Wednesday, July 20, 2011

Murdock Schmurdock!

The News of the World scandal is not about billionaire Rupert Murdock. It’s about ordinary people like you and me. We have yet another excuse to sit in judgement, brazenly criticising everyone associated with this British illegal cell phone ease dropping affair. We condemn the gossip mongers who read that filthy newspaper, we condemn the regulators for not catching the offence sooner, and we condemn the newspaper’s management for allowing (encouraging?) cell phone wireless-tapping. We human beings, it seems, have a strange attraction to the seedy side of life.
In my investing book, Beyond the Bull, I maintain that if we want to become better investors, we have to change the way we think. The News of the World scandal clearly illustrates a faulty way of thinking. This negative thought pattern is known as the V-A-R Triangle. The thinking pattern involves people who are cast in the role of Victims, Abusers and Rescuers. In this scandal, the Victims are all those people who were spied on illegally: this includes everyone from the Royal Family, and a series of celebrities, to victims of kidnapping. The Abuser role is being filled by the reporters of The News of the World. The Rescuer role is being assumed by British politicians. There’s even a US Senator who wants to be the Rescuer of those who perished in the World Trade Centre tragedy (the would-be Victims) from having beenspied on by these over-zealous English reporters (the would-be Abusers).
The V-A-R Triangle is a thought pattern. Whenever we consider a situation from the point of view of either Victim, Abuser or Rescuer, we are in this unhealthy pattern. This pattern of thought is particularly harmful when we consider ourselves to be a Victim, Abuser or Rescuer. For example, the US Senator who is calling for an investigation into wireless tapping around the 9/11 incident is putting himself in the role of Rescuer. Once we start to think in this pattern, our objectivity goes out the window. We lose contact with reality. The results can be disastrous.
Here are a few historical examples where this V-A-R thought pattern has led to disaster:
Nazi Germany: Hitler portrayed the German people as Victims of a conspiracy of Jewish bankers, whom he presented as the Abusers. He and his Nazi Party were to be the Rescuers. This thought pattern turned the ordinary German into the greatest abusers of the twentieth century. The massacre that followed was the result of V-A-R thinking.
Canadian Court Rooms: in the late 1900s there were many court cases where “the accused” was put in the role of Abuser, an innocent child was placed in the Victim role and the police, assisted by a certain child pathologist named Dr. Charles Smith, cast themselves in the role of Rescuers. Many people were falsely sent to jail because of Dr. Smith’s testimony. It turned out that Dr. Smith was a fraud – and his testimony was false. Many cases where Dr. Smith had been the expert witness were re-tried and many of those sentenced to long jail terms were released. The Abusers had become Victims: the Rescuers had become Abusers.
These examples show how harmful a thought pattern can be. This particular one, the V-A-R pattern, is the most harmful and the most wide spread destructive thought pattern I know. As The News of the World scandal heats up, notice how damaging it becomes. Notice how it draws you in: the V-A-R thought pattern invites every one of us to join the rescuers.
How does it work in the investment world? How does this pattern destroy your ability to earn a respectable rate of return on your money? It happens when the market goes down and we lose money. Our loss causes us to cast ourselves in the role of Victim. Our Abuser can sometimes be our financial advisor; sometimes it’s some politician. And our rescuer? That’s who we look for.
Consider the 2008-9 stock market crash. The Canadian stock market dropped almost in half in eight months. Investors felt victimised. The abusers most commonly blamed for that fiasco were George Bush, the big-bonus deal makers at the big brokerage houses, the greedy banks, and former FED chairman Allan Greenspan. The Rescuer? What White Knight would restore our RRSPs to their former levels? Some selected a new financial advisor; some voted for a Democratic president; some hoped “the market” would recover as their financial planner predicted: the market itself would rescue us.
But if we want to become better investors, we have to get out of this thought pattern all together. Finding another rescuer is not the answer. We need a new thought pattern.
This is what the V-A-R teaching recommends. If you find yourself in the role of Victim, ask yourself the question: “What did I learn from this negative experience?” If you find yourself cast as the Abuser, ask yourself: “How can I challenge this person’s (the Victim’s) beliefs? If you fancy yourself as the Rescuer, ask yourself: “How can I help this person help themselves?” Once your thought pattern shifts in this way, you will find yourself taking responsibility for your own actions.
Instead of a victim of a market crash, you will become a defensive investor who won’t be caught in a market down draft again. Instead of blaming someone else for your loss, you will accept responsibility and learn a new way of investing based on not losing money in a crash. Instead of a high powered securities salesman offering to rescue innocent investors from a corrupt system, you will become an educator, teaching people what to look for in the investment jungle. Instead of pretending you have the Holy Grail of Investing and having all your clients investments exposed to the ups and downs of the market, you will use compassion as you advise your clients about being cautious in their portfolios.
And what about Mr. Murdock and this nasty little thorn in his side? What can we learn from him? Try this: put yourself in his shoes. He thinks he’s the Victim. His over-aggressive reporters are the Abusers. And now, the press and the public are also his abusers... and members of the British Parliament. Let’s step into Mr. Murdock’s shoes and ask ourselves: “what did I learn from this experience?” The answer might be a variation of, “When you live by the sword, you die by the sword.” For Mr. Murdock in particular, “When I live in a world of sensationalism, gossip, accusations, muck-raking and meddling in other people’s business, I could die in that world.”

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