Your job as an investment professional is to deal with the complex problems of security selection and portfolio construction. You do this under noisy conditions: ongoing chronic disturbance and periodic acute disruption.
One way that we humans deal with complex problems under conditions of elevated noise is by telling stories. Since the time of our earliest ancestors, stories have been used as a means to make sense of chaos and randomness; stories are our creative response to noise.
The very term story might seem to suggest something trivial. But stories matter. Entire civilisations coalesce around shared stories, and people go to war over conflicting stories. People kill themselves with stories, they inflict suffering on others because of their stories, and they make bad decisions because of inaccurate stories. Stories take many forms, from the great universal myths down to your own private justifications and denials.
An Eastern teaching story about two arrows deals with the nature and consequences of our storytelling. The first arrow that figuratively pierces you is an actual event, while the second arrow is the story that you tell yourself about the first arrow. It is this second arrow that brings you the most suffering; it is your reaction to the original event that creates the greater difficulty. Being hit by the first arrow is unfortunate, but the injury from the second arrow is self-inflicted. You might tell yourself a compelling but inaccurate story about the original event, and you might mistake your story as the only truth, even though it is merely one story amongst many possible stories. The original event might generate noise, but your story about it can greatly and unnecessarily amplify that noise and undermine the quality of your cognitive processes, actions and results.
You can become a bewildered servant to your stories in two ways, neither of which put you in a position to achieve what your talents offer.
- Ignorance. When you are not aware of your stories or their power, you can be enslaved by them and subject to their conflicting imperatives.
- Identification. When you over-identify with your stories, you can mistake them for the accurate and only truth, which must be defended at all costs.
There is a story told by the American writer, David Foster Wallace, about two young fish who pass an older fish swimming the other way. The older fish says, “Morning boys, how’s the water?” The two young fish swim on and after a while the one turns to the other and says, “What the hell is water?”
We humans are not terribly different to these two young fish: we are often most oblivious to what is most prevalent. This is true of the stories that you tell yourself about yourself, about other people, and about your world. Stories are so enmeshed in everything that you cease to notice them, much like the young fish who don’t notice the water in which they live. You don’t always notice your stories, but they are there, exerting tremendous force upon you without you necessarily being aware of the fact.
Your stories often are not necessarily even your own stories; many stories have been unconsciously absorbed from other people and the culture at large and now form part of your operating system. These inherited stories contain contradictions and inconsistencies, which can give rise to unexpected and disturbing behaviour.
Your beliefs and your assumptions are stories that affect everything that you see, think and do. The stories that you tell yourself are the narrative lens through which you see the world, they are the means by which you filter data. When you are subject to cognitive distortions such as confirmation bias, you unconsciously use your stories, especially those with which you over-identify, as the filter with which to select data that fits with your stories. Over-identification with a particular story has the effect of excluding alternative and viable stories; without a degree of meta-awareness, you can easily become imprisoned in an echo chamber of your own making, mistaking your own distortions for logical analysis.
There is a recursive relationship between emotion and cognition, each affecting and influencing the other. The most compelling of your narrative creations contain a high proportion of emotional content; it is precisely the emotion that makes them compelling stories. Often that emotion derives from what you feel is beyond your control. You are likely to experience a troublesome emotion (such as anger, fear, or shame) when you perceive a lack of personal agency over having a fundamental need met (such as autonomy, security, or affiliation).
The language and tone that you use in your inner narrative will give you an indication of the degree to which you over-identify with your story. Certain words and phrases such as “must” and “have to” are a sure sign that you have become rigid and dogmatic, that indicate impending emotional, cognitive and behavioural disturbance. You can use the recognition of these words and phrases as a cue to loosen your attachment to your story, which can be achieved by doing something as simple as using the language of flexible preference (e.g. “I’d prefer…”) rather than that of rigid dogma (e.g. “You must…”).
When you are entangled in either of the two extremes of ignorance and over-identification your innate capabilities are undermined. You will begin to achieve what you are capable of when you become skillful at steering a course between the two, by telling a conscious, accurate and constructive story.
Telling yourself a constructive story is a way to regain agency when you are under assault from noise. Telling a different story is not the same as engaging in wishful thinking, nor is it the same as denying that you might have a serious situation on your hands. Telling a different story is a way of actively managing the second arrow, a way to liberate yourself from being a mere slave to your habitual unconscious reactions to an unstoppable cascade of events.
- What theme exists underneath your most habitual and reactive stories?
- In what ways does this serve you and those around you? In what ways does it not?
- What new narrative theme would allow for fresh possibilities?