making excited or panicky financial choices. We can enjoy calmer lives and achieve better financial outcomes.
Stop trying to figure out what comes next. Look to history’s lessons:
1. Markets and the economies they represent are DURABLE.
2. Daily financial headlines are MEANINGLESS.
3. VOLATILITY ≠ RISK. Markets zig and zag. That’s just what they do. Human reactions create risk. Stop getting excited by the Zig and panicked by the Zag.
4. You DO NOT need a pundit or a short-term market outlook. You need a plan and a long-term investment process you can hold onto.
5. YOUR BEHAVIOR is the single greatest determining factor of your long-term financial success.
Spend less, earn more, save and invest as much as possible in the great companies of the US and the world. Plan where you want to go and follow your plan. When you do, you have a better chance of reaching your financial (and other) goals.
No portfolio or market outlook can make that promise.
Jonathan K. DeYoe is the president of Mindful Money in Berkeley, CA and the author of Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend. Mindful Money offers financial education paired with digital investing, personalized wealth management services, and retirement plan services.
These opinions are solely for informational purposes and are not intended as specific advice for any individual. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Advisory services are only offered to clients where Mindful Money has a client service agreement is in place. “Mindful Money” is a service mark of DeYoe Wealth Management, Inc. a Registered Investment Adviser.
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Today's Guest: Jonathan Deyoe
Jonathan has uniquely blended Buddhism and financial planning and for over 20 years he has successfully helped families create financial order through planning, discipline, and patience. Jonathan's speaking specializes in topics for wealthy parents, HR Leaders, attorneys, doctors, and high net worth business owners.
Jonathan's Online Presence:
- Deyoe Wealth Management
- Mindful Money: Simple Practice To Reach Your Financial Goals and Increasing Your Happiness Dividend by Jonathan Deyoe
- The One Page Financial Plan by Carl Richards
- Top 10 Investing Myths You Know To Be True But Are Not by Kirk Chisholm