The Power Of Negative Thinking
Were it not for one fateful decision, Ronald Wayne would be a household name. Born in Cleveland in 1934, he completed his education at the School of Industrial Arts in New York City in 1956. After moving to California, he quickly started his first business designing slot machines. It failed. To make ends meet in the wake of his failed business venture he took a job with a brand-new company designing what were called video games. It was during his time at Atari that he met some new friends, and with them launched his second business. He even went as far as to write the partnership agreement, design the first logo, and write the service manual for their first product; the Apple 1.
Ronald lasted 12 days at Apple, before he decided to cash out his chips. The ghosts of his failed slot machine business coupled, with the personal risk of taking on the debts of the new company were just too much for him. Unable to work through his past demons, he sold his stake in the company back to the two people you probably do know, Steve Jobs and Steve Wozniak for a whopping $800.
Had Ronald been able to focus on the upside of Apple, and see the positives, it managed almost $200,000 in sales during its first year after all, he would currently be worth about $100 billion. Ronald fell victim to something as human as love and war. Negativity bias.
In the English language we have a special word for not telling the truth, lying. In fact, we have a lot more than one word for it. Falsifying, deceiving, misleading, fibbing, two-timing, double-crossing, misrepresenting, and a few more. Check a thesaurus for the word lying and you will see 12 synonyms. Check the same thesaurus for antonyms of lying, you’ll see zero. The same will be true if you look up the word murdering. The same is true for the words cheating, stealing, faking, hurting, and many more. The English language is loaded with words to specifically describe negative things, but it is almost devoid of words with the purpose of being positive. Negativity bias is so ingrained in our culture that we often don’t even notice it.
Our tendency to pay more attention to bad things and overlook good things is likely a result of evolution. Earlier in human history, paying attention to bad, dangerous, and negative threats in the world was literally a matter of life and death. Those who were more attuned to danger and who paid more attention to the bad things around them were more likely to survive.
Nowadays, we really don’t need instinctive cues to warn of an approaching sabre tooth tiger. But the instincts are still there. As humans we are more likely to:
· Remember traumatic experiences more vividly than positive ones
· Recall insults better than praise
· Think about negative things more frequently than positive things
· Respond more strongly to negative events than positive
· React more strongly to negative stimuli
Pay close attention to that last one. It is an incredibly powerful instinct we have. And there is one industry that has figured this out and profited off it like no other.
Last year the total advertising spend in the United States came in at more than $285 billion. In simple terms, it is a really big pie, and there are hundreds of companies fighting for their slice of it. In a world where clicks equal cash, media companies will employ whatever means necessary to in order to get those clicks. Almost invariably that includes bombarding you with negative stories, fear mongering headlines, and polarizing topics.
If you have found yourself thinking that news coverage tends to be overwhelmingly negative, you are not alone. Dartmouth College econ professor Bruce Sacerdote thought so too, especially when it came to coverage about the Covic-19 pandemic. So, he did what economists do. He assembled a team of researchers and together they poured through tens of thousands of articles using social science techniques to determine if the stories were positive or negative. The quick summary of their findings; “News coverage in the US was shockingly negative”.
The study revealed that nearly 90% of articles from the major US news organizations had a negative bias, as opposed to just 54% of stories from major international news outlets. Those stats were similar across all US news outlets from CNN to Fox News. They also covered covid from the early stages, all the way though the vaccine role out.
What’s even worse, is we ate it up. By an overwhelming margin, the most shared stories were the ones most heavily focused on the doom and gloom. As Americans, our appetite for negativity seems endless.
Covid is certainly not the only topic that sees the lion’s share of coverage have a negative light. Throughout my career I have observed a trend as well. When the market has a bad day or a bad week, I see the headlines pumped out on Linkedin, my news app, and I can only assume facebook (I don’t have an account). I know I’m not the only one seeing it, because I will usually get a few calls, texts and emails from clients asking if we need to do anything. When the market has fantastic days or weeks (which is more often than bad ones btw), I hear crickets. The news media LOVES to pump out fearful headlines about the market, because we gobble them up like candy.
When it comes to investing, the results of giving in to fear are devastating. You very likely know somebody who will tell you they “lost everything in 2008”. I feel bad for those people, I truly do. But if you ask them, which I don’t recommend, you will often find that the reason they lost everything in 2008 is because they sold everything in 2009. If they hadn’t done that, their investments would have recovered and tripled.
Markets are notoriously hard to predict. They can swing wildly, and if you invest you will with certainty have periods where your money is down. In the long run however, markets are quite predictable. For the past 100 years if you simply were a buy and hold investor you would have averaged about 10%. The best way to make sure going forward you are one of the people taking part in that 10%? Don’t panic. Don’t sell out. Don’t listen to the negative news coverage about the market. As I often remind my clients, the ride will certainly have its ups and downs, but the only way you can make sure you get hurt when you are riding a roller coaster, is to take off your seat. Belt and jump.