Sooner or later, human beings come to realize that some ideas that they
hold in high regard do not work. The most common reaction in those cases
is denial. Few individuals like the uncertainty of change; even fewer
are willing to admit mistakes and take openly the blame.
Thinking without distortions
Ideas
engage people and people move the world. Our convictions contribute to
our effectiveness more than our material resources. If we hold the right
ideas, we will progress; if we believe in falsehoods and
inconsistencies, we will fail. There is no escape from this principle.
Are your beliefs promoting
fear or prompting you to take effective action? Have you acquired a
clear view of the world? Can you see reality without the distortions of
wishful thinking? Can you face life without envy and discouragement? Are
your convictions hindering or supporting your motivation?
Discard unworkable concepts
We can
define ideas that work as those that allow us to identify problems,
analyse their causes, and figure out workable solutions. Worthless
opinions are those that render us insensitive to danger, lead us to
react irrationally to difficulties, and contaminate our emotions with
anger or anxiety. Counter-productive views are those that sabotage our
initiatives and waste our potential.
The first step to improve
your life is to throw away all ideas that do not work; you have to let
go of unproven theories before you embrace feasible solutions; you
cannot become efficient until you discard all excuses for rigidity and
inertia. In order to move forward, we must stop pushing backwards; in
order to look at the horizon, we must lift our eyes from the ground.
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Chances are that you have never heard of Horatio Alger. In his time,
that is, during the last two decades of the 19th century, he was one the
best-selling writers in the United States of America. Alger was the
author of dozens of novels aimed at young readers, telling for the most
part rags-to-riches stories.
"Ragged Dick" was his most famous
book. Its protagonist, a quintessential Alger character, tries out his
hand at different professions until he finally achieves the life of
prosperity that he pursues. "He went into business," wrote Alger in that
novel, "starting in a small way, and worked his way up by degrees."
The spirit of his time
If
you read Alger's novels nowadays, you might find their plot too simple.
His characters were, to a certain extent, stereotypes. Did Alger's
stories take place in exotic, exciting settings? No, that was mostly not
the case. Was Alger an author known for his ability to write impressive
dialogue? Hardly. His prose was fine, but not spectacular.
Literary
critics who have studied Alger's work often conclude that his
extraordinary popularity was based on the fact that "his stories
responded well to the spirit of his time," a period of adventurous
entrepreneurs and rapid economic progress.
This conclusion might
be true, but in my view, it still leaves an important aspect out of the
picture. If you read Horatio Alger's stories, you will find that they
address important life issues. His novels revolved around fundamental
values such as ambition, independence, and integrity.
Depicting a better future
The
recurring theme in Alger's books is that you, the reader, have the same
right to succeed as anybody else, irrespective of your origin, family,
or personal history. If you don't give up and keep on pushing, you might
just make it.
"Keep up a little longer and we will save you,"
wrote Horatio Alger in the final chapter of his best-selling book. "Dick
heard the shout and it put fresh strength into him. He battled manfully
with the treacherous sea, his eyes fixed longingly on the approaching
boat. Hold on tight, little boy, there's a boat coming."
No
wonder that those who read Alger's novels in the late 19th century liked
them so much. At that time, when the world was still untouched by
radio, films, and television, Alger's popular fiction was a bright sign
pointing to a better future, telling each of his readers that he had
been selected to make his dreams come true. Today, a century later, this
message of hope is something that we don't get to hear often enough.
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Economic problems are similar to the influenza
virus that marks the arrival of winter every year. Exaggerated concern
seldom improves anything. Instead, individuals should identify the path
that minimizes trouble and, if possible, find ways to profit from it.
Incomplete information
Whenever
you hear that inflation or deflation are coming, ask yourself how you
can structure your finances in order to benefit from the situation. Can
you link your income to a product whose price is likely to increase or
decrease at the same pace as the overall economy? Can you reduce the
amount of cash that you require to live and invest the remainder in
assets that will profit from upcoming economic changes?
Economists
speculate all the time about next year's rates of unemployment,
inflation or deflation. For your personal investment decisions, you
don't need to wait until the exact figure is known. On most occasions,
knowing the general trend is enough to make rational investment choices.
If
newspapers are discussing whether next year's inflation is going to be
6% or 7%, that tells you as much as you need to know. Take swift action
and reflect about how to structure your finances to deal with such price
increases. Worrying is essentially a waste of time. Although you cannot
reshape the world according to your taste, nothing prevents you from
taking measures to minimize trouble.
Risk diversification
Discard stress, anxiety, and depression, learn to
face problems in the best possible way, and become a rational investor.
Your financial and philosophical sharpness will grow together. Your
personal effectiveness will increase and you will become more tolerant
and self-reliant.
Stop worrying, take action, and start making
money. Never place all your savings on a single investment. If you
acquire the habit of diversifying your investments amongst different
types of assets, chances are that you will be much less troubled. If you
purchase shares of solid companies around the world, your portfolio
will tend to be less affected by problems in specific countries.
Learning
to deal with the world's problems is a better approach than being
paralysed by them. Wisdom is the process of learning what a man can
achieve and what he should rather let go of. Becoming a rational
investor will make you a better human being and help you overcome
whatever financial fears the day may bring.
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Human action produces the greatest benefits when it is focused on
providing rational solutions to critical problems. A wise man uses logic
to determine which difficulties are to be addressed with priority. He
applies his energies to overcome major obstacles and ignores small
inconveniences.
Actions that lead to happiness
Given sufficient time, logic and consistency
produce positive results. A rational approach to living gives you the
ultimate advantage in the fields of investment, health, career, or
relationships. Barring extreme bad luck or misfortune, ethical actions
lead to happiness.
The easiest way to accelerate your personal
growth is to concentrate your efforts on the area of your life where
problems are most pressing. Successful managers apply this strategy to
their businesses. For instance, when assembly difficulties slow down
production in a furniture factory, the solution might call for simpler
designs.
You only have one life to enjoy and it is up to you to
decide which path to follow. Assess your situation objectively, placing
facts above prejudice. Ignore empty promises and select your best
alternative on solid grounds.
Do not waste time trying to impress
people who do not care for you. Discard nonsense and embrace logic.
Design your strategy according to reality. See what works well in the
world and identify the keys to prosperity.
A sense of purpose
Complaining and
wishful thinking are ineffectual. Ambitious goals can only be achieved
through thoughtful plans and consistent implementation. Psychological
balance can only be maintained through rational values and a sense of
purpose.
Sound principles are as beneficial as they are
demanding. Irrationality may seem comfortable in the short-term, but
contradictions ultimately result in failure. Individuals determine their
own future by their passion to turn dreams into reality and their logic
in the choice of means.
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The world is plagued by problems of all sorts. During your lifetime,
chances are that you will go through periods of inflation, deflation,
unemployment, rising share prices and stock market crashes. Newspapers
report these problems with regularity and it seems that some of them
will remain unresolved in the foreseeable future.
Protect yourself
At the time of
this writing, most economists agree that increased consumer prices are
coming, although nobody can tell precisely when this will happen. If you
live on a fixed income, as it is the case of most pensioners, you
should view inflation as a cause of a serious concern.
When the
media mention that a loss of purchasing power might take place within
months, danger is already looming in the horizon. If you do nothing,
inflation will catch you unprepared. If you take appropriate measures,
that will not be the end of the story either. As soon as inflation is
under control, the next problem will come to haunt us, possibly another
stock market crash.
Even if you occupy a position of influence,
your possibilities of changing society remain minuscule for the simple
reason that millions of people out there don't care about what you think
and never will. Major changes in History ultimately result from ideas
held in high regard, rightly or wrongly, by significant segments of the
population. Those beliefs evolve through generations and change very
slowly, even in the era of the internet and the global economy.
An effective strategy
As
an investor, you will be much better off if you realize your impotence
to bring fundamental changes to society and stop worrying about it. An
effective strategy to help other people, which is by all means a
laudable intent, is to focus your efforts on a restricted field where
your contribution can really make a difference.
Adopting a
rational investment philosophy involves giving up unrealistic
expectations and concentrating on what is feasible. You cannot prevent
inflation or deflation from taking place, but if you play your cards
well, you can make money from them. Instead of worrying about the
disadvantages of rising or falling prices, why don't you figure out how
to use each financial phenomenon for your personal profit?
Achieving
a positive result in your bank account will allow you to devote your
gains to helping others, if that is your wish. For each disruptive
event, there is an investment strategy that can help you make a profit.
Rising share prices represent the easiest situation to deal with because
most people can figure out that there is plenty of money to be made if
you borrow at 6% interest and invest at 12% return.
Practical action
What makes
rational investment difficult is our psychological resistance to letting
go of worry, recognizing past mistakes, and taking practical action. In
addition, a wise man must accept that an investment method that proves
successful in one environment frequently becomes unsuitable when the
context changes.
Real estate and gold coins may be great
investments during inflationary periods, but tend to be lousy places to keep
your money when the curve turns and prices begin to fall. You certainly
don't want to be caught with a huge mortgage at a high rate when
the price of residential properties begins to fall.
It is up to you in each case to take sensible
measures to profit from the situation or, at least, to minimize its
negative consequences. As individuals, our best strategy consists of
letting go of anxiety and viewing inflation, deflation, unemployment, or any other economic challenge
just as another problem to be handled.
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