an excerpt from Mindful Money by Jonathan K. DeYoe
“What’s money? A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do.” — Bob Dylan
Cultural and Media-Driven Illusions
Our culture’s all-time favorite illusion is that consumption leads to happiness. This illusion has always had its devotees, but today’s omnipresent media grinds the message into us so relentlessly that many of us never think to question it. We are conditioned, from cradle to grave, to consume.
I remember my son discovering catalogs when he was only six. One day he said, “Dad, let’s sit down and read this together.”
I said, “There are no good stories in there.”
“No, but I want to show you what I want,” he said.
So it begins.
A certain level of material comfort makes life pleasant and relieves anxiety, but once we’ve achieved that basic level, more stuff doesn’t make us happier. Nonetheless, one very healthy growth industry in America today is self-storage facilities. We own so much stuff we can’t fit it in our houses.
Nicer stuff doesn’t make us happier, either. Upgrading our car’s grille emblem to a pricier one gives us maybe a fifteen-minute buzz of pleasure. After that burst, our happiness resets to its default level. A thousand-dollar watch might be one or two seconds per year more accurate than a seventy-nine-dollar watch. How much value do those two seconds add to our life?
Even if we’re cynical about the claims of advertising, we can easily fall prey to the illusion that the popular media is a reliable source of truth and information. It isn’t. Sometimes the financial media genuinely tries to inform us, but it is always trying to capture our attention and keep it captive. It does so on behalf of its advertisers, who are always selling something. At the same time, the media is also always selling something else: itself. And besides sex, the most reliable way to get the public’s attention is fear. Most media stories about economic matters are intended to scare us — note the tense background music and flashing graphics to keep us clicking the mouse to learn more.
The one-hour Flash Crash of 2010 is a good example. On May 6, 2010, the stock market experienced a nearly thousand-point drop. One blue-chip stock, Procter & Gamble, went from sixty to forty dollars in thirty seconds. Why? A once-popular theory was that some trader with a “fat finger” accidentally pushed the wrong button, but this has been discredited. Instead, the reason for the mayhem is now considered to be a young guy deliberately manipulating market vulnerabilities out of a bedroom in his parent’s house in
London. But when it happened, no one knew what was causing the drop, and the media picked up the story and ran with it. People panicked because the media covered it the same way it covers everything in finance: like it was the end of the world. The markets are in freefall right now? Panic! Y2K? Panic! Brexit? Panic! The Federal Reserve may hike interest rates? Panic!
Bad news = good copy, but the media’s pursuit of ratings gains can unfortunately drive short-term market movements. Anyone with a teaspoon of common sense knows that nothing can make an established company like Procter & Gamble lose a third of its value in half a minute. There was obviously a mistake. The stock market had to bounce back, and in this case, it recovered almost entirely by the end of that same day. But that’s not the tack the media took. Dire tones were employed. Average people who owned pretty much any blue-chip stock wanted out after hearing the latest, breaking news. Those who actually did get out regretted it an hour later.
The market responds to our faith in its resilience. Fear undermines that faith, so by selling fear the media retards recovery. As for me, I take the simple route. I reject daily freneticism. I trust that even big issues will resolve themselves in good time. I choose to believe that the market will improve. I don’t know how or when it will happen, but when I’m doing long-term income planning, that’s all I need to know. Thus far in history, panicking out of the market has never worked. Not once.
The media doesn’t only sell fear. It also sells excitement and trendiness. That is how stocks can skyrocket to crazy-high levels virtually overnight. As Warren Buffett famously said at a recent shareholders meeting, “The market is a psychotic drunk.” The media, it seems, is its drinking buddy.
I came into the financial management business almost twenty years ago, and I can’t remember a single time when the media’s hyperbolic approach has helped the everyday investor.
Fear shuts down our higher thought processes and puts the primitive “lizard brain” in charge. The lizard brain is all about survival and attacking immediate threats. It does not possess long-term perspective or use thoughtful analysis.
When the media sells us fear, we don’t have to buy it.
Wall Street Illusions
When we do buy in, Wall Street proceeds to take that fear and run with it to the bank by selling us investment products designed to salve our fears. Even when the economic news is bullishly enthusiastic, fear still does the selling: the fear of missing out on a hot market trend. Wall Street spins out newfangled mutual funds and complicated exchange-traded funds every year, not because these edgy new investment products are truly beneficial, but because it knows we’re too afraid not to buy them.
In 2000, at the peak of the market, there were more growth-oriented mutual funds than ever in history. In 2009, after the big market meltdown, we saw the rise of so-called tactical allocation funds. These funds helped allay the fears of investors who were afraid of going down with the stock market ship if it tanked again. Interestingly enough, these new funds have underperformed more traditionally managed funds since they began proliferating. That doesn’t mean they’re bad products, but they were sold at a time when people were predisposed to buy them because marketers pandered to their fears.
The same thing happens when the market is hot. People are encouraged to buy out of emotion. This is how bubbles are created. In 1999, Wall Street urged people to flock to dot-com stocks. Then the bubble burst. Over the last few years, fixed-income products have become the rage. A few years ago, it was real estate. Another time it was oil.
Wall Street plays us something like this: The market falls. The client is afraid. Wall Street sells the client products that won’t fall anymore. But they won’t go up, either. Then the market goes up. The client, whose products won’t go up, is upset about missing out. So Wall Street offers products that will go up, but the client doesn’t buy those products until after the market has already gone up. By that time, the market goes down again, the client becomes afraid, and the cycle continues until the client is broke. Wall Street gets paid on every transaction, so its incentive is to keep the client buying something and to keep the money moving. The public suffers on both ends, and as an added bonus, they pay Wall Street to create the next product to sell. Loss for the average investor is turned into opportunity for Wall Street.
The point is not whether any particular financial product is good or bad. It’s that the client doesn’t usually know what he or she wants or needs. Wall Street is aware of this and relies on emotion to entice clients into choosing products. Wall Street knows that people are hard-wired to run away from pain and run toward pleasure. On that basis, new products are focus-grouped to determine, “Will this sell today?” rather than, “Is this good for our investors’ long-term portfolios?”
All the tailored suits, the sophisticated financial jargon, and the oil paintings of hunting dogs conspire to create the illusion that staid and responsible money managers are taking care of their clients. But in many cases people are being taken advantage of.
Of course, Wall Street professionals aren’t inherently evil. Many are sincere and well-meaning. Few intend to cheat customers, but when a client walks in the door looking for “safety” or “higher returns,” they will sell the client what he or she wants without necessarily knowing what that person needs. They are salespeople in the business of selling financial products, just like car manufacturers or restaurateurs sell their products. People, in turn, have to be wise and thoughtful shoppers. We need to develop a simple financial plan and stick to it, rather than gobbling up every new product that Wall Street creates to satisfy shifting public appetites.
To understand money’s true role, we need to empty our cups of all the nonsense and misinformation we’ve been fed in our lives. Before we can approach money sanely and mindfully, we must break free from the illusions that have hypnotized us since childhood.
Mindful Money Practice
Each chapter in my book ends with a Mindful Money Practice. Many of these are writing exercises that ask you to put pen to paper and express your thoughts, desires, feelings, and goals in writing. Although we live in a digital age, I highly encourage setting aside your laptop or iPad and taking an old-school, hands-on approach to the writing exercises. Plucking ephemeral ideas from your head and making them concrete on the page is a powerful first step toward turning your intentions into action. Only you need to be able to read these exercises, so don’t worry if your penmanship is appalling.
The first part of this exercise is the easiest of the lot: Choose something to write on and something to write with. Be creative or practical. Use a spiral notebook, three-ring binder, hardbound journal, or yellow pad for documenting each Mindful Money Practice in the book, and choose a writing implement that sings to you. I myself am a sucker for fountain pens, but a no. 2 pencil is more than adequate. Every time you open this book, have your pen and notebook within reach, so that you are ready for the exercises and can jot down any thoughts for future contemplation.
The second part of the exercise is harder: use the first page of your notebook to tell your family’s financial story.
What facts and fictions were you taught about money growing up?
What good and bad habits did you learn?
What feelings and fears did you absorb?
What successes and failures did you witness?
What childhood financial lessons and illusions have you carried into your adulthood?
This story doesn’t need to be long, but it should describe the financial truths you live by today.
Jonathan K. DeYoe, CPWA, AIF is the author of Mindful Money. His is a leading California-based financial advisor and personal finance educator as well as a long-time Buddhist practitioner. Find him online at HappinessDividend.com.
Excerpted from Mindful Money. Copyright © 2017 by Jonathan K. DeYoe. Printed with permission from New World Library — www.newworldlibrary.com.
This is just one example of how harmful money illusions passed on to us in our families can create negative outcomes.