03 Aug “Emotional solvency” is an unheralded superpower
These dreams require savings. And by extension, investing.
And at some point, you just gotta start. Unfortunately, picking the right entry point can be terrifying.
Let’s say you started investing in your dream at Point A. 60 days later, your investments tanked. Do you bail? Double-down? Irrespective of your decision, you’re guaranteed some sleepless nights and some newfound gray hairs.
Or maybe you started at Point B and 2 years later you question if this whole investing thing actually works. (Or even worse, you might say the famous last words: This time it’s different.)
But maybe Point C is the real kick in the groin. It’s bumpy, its long (13 years) and depressingly, you land right where you began.
Now you know where this is going. “Time in the market” beats “timing the market.”
This chart represents 1996 to today. (It’s also my personal investing journey in the S&P 500 and I’m proud to say, in 24 years I’ve never sold a share.)
Every trough has been scary, but to use mathematical terms they’re local minimums not global minimums. When you zoom out, you realize you were doing pretty damn well. The economist John Keynes famously said:
Markets can stay irrational longer than you can stay solvent.
He meant financial solvency. If you invested at Point D and your kid went to college at Point C (March 2009), you may be forced to sell and abandon ship. At the absolute worst moment. Ditto, if you needed to come out of escrow to buy a home at Point A (March 2020).
Keynes was saying that the market can be nonsensical for much longer than your best projection.
Now let’s say you want to do something crazy and contrarian in your life. Walk away from academic tenure. Take a massive pay cut do impactful work. Or become an entrepreneur (despite the chilling fact that 9 out of 10 startups fail).
The ability to pay your bills and put food on the table – financial solvency – will absolutely be a factor. But what will be even harder, is maintaining your emotional solvency.
Nearly six years after I began my own deliberate rebellion (i.e. solopreneurship), I’ve remixed Keynes quote as follows:
The world around you can stay irrational longer than you can stay emotionally solvent.
Let’s imagine that the S&P graph mirrored my emotional journey as an entrepreneur. At every local minimum and over the course of years I wrestled and was peppered with the following questions/issues:
- Have you lost your mind?
- How can you put your family at risk like that?
- How can you justify the sunk cost of your fancy degree?
- You know you can never go back.
- Wait, you don’t even have an idea?
- You never took a writing class in college.
- You know you’ll never get invited into these fancy rooms again.
- You know, New York City’s expensive.
- Holy crap, my COBRA’s gonna run out!
- Now we’re having another baby!
- Getting rejected for a book proposal.
- Spending 600 hours in one year on a podcast making less than $10,000 from the time spent.
- Watching my bank account balance has declined for 22 straight months
Each time one of these roadblocks appeared(particularly the insurance situation) I considered throwing in the towel. Every time my identity got challenged, I yearned for my old business card and the common understanding of being a Managing Director.
And boy, it took a long time to make any meaningful income. Even today, I’m still at a fraction of my Wall Street days.
But that would have meant selling at the lows. Walking away during a local maximum.
But as I traversed each local minimum, my confidence grew and my determination hardened. My emotional resiliency extended my runway as an entrepreneur. And like the S&P 500 chart above, extending my runway improved my odds of success.
When you dream big and do something different, the narrative typically centers around skills, finances, and relationships. But if you can shed a scarcity mindset, live with an undefined identity, see opportunity in uncertainty and re-cast traditional markers of success – you’ll develop emotional resiliency.
And when the inevitable local minimum arises, you’ll confidently say: “I got this.”