Is more experience necessarily good?

Disclaimer: Please note that all content and information in this blog are for educational and informational purposes only and should not be taken as professional investment advice.

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Is more experience necessarily good? Oftentimes yes, while occasionally no. If the experience taints our perspective of life, it is not good. If not, the experience is good. But is the issue with the experience or with our perspective? I believe both.

We cannot blame an individual for ending up in a bad situation. Neither can we blame how they react to it, although our reaction is within our control. Sometimes life throws us things beyond our control. But it's a matter of how we deal with it — we cannot control what happens to us but we can control how we react. 

We can take failure as a learning opportunity rather than the final end — life is what we make of it. While not all experiences will be positive, we should make the best of the positive ones. Likewise, we should make the best of the negative ones by not being overly bothered by them. When bad things happen, our first instinct is to either fight, flight or freeze. Unless life threatening, I believe our best response is to first freeze. Because as humans, we need time and space to process what happened (especially if it was sudden and unexpected). We cannot act based solely on instinct or impulse during such challenges.

In non-life threatening situations, our first reaction should not be to act instinctively. Instead, we should take time to process what happened, and learn what we can from it. And it also allows the full extent and reality of the situation sink in. We tend to take time to fully comprehend the magnitude of an event especially if it is a major one, regardless of good or bad. 

As humans, we tend to act on our impulses or emotions as we act before being fully aware of what happened. Even if we are, we may not fully appreciate or understood what happened. Why appreciate? Because we need time to appreciate the bad things that could have happened to us but didn't. In other words, all of us have much to be thankful for. When bad things happen, we can choose not to be upset. We can still be grateful for the worse things that could have happened to us but didn't.

To be thankful is to appreciate the bad things that could have happened but didn't. This attitude will allow us to better handle the bad situation, and it will go a long way in helping us deal with unpleasant situations positively. And yes, we can deal with unpleasant things positively — as strange as it sounds, negative situations can and should be dealt with positively.

Externally it may be negative but internally we can remain positive in face of adversity. What happens on the inside is more critical than what happens outside because what happens inside can influence what happens outside. Responding positively instead of reacting negatively is key to making better and more effective decisions.

It's the same with investing. Bad things happen all the time — both in the world and to investors. So how do we deal with it? Firstly by not allowing negative events make us more risk-averse than we should be when investing. It is our natural reaction to be more risk-averse when bad things happened to us before. It's our human disposition, but it's not always the right response. Oftentimes we may end up being more risk-averse than we ought to. In other words, we overly compensate our risk-averseness just because of ONE negative situation we faced.

And this can be detrimental to our investment journey because we end up not taking a healthy amount of risk for our given circumstances. And a healthy amount of risk is critical for a healthy amount of returns to meet our needs. So bad events can have such negative spillover effects if we do not manage them well. For investing, it can derail our investment plan when we opt for less risky assets (e.g. holding just cash, and not investing any of it) for fear of a similar bad situation happening again, at the expense of much lower returns. As such, there needs to be a balance. While we can afford to be more cautious and risk-averse, fear cannot be the key driver of our investment decisions.

We need to make a conscious effort to steer away from fear, anxiety and panic, or even greed, when investing, and especially if something unfortunate has happened to us that has tainted our perspective and approach to investing. It is not uncommon to read or hear of individuals who completely avoid investing because of some prior bad experience (e.g. involved in investment scams or made an extremely costly investment decision affecting their families and livelihoods).

In short, we must never let a one-off event taint our investment approach. We can tweak our investment approach, but we should not let it be tainted by one negative experience. Striking a balance between learning from our past mistakes and recalibrating our current risk-aversion level to what is ideal for us at each life stage is critical to consistently make effective investment decisions.

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Disclaimer:

The content and information provided on this blog is solely for educational and informational purposes, and should not be construed as financial advice. The accuracy or completeness of the content and information provided in the blog cannot be guaranteed. Before making any investment decisions, it is important for readers to research and carry out independent verification of the information provided, or consult with a qualified financial professional. No warranty and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of actions taken based on the ideas or information found in this blog.

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