Thread by @jsmian

1) Of all the early warning signs that can help prevent investment disasters, one stands out.

COMFORT.

🧵

2) It’s our natural tendency to seek comfort; but in investing, when we tend to get comfortable in our views, feel our portfolio is safe, experience tells us something bad is about to happen.

3) Our comfort zone is a state of mental security where our uncertainty and sense of vulnerability are minimized.

Where we feel we have some control.

4) But the market is not stable, dependable, or how we want it to be.

So this actually creates behavioral conditions that maximize risk.

5) When markets move in a familiar pattern that seems to match our script, we become complacent and do not challenge our thinking.

Bad habits form.

6) Without the sense of unease and dread that comes from discomfort, we no longer seek contradictory evidence and opinions.

We no longer actively pursue truth.

7) In 1908, psychologists learned that in order to maximize performance, we need a state of relative anxiety—a space where our stress levels are slightly higher than normal.

This space is called “Optimal Anxiety,” and it’s just outside our comfort zone.

8) By exposing ourselves to the vagaries of the market, investing is already an anxiety producing activity.

So if comfort creeps up after a period of strong returns we savor it. This lulls us into thinking we have it all figured out.

9) The problem is performance is a lagging indicator, not a leading one.

No matter in how great a position we are, we should beware of comfort if we want to stay consistently on top.

10) So find a way to break out of your echo chambers.

Engage the people you disagree with, to challenge your own thinking and because sometimes, they may just be right.

11) It’s an uncomfortable feeling when the market does not seem to work rationally by our standards.

12) It means our understanding of how it ought to work is probably defective; and we must work harder to develop a new understanding.

13) But it is only by pushing through discomfort that makes
intellectual freedom and growth more possible.

Why?

Because it requires our deepest level of thought, attention, and presence.

14) As it so happens, the wise old Rumi knew this, for he said:

“Run from what's comfortable. Live where you fear to live."