Thursday, 11 February 2016

A risk you can limit is definitely a risk you can take

Does the future look as black as they paint it? This is a question that you should ask yourself when you read troublesome economic predictions. On most days, the prevalent opinion in newspapers is a mixture of distrust and hesitation. Is there a way to make solid decisions about where to place your savings and minimize financial risk?

The right methodology

In investments, like in most things in life, it all boils down to using the right methodology. How can we determine what is true? What facts are relevant? Which predictions make sense? Can we figure out the future by applying principles extracted from experience?

"If you want to climb a high mountain, choose the smoothest path," wrote the Chinese philosopher Lao-Tzu in the year 520 BC. In times of a declining stock market, investing becomes the equivalent of climbing the Swiss Alps bare-handed in the middle of the winter.

After suffering the negative results of wrong financial decisions, many individuals are reluctant to place any money in the stock market. Are those fears justified? Making mistakes is inevitable in any human endeavour. A wise man must be willing to accept occasional errors and use them as stepping-stones for building a better future for himself. Why should we not view the stock market in the same way? 

Five important lessons

The main lesson to be drawn from past financial mistakes is that, when it comes to investing, methodology is everything. More careful research can help us make better decisions in the future. A more disciplined approach can minimize losses. Taking appropriate measures to reduce risk should prevent us from making the same faults twice.

The following principles of risk reduction have endured the best and worst of times. Use them to your advantage to build a prosperous financial future. From time to time, your decisions will not be correct, but if you adopt a prudent strategy, you can keep your losses under control at the same time that you let your profits grow.

  • Choose shares of solid companies, preferably those that pay regular dividends: Unless you are a professional investor, it is advisable to avoid speculative stocks of small enterprises whose future is dependant on one single product or customer. During periods of economic adversity, well-established companies whose products fulfil fundamental human needs tend to fare better than small undertakings.
  • Never place more than 5% of your savings on a single investment: Even if you make a correct decision today, circumstances continuously change. The easiest way to minimize risk is to spread your savings into many different assets. The rule of 5% implies that, over time, you should aim at having at least 20 different types of investments. Risk reduction is worth the effort of researching 20 different investments. Some of them will turn out to be outstanding places for your money, while others may deliver negative results. Since you cannot know in advance, you will be better off by spreading your money.
  • Diversify your assets amongst different sectors and countries: You have no control over what problems will affect specific industries or countries in the future. Those negative events are, to a great extent, unpredictable. Follow the example of professional investors and spread your savings amongst different types of assets. If you diversify internationally by placing a good part of your savings in stable countries around the world, your financial future will be less affected by problems in any particular territory. By the way, this principle was already known to medieval merchants ten centuries ago.
  • Understand that nobody can predict with certainty when markets hit bottom or are about to crash: You should never act blindly on someone else's advice, no matter how brilliant their track record is. Everybody makes mistakes and, as a general rule, it is better to trust facts than opinions. Listen to wise individuals, but always check things for yourself.
  • Save regularly, monthly if possible, in order to ensure that you will also invest during periods of pessimism. Psychologically, it is easier to place your money in the stock market when prices are rising than when the world seems to be falling apart. Nevertheless, periods of economic misfortune tend to be the best to purchase assets at a low price.
Do not overreact

This last principle is the most difficult to apply, since it requires enormous self-discipline. If we overreact to painful past experiences, we will overlook great investment opportunities. When the stock markets of the world go through a difficult period, the low prices can offer excellent possibilities for the future. If you adopt the habit of investing regularly, you will be able to make profitable decisions when few are willing to take any risk.

The essential principles of risk reduction will not provide you absolute protection, but they can help you keep your losses to a minimum. Whatever your strategy, check facts for yourself and never trust anybody blindly.

Periods of a declining stock market are often the best to rebuild an investment portfolio. As Lao-Tzu observed twenty-six centuries ago: "Truth is often paradoxical. Do not make the mistake of believing that you know what you don't." Making risk reduction a part of your financial plan can help preserve your peace of mind as much as your savings.


Image: Photograph of a medieval painting taken by John Vespasian, 2015
For more information about rational living, I refer you to my books

Saturday, 6 February 2016

Never draw fearful conclusions from inconclusive facts

From time to time, it can be beneficial to sit down and make a list of all factors that are keeping you down. Make sure that you have plenty of paper available since the outcome might be long. If this is your first attempt at compiling such list, don't overdo it. A dozen pages will do.

Afraid of nothing

Depending on your age and circumstances, you may wish to write down that you are too young or too old. If you live in the countryside, you should mention that opportunities are scarce. If you inhabit the city, that competition is fierce.

Should you be looking for a job, write a remark that the market is hard. For half of the open positions, your experience will be insufficient; for the other half, you will be overqualified. The situation will be worse if you are going out on dates. Those who might love you won't recognize you and those who approach you might not fit your needs.

After you have finished your list, read it aloud. In view of the obstacles that are blocking your way, the conclusion seems inescapable. The arguments have been heard and judgement cannot be deferred. Would you agree that no improvement is possible?

You aimed at a target and missed, so stop running and quit. You tried your best and it didn't work, so go away and never return. Your attempts did not lead to success, so it's time to abandon your quest. You have wasted your resources and exhausted your forces.

Your best ideas are spent, your best years filled with discontent. Since your performance did not earn a decoration, you can choose between abdication and resignation. Your ambitions are impossible to achieve, how could you ever be so naive?

Refusing to quit

Nonetheless, even if your difficulties seem insurmountable, the above conclusions are wrong. Thousands of individuals overcome much worse problems than the ones you have. Those who search for better ways tend to multiply their chances of success.

As long as you refuse to quit, possibilities continue to exist. The tide will turn today, washing away yesterday's waste and bringing new opportunities. Turn around, face the water, and look for the best moment to sail away from the coast.

Irrespective of your background and constraints, your situation can change for the better. Male or female, young or old, you should relentless pursue your goals. Most problems can be solved if they are faced with courage and creativity. Obstacles can be circumvented and solutions invented. Do not let your age and circumstances write off your future.

If you don't live in the United States of America, you may have never heard of Anna Mary Robertson Moses. She was popularly known as Grandma Moses and died in 1961, when she was 101 years old. Her days were spent working, initially for other people and later for herself.

During her life, Ms. Moses did farm work, cooked, washed clothes, raised her children, and made butter and embroideries. Her earnings remained modest for many decades, but she wasted no time complaining. She simply had too much to do, especially when she became a widow at 57.

Finding a new passion

Making embroideries kept her busy. It was the sort of work that she liked, a combination of creativity and routine, a challenge to her energies and imagination. Unfortunately, when she turned 76, arthritis prevented her from doing further needlework and she had to stop making embroideries.

Many people who reach that age give up whatever illusions they have left. They tell themselves that they can go no farther and fall prey to psychological immobility. Once they relinquish their will to live, their physical condition soon catches up with their attitude.

In contrast, when arthritis prevented Grandma Moses from doing embroidery work, she simply acknowledged the fact and searched for an alternative occupation. She chose to take up painting and began to produce her first works, which she would give away to family and friends.

Before long, her new activity turned into a passion. Grandma Moses would devote about six hours every day to painting, which she did mainly in her kitchen, often producing a finished work in one session. At that speed, her hand quickly gained confidence and mastery. In her paintings, the motives came from her memory and the bright colours from her philosophy.

After a while, she started to put up her work for sale. Since no art gallery would stage an exhibition for a 78 year old neophyte, Grandma Moses convinced a nearby drug-store to showcase her work. Her asking price was just a few dollars per painting.

Persistence carries the day

As chance would have it, an art collector passed by the drug-store, saw her paintings, and purchased a few of them. Those sales proved that, if she persisted, she could become a professional artist. The collector's reaction predicted what millions of people would later come to experience when confronted with Grandma Moses' art: freshness, authenticity, and hope.

Little by little, her work found its way into exhibitions and galleries, initially with other artists and later alone. When Grandma Moses became famous, she was well into her eighties. Day after day, she continued to produce new paintings with an energy that few other artists could match.

Her compositions portray the joy of purposeful human activity. Her canvasses frequently ignore the classical rules of perspective, but are filled with colour and charm. Each of Grandma Moses' paintings is an affirmation of the pleasures of simplicity. Unaffected by her success, she continued to produce new works well beyond her 101st birthday.

If you are convinced that prejudice, age, or any other factor are denying you opportunities, you might be right, but that's beside the point. The question has to be formulated in a different manner: What are you going to do to circumvent obstacles and improve your situation? More often than not, a path to success can be found.

A source of inspiration

Should you consider your circumstances too distressing, the work of Grandma Moses might provide you the inspiration you need. See if you can get some colour posters of her paintings. Place the posters on your kitchen wall and let their optimism change your mood.

Life is less complicated than it seems: you wake up in the morning, you stay alert, and seize opportunities as they come. The message from Grandma Moses is reflected in her compositions: a world full of light that has little need of shadows.

Discouragement and complaints are dead-end projects that you shouldn't pursue. Those who are busy moving forward have no time for lamentations. Immobility keeps you down, but action generates opportunities. The tide will turn today. Don't miss it.


Image by faul under Creative Commons Attribution License. See the license terms under

For more information about rational living, I refer you to my books

The 10 Principles of Rational Living

Saturday, 30 January 2016

Why you should focus on priorities, and shun worthless distractions

Travelling for pleasure is a modern phenomenon. Before the twentieth century, few people undertook long journeys if it was not for investment or trade. Moving from one country to another was uncomfortable and expensive. Before vaccination became an everyday procedure, malaria and yellow fever presented major health risks for those travelling to tropical areas.

Exotic enticements

In our days, public taste has shifted to the opposite extreme. From teenagers to pensioners, millions of individuals devote their holidays to visiting distant cities. Airlines offer affordable tickets to cross the ocean, inviting consumers to spend their next vacation exploring exotic cultures. Who can resist their enticing advertisements?

The fact that large numbers of people travel for pleasure provides evidence of its popularity, not of its benefits. Many individuals count smoking, overeating, and excessive drinking amongst their favourite occupations. The enjoyment derived from those activities does not automatically qualify them as advantageous. Judgement should be passed on the basis of rational assessment, not of popularity.

We need purpose

While dogs and cats appear perfectly contented to move around without purpose, human beings tend to become restless. Travelling dissolves our routines and forces us to start from scratch. Encountering novelty can be pleasurable, but too much of it leads to exhaustion.

Spending your vacation in an unusual location guarantees that you will meet new people and taste exotic food. For the duration of the break, you will forget your routines and feel exempted from preoccupations. The idea is that, since you have worked hard for months, now it is your turn to enjoy a holiday.

On the other hand, if you are one of those who loves his work and is inclined to introspection, you might experience some doubts: Should you really be there? Don't you have better things to do? What is the point of all these vacation trips? Are you not wasting your time?

The vision of life as a sequence of work interrupted by holiday trips was born a century ago, but our mental patterns are more than 5.000 years old. The practice of going away at regular intervals and leaving everything behind would have seemed incomprehensible to most 19th century entrepreneurs, composers, or inventors. They would have looked at us with surprise and inquired about the purpose of all that travelling.

A daily structure

The German philosopher Immanuel Kant (1724-1804) is known to have spent his entire life in Konigsberg, a city that nowadays belongs to Russia. Apparently, he never wandered more than a few kilometres away from Konigsberg, where he worked for decades as a university professor. If he had wished to travel, he possessed the means to do so.

Kant never crossed the ocean to see America and never visited Russia, even though St. Petersburg is not far away from Konigsberg. He never went to London, never set foot in Paris, and never spent a summer in Rome. For all we know, he did not even go to Berlin for a weekend. If this sounds boring to you, wait until you read the whole story.

Due to financial difficulties in his youth, Kant was forced to interrupt his studies for a couple of years. He eventually managed to obtain an advanced degree and, when he was 31 years old, he landed a teaching job at the University of Konigsberg, where he would continue to lecture until his retirement decades later.

For most of his life, Kant did pretty much the same every day, irrespective of the season. He would have breakfast, walk to the University, teach his classes, have lunch, do some research, write a few pages of his next book, return home, and have dinner.

Excellent results

When his friends urged him to have a more active social life, Kant politely replied that he had no time. There was always some exciting subject that he was researching or some important book that he was planning. His writing kept him busy, leaving little room for travel and other activities.

After a quarter of a century at his job, he produced his most important book, the Critique of Pure Reason (1781). When the volume was published, Kant was already 57 years old and fully conscious of the importance of what he had accomplished. History would prove him right. His work has exerted foremost influence on philosophers during the last two centuries.

The insights contained in Kant's book prepared the ground for scientific discoveries and industrial development. His ethical theories, which underline the role of reason, stressed the importance of individual responsibility.

Would Kant have written such exceptional book if he had spent several weeks per year travelling for pleasure? Would he have produced such extraordinary achievement if he had interrupted his work at regular intervals?

Your choice

While exotic vacations are fine for some people, other individuals find them disruptive. Depending on your personal philosophy and the type of activities you like, extended travelling might or might not be the right thing for you.

Do not assume that you are obliged to follow the trend. If there is a lesson to be learned from Kant's life, is that you can attain great success without going anywhere. Travelling for pleasure can be great fun, but if there are better things that you could do with your time, do not let anybody decide for you.


Image by David Berkowitz under Creative Commons Attribution License. See the license terms under

For more information about rational living, I refer you to my books

Monday, 25 January 2016

The five differences between difficult undertakings and hopeless enterprises

In retrospect, it is easy to identify dead-end projects. If we look back at Alexander the Great, we can see that his dream of conquering the world was a foolish adventure. Similarly, if we look back at the Byzantine Empire, we can see how the erosion of principles ruined its legal system.

On the other hand, acknowledging that a beloved current activity may be a dead-end project is a whole different question. Human beings seldom stop detrimental actions even when errors become apparent; instead, we come up with a hundred reasons in favour of continuing what is manifestly unworkable. We do not want to lose face by admitting that we have made a mistake.

Choosing sustainability

Sustainability marks the difference between difficult undertakings and hopeless enterprises. A feasible plan leads to a better future, while a hopeless proposition leads to endless nightmares. High-quality service leads to satisfied customers; wasteful chaos, to regrets. Learning valuable skills leads to increased productivity; senseless memorizing, to unbearable boredom.

Although there is no foolproof formula for identifying dead-end projects, experience provides us with effective guidelines. The sooner we recognize a losing pattern, the faster we can correct it or escape it. The following questions can help establish if a project is worth pursuing or not.

  1. Are you creating new assets? Valuable undertakings provide the foundation for a better future; detrimental activities destroy resources. The worst sort of ventures are those that create permanent liabilities. Never embark yourself on an enterprise that requires you to make disproportionate commitments.
  2. Are you dealing with friendly people? Dead-end projects attract bitter persons who relish in sharing their misery. Enterprises that possess a culture of aggressiveness hire workers who are nasty and mean. Those environments are not conductive to success; seek out kind people and do your best to avoid the rest. 
  3. Are you acquiring new skills? The best games make us acquire useful habits and think for ourselves; similarly, the best sports improve our overall physical condition. In contrast, dead-end activities have restrained scopes with no wider application; they are doomed to remain hobbies forever. 
  4. Can your project expand overseas? Minority languages, despite their many charms, cannot match the array of possibilities offered by English, Spanish, French, and German. Projects with strict local focus provide few opportunities for growth and learning. Activities with a global view allow participants to meet many interesting people. 
  5. Will it contribute to your personal growth? History changes markets and fashions; the clock cannot be turned back. Worthy activities follow current trends and attract new customers; in contrast, unworkable projects attempt to maintain dying traditions; they have already lost the race against time.
Stop wasting time on dead-end projects. As soon as you identify a losing pattern, discard rationalisations and analyse your motivation. Shun activities that keep you running in circles; instead, seek out opportunities for growth and learning; choose projects that enhance productiveness, cooperation, kindness, and friendship. 


Image by jtriefen under Creative Commons Attribution License. See the license terms under

For more information about rational living, I refer you to my books

Thursday, 21 January 2016

Personal effectiveness is fuelled by virtue and accelerated by consistency

While time runs only in one direction, human beings have the privilege of hesitating and zigzagging. Nobody can prevent you from destroying what you have built in the past. You can do away with your possessions and reputation. You can neglect to use your talent and education. You can move forward or you can start again from scratch.

No more hesitation

Consistency becomes ethically relevant when it is anchored on fundamental virtues such as honesty and independence. A man can be consistent with his best or worst actions; coherence with the former enhances his moral stature; loyalty to evil precipitates his demise.

Personal effectiveness is fuelled by virtue and accelerated by consistency. A rational man desires to build higher. He wants his health to improve, or at least, not to deteriorate. He expects his family to become a growing source of joy. In his work, he aims at expanding his business or advancing his career.

If he acts in alignment with reality, his expectations will be fulfilled barring extreme bad luck or misfortune. On the other hand, if he behaves inconsistently, chances are that he will make a mess out of his life.

Contradictions lead to waste

A wise man corrects his mistakes and reaffirms his commitment to doing what is right. A fool dismisses lessons from experience and blames his errors on others.

When marriages fall apart due to lack of commitment, they leave adults scarred and children stranded. When companies change their strategy too frequently, they accumulate mistakes. When investors buy and sell shares too often, they fail to achieve substantial capital gains.

On most occasions, contradictory behaviour arises from inconsistent convictions. Without a strong sense of direction, coherence is unsustainable. Without integrated values, ethics become meaningless. Without a reliable compass, maps can provide little certainty. 

The great difficulty

And when individuals who pursue contradictory goals try to correct their mistakes, they may not be able to figure out what to do. The difficulty does not lie in detecting failure, but in extracting valid lessons from experience.

If we do not grow in knowledge, we are bound to repeat our errors. The damage that will ensue could have been avoided. If we had understood the cause of the problem, we could have adopted preventive measures. If we had been able to detect the signals of danger, we could have steered our ship out of trouble.

What keeps us making the same mistakes repeatedly? What blocks man's ability to improve? In the great majority of cases, the culprit is relativism, the belief that a good outcome may result from random behaviour.

If people are determined to ignore the link between present actions and future consequences, they will not listen to rational arguments. Even when a person is responsible for catastrophic failure, he will deny any error or fault.

Loyalty to the facts

Individuals who embrace relativism choose to ignore the law of cause and effect. In this way, they curtail their ability to learn and become psychologically inert. Neither facts nor emotions can move them, because their minds do not link those elements to each other.

Relativists refrain from questioning their actions and convictions. They consider life unpredictable and causality unfathomable. When they propose improvements, they present them as opinions. When they present opinions, they treat them as facts. When reality belies their philosophy, they reply that both are true but that none of them matter.

Turning around in ethical circles is exhausting. Behaviour A may be encouraged on Monday, elevated to supreme virtue on Tuesday, and discarded on Wednesday. Behaviour B may become fashionable on Thursday, lose popularity on Friday, and be written off on Saturday. A new doctrine might be embraced on Sunday, but for how long? 

Seize the opportunity

Woe and waste, when shall this game end? Human beings cannot build knowledge on moving sands. We need a stable morality as much as we need a regular intake of vitamins and minerals.

We need a code of values that can be improved through trial and error. Should its length prove excessive, we can reduce it. Should its frame prove too heavy, we can resize it. Should its contents prove too abstract, we can turn them to simple words.

Active minds detect opportunities because stable values connect them to their environment. In contrast, those with shifting views cannot tell the blur from the colours. Without distinct goals, there are no workable plans. Inconsistent convictions lead to wasteful contradictions.


Image by Gordon M Robertson under Creative Commons Attribution License. See the license terms under

For more information about rational living, I refer you to my books 

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