The Power of Negative Thinking
In the 2008 summer Olympics, Michael Phelps broke the record for gold medals in one Olympic Games with eight. And because he swam in exactly eight events, Phelps needed to be perfect in each race. Of all of these, the one he knew he would not have to worry about was the 200-meter butterfly. In that event, he was unquestionably without equal.
But while his win was expected, the way he won was shocking. You see, after the first turn, Phelps’ goggles filled with water. He swam 75% of the race totally blind.
So how did he win? Phelps has many great habits and great talents. But he describes his greatest competitive advantage as “the power of negative thinking.” He quite literally prepares for the worst. He had, in practice, swam this race blind and knew exactly how to do it.
In all of the thousands of races Phelps swam, his goggles filled with water exactly one time. The chance of that ever happening to him was miniscule. The chance of it happening at the 2008 Olympics was infinitesimal. But at the end of the day, what mattered was that Phelps had prepared for the worst-case scenario. And that is why he won.
The Stockdale Paradox
In his book Good to Great, Jim Collins describes a common mindset of successful leaders: they maintain optimism while confronting the brutal facts. Collins called this the “Stockdale Paradox,” named for Admiral James Stockdale.
Stockdale was a prisoner of war in Vietnam. He was brutalized and tortured. When he was finally freed, Stockdale was interviewed and asked whether there was a commonality among those prisoners who did not make it back. Without hesitation, Stockdale responded, “It was the optimists.” When asked to compare his own mindset, Stockdale explained that he hoped for the best and planned for the worst. In other words, he maintained faith but did not engage in self-deceit. See the exhibit below that show the differences between naive optimism vs. realistic optimisim.
Why Financial Plans Accommodate Unlikely Outcomes
So, what can the most decorated Olympian of all time and a prisoner of war teach us about achieving our financial goals? Think about how you have engaged in the financial planning process with your advisor.
- First, your advisor uncovers and captures what you want: What makes you happy? What are your specific wishes, hopes, dreams and desires?
- Then, your advisor collects information about your assets and income.
- Finally, your advisor tests whether your assets, income and behaviors are sufficient to accomplish your goals. This “test” is the financial plan.
In testing the viability of your assets and income to meet your goals, your advisor begins with a fairly standard list of assumptions, including how long you will live, how your investments will grow, and how the costs of your needs and wants will increase.
Typically, your advisor will start by looking at your current state and historical averages. Your income will grow at the pace it has grown. Your business will continue its pattern of economic success. Your investments will grow at an average rate over time. Inflation, too, will continue at its historical average.
The reason for these baseline assumptions is that over time, on average, for the “typical” client, they are the best predictor of what will happen.
However, your advisor needs to test your plan based on a different set of assumptions. This is where “the power of negative thinking” comes in—or, as Admiral Stockdale put it, hope for the best and plan for the worst.
- What if your income goes down? What if it goes away?
- What if your business fails?
- What if you do not live until 86.3 years old? What if you live to 96.3? 106.3?
- What happens if your spouse files for divorce?
- What happens if the markets perform worse than anticipated because a virus shuts down the economy?
- What happens if one of our children requires additional support?
The list of what-ifs can go on and on. The genius of planning is you can visualize the impact of “the worst” without necessarily experiencing it. You can see, in vivid detail, the economic consequences of bad things that statistically do not happen to the average person but could happen to you.
You get the gift that Marty McFly got; the gift to go back to the future. You get to test different ways to deal with the unthinkable. You get to see what works and what does not.
And then you can build a plan to handle the worst. It will include what you will do today to help prepare for those bad times, plus a plan of action for what you will do if and when the worst occurs.
Michael Phelps’ Coach
When asked why he had the foresight to imagine—and prepare for—the unimaginable, Michael Phelps credited his skeptical mindset and the wisdom of his coach, Bob Bowman.
He and Bowman would sit together and imagine everything that could go wrong and then “swim that race.” Bowman did what great coaches do. He did not tell Phelps what he wanted to hear. He did not tell him he would win. He did not tell him everything would be okay—even if, in the typical race, all of those things would be true.
Rather, Bowman coached Phelps to expect to win while preparing for the toughest fight imaginable. That is exactly what you need from an advisor. Someone who helps you embrace the possible while preparing you for what could go wrong.
Johnson Financial Group is a privately-held financial services company and marketing name for its subsidiaries Johnson Bank, Johnson Wealth Inc., and Johnson Insurance Services, LLC.
Johnson Financial Group and its advisors do not provide tax advice. You should review your particular circumstances with your independent tax advisor.
by Joe Maier
Joe has extensive experience helping high‐net worth individuals, family offices, business owners and corporate executives meet their wealth and legacy goals. His areas of specific interest and skill include business succession planning, financial and estate planning, and wealth transfer strategies.READ MORE about Joe Maier.
by Bob Schneider
Bob Schneider specializes in providing clients with the educational information and tools necessary to make informed decisions regarding their financial planning goals. He uses his financial planning experience to help individuals and families plan for and enjoy their retirement years.READ MORE about Bob Schneider.