Norman Vincent Peale’s classic work The Power of Positive Thinking has inspired an optimistic outlook among millions of Americans for generations.
To question this optimistic outlook on life is almost un-American. Yet Americans’ collective focus on positive thinking has a downside.
A steely-eyed look at reality suggests that, to succeed in life and investing, you also need a good dose of “negative thinking.”
In Latin, this approach was called via negativa. It was originally used in Christian theology to explain God by focusing on what he is not, rather than what he is.
Today, via negativa is used to describe a counterintuitive but critical “negative” approach to improving both your life and your investment returns.
The Two Principles of Via Negativa
First, eliminate the downsides in your life.
In his latest book, Antifragile: Things That Gain from Disorder, my friend Nassim Taleb argues that the best way for you to become antifragile – that is, someone who gains from setbacks and chaos rather than just survives – is to focus first on eliminating the downsides in your life.
The downsides in your life consist of those things, people, actions and habits that make you vulnerable.
Taleb’s solution? Identify the significant downsides in your life and then remove them.
Specifically, pay off your debts. Quit smoking. Eliminate toxic relationships.
Cutting out the downside offers more immediate and bigger gains than, say, writing down your goals and waiting for them to manifest magically.
It’s also often a lot easier and more effective than creating new and positive habits.
For example, quitting smoking to improve your health is both simpler and easier than building a business that will make you a millionaire. It will also add a decade to your life – something no amount of positive thinking can guarantee.
The second principle of the via negativa is best summarized by a simple phrase: “Don’t do stupid stuff.” Put another way, avoid bad habits and situations in the first place.
If you’re not in debt, you’ve never been arrested and you don’t have the drama that comes with bad relationships… You’re in a much better place than someone who has made stupid mistakes.
Merely avoiding bad situations will leave you with energy, willpower and well-being.
And as the stormy personal lives of a lot of Hollywood stars and business icons like billionaire Elon Musk can attest, that peace of mind is something money can’t buy.
How Via Negativa Applies to Investing
So how can you apply the two principles of via negativa to investing?
First, whenever you make an investment, focus on your downside first. As global investor Jim Rogers says, “Look down before you look up.”
Always figure out what you can afford to lose on a trade or investment before you make it. That means placing stops on every position. Any upside will take care of itself.
Second, don’t do anything unless absolutely necessary. As investors and traders, we feel we always have to be doing something.
In fact, the opposite is true.
Charlie Munger, vice chairman of Berkshire Hathaway, focuses first on what to avoid:
A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc. Just avoid things like AIDS situations, racing trains to the crossing and doing cocaine.
As Munger explains, by eliminating unpromising parts of “the chessboard,” he frees his time and attention to focus on what actually works.
Berkshire Chairman Warren Buffett put it another way. Buffett claims you can significantly raise your investment batting average by waiting for the pitcher – Mr. Market – to throw you a nice fat pitch right down the middle of the strike zone.
Unlike in baseball, you can stand by and watch strike after strike be thrown without worrying about being called out. Buffett says no to thousands of investment opportunities each year. He swings only at the rare “fat pitch.”
Living a Life of Via Negativa
Following the principles of via negativa may seem counterintuitive, excessively defensive and a risk-averse way to live. It may even seem positively un-American.
But don’t confuse via negativa with pessimism.
Both Buffett and Munger live by these principles – and no one would ever call either a pessimist.
The takeaway is this: By focusing on what you shouldn’t do and limiting yourself to the very best opportunities, you put yourself in a position to generate better results both in your life and in investing.
That’s why living a life of via negativa just might be the most positive thing you can do.