149. Cheerful Pessimist

#MakingBetterDecisions, #Goals,?#focusonwhatmatters, #Wealth, #Careers

“Is there such thing as a cheerful pessimist? That’s what I am.” —?Charlie Munger

I’m not sure in what context Munger called himself a cheerful pessimist but it resonates strongly with what I think of as a perfect strategy to approach complex projects.

I distinctly remember occasions during my corporate career when I used to alert my wife, as I would get ready to go to work that I may lose my job that day. I was only half joking in making such premonitions. I was responsible for a large business unit and at any moment, a number of my teams were involved in a number of critical projects. We did have strong risk and quality management in place but there was always a small likelihood that a serious error could sneak into critical production systems. Given my large swathe of accountability, I had to contend with the possibility of losing job as a result of some error somewhere leading to a reputational or revenue loss for the firm, no matter how small its likelihood. So, I prepared for this possibility. In my mind, there were two main categories of its impact – one financial and the other social. I prepared my finances to account for no salary for up to a year and I conditioned my family to this possibility by periodically reminding them of this risk. Although I fared well in my job, I was always prepared for a sudden job loss. I planned pessimistically but executed optimistically. This I believe is what Mr Munger may have meant by cheerful pessimism.

“A pessimist is a man who looks both ways when he crosses the street.” - Laurence J. Peter

The one thing that is certain about future is that it is uncertain. That means any projection into future could turn out wrong. In fact, way more often than not, it does. As we plan our future, we make many assumptions about how the future may turn out. As we implement our plans for the future, we try to force these assumptions when, instead we should be responding appropriately to situations as they develop. This is generally a difficult proposition because of the essentially dynamic nature of world. Generally, plans that are built on wishful assumptions tend to fail whereas plans with pessimistic assumptions stand a reasonable chance for success.

Progress is almost always made by people who are hopeful about the future. Naysayers and pessimistic people tend to focus disproportionately on the negatives. This inevitably interferes with progress. Holding pessimism and optimism in the mind at the same time is a skill that holds great promise - to be sure, what I mean here is to plan with pessimism and to execute with optimism. This double-holding can be learnt by acquiring two rather powerful mental models – “antifragility” and “margin of safety”.

“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” - F. Scott Fitzgerald

All durable things in nature incorporate large margin of safety. Trees and plants produce way more number of seeds than required to continue their lineage. Dogs litter way more puppies than required. Our bodies store way more energy than we are ever able to expend – we die of organ failure or something like that before we die of starvation. Our mind forces us to slow down well before we exhaust our capacity in any endurance activity. Human-made structures such as aeroplanes, bridges, roads etc are also built with liberal margins of safety.

“I never considered myself a lucky person. I'm the most extraordinary pessimist. I truly am.” - Christopher Nolan

The flip side of margin of safety is a number of pessimistic assumptions. What if something goes wrong, what if you did not account for something, what if you assumed something incorrectly? Be pessimistic and account for the things that could go wrong and then allow more buffer for unknown unknowns. By providing for margin(s) of safety, we reduce fragility of our plans. We may even remove it and possibly even become antifragile. Pessimism can be a powerful attitude while making plans.

“I'm not a pessimist, even though I do think awful things are going to happen.” - James Lovelock

But, as you go about your life, executing your formal and informal plans while working towards your conscious and subconscious goals, pessimism will be a big inhibitor – it can paralyze you in your strides. It is hope and optimism that gets you ahead. A number of things could go wrong but your focus should be on working towards getting things right. You need not get bogged down by worries of failure because you know that you have already accounted for things going wrong by being pessimistic in your planning. Your unburdened mind becomes free to go after creative possibilities.

Bottomline

“Let's make hay while it lasts.” - James Lovelock

Pessimism is considered a vice and optimism a virtue. But this is wrong. There is a definite place for optimism but also for pessimism in our lives. Pessimism during planning phase helps decrease fragility and creates layers of defence. Optimism during implementation stage will sustain motivation and catalyses progress. Because in life, we are planning and also concurrently executing plans, the ability to hold and switch between pessimism and optimism appropriately is a skill that can make a huge difference. Cheerful pessimism is not an oxymoron but a potent dichotomy.

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A bit on my background

I help people make better decisions.

I coach people on “Making Better Decisions”, “Financial Intuition” and “Building Great Careers”. I’m open to run sessions on these topics in institutions – this will help me create larger impact.

I’m also an Investment Advisor (RIA) registered with the Securities and the Exchange Board of India (SEBI). As an RIA, I analyze and prepare financial plans to help people achieve their financial goals.

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