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You’ve been trained to believe the most dangerous four words for investors are: It’s different this time. I don’t agree. These four are more problematic: I want your advice.
Because I hold this view, I wasn’t about to succumb to temptation when a reader of my books called me. Here’s a summary of our conversation.
A reader needs advice
The caller expressed his extreme anxiety about the pandemic, the “disconnect” between the market and the economy, the geopolitical situation, the polarization of our country and what he described as the “inevitability” of “extreme violence” after the November elections.
He asked for my advice.
Here’s what I told him: Those strike me as very legitimate concerns. How can I help?
There was a long pause before he said: You already have.
I asked him to explain. He said: If you share those concerns, at least I know I’m not crazy.
He thanked me. We both felt good about the call.
The positive power of negative emotions
I worry a lot. When my concerns are irrational or overblown, I try to catch myself and reverse course. But sometimes my anxiety is well-founded. In those circumstances, when well-meaning friends and family tell me “not to worry,” it creates more anxiety.
There are many benefits of positive thinking, but it has its limitations.
One study (discussed here) found that depriving “defensive pessimists” (those who tend to worry excessively about upcoming stressors like job interviews) of their pessimistic coping style (by encouraging them to “cheer up”) caused them to perform worse on tasks.
Another study found pessimists were less likely to be depressed than optimists after experiencing a negative life event (like the death of a loved one).
There’s nothing wrong with experiencing negative emotions. One study found that when we suppress these emotions (due to social pressure or otherwise), our feeling of sadness increases.
There’s a significant difference between “realistic optimism” (hoping for a positive outcome, while being cognizant of risks) and “unrealistic optimism” (blithely ignoring threats). Realistic optimism is healthy. Unrealistic optimism is dangerous.
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Takeaways in dealing with your clients
Your clients are experiencing significant anxiety. You do them a disservice when you dismiss their concerns by demonstrating the resiliency of the markets. Instead of trying to convince them their catastrophizing isn’t reality-based, focus on the positive side of negative thinking.
Ask them to explain the worst scenario they envision. Then ask: If you knew this was going to happen, how would you prepare for it? This might lead to a discussion of how much risk they are comfortable taking. Based on their response, you could adjust their asset allocation or take other steps to alleviate their concerns.
While there are many benefits of positive thinking and adverse health consequences from negativity, striking a balance between the two is the key to alleviating anxiety
For more information about marketing and branding opportunities with Dan’s upcoming book, Ask: How to Relate to Anyone, click here.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
