In an economic crash, there are always winners and losers: the former are those financial traders savvy enough to benefit from plunging prices by shorting key assets or being long volatility.
But when an economy goes into a full collapse, few will benefit. A prepared mindset will be your best ally.
Below, we discuss three different ways to hone your mental toughness so you can think clearly and take productive action when things take a turn for the worse.
Fear Setting
Tim Ferris is well known for his book, The 4-Hour Workweek. In it, he discusses why it’s crucial to outsource the essential tasks of a business rather than handling them in-house.
However, before he came up with this philosophy, Ferris was a workaholic, taking uppers and downers — spending 14 hours a day trying to get everything done for his business. One day, he had an opportunity to go on vacation and leave his company for a month.
But deciding to take a vacation — and get that peace and relaxation — was challenging for him. His mind was filled with all of the bad things that could occur while he was gone. After looking at his problem of believing that all of these bad things might happen, he decided he needed to make a change. He started by defining what he could control and what he could not control. Based on this, he developed a written exercise called “fear setting.”
“What if I …”
Ferris started by posing a question on a piece of paper, “What if I…?” In his case, he asked, “What if I go on vacation?” Below the question, he created three columns.
In the first column, he defined a problem that might occur. For example, if he goes on vacation, it could be rainy and dreary, or he might miss an important letter from the IRS.
Column 2 focused on preventing or decreasing the negativity of the situations in column 1. He came up with light therapy if the weather was poor and changing his mail address to ensure he received any letter from the IRS.
The third column dealt with “repair.” It was used to develop solutions that he could implement if the bad things occurred in column 1. He came up with flying to another destination if the weather was poor and calling an attorney if he had to deal with the IRS.
This exercise can be used to deal with an economic collapse. Writing down all of the bad scenarios that might occur in column 1, allows you to define each problem. Then you deal with those problems in advance in column 2 and column 3.
Using this exercise should help provide the answers needed to get through the worst of times.
Anti-Fragility
Another way to build mental toughness is based on “anti-fragility.” This is a concept introduced by Nassim Nicolas Taleb. His book, Antifragile: Things that Gain From Disorder discusses getting stronger by facing disorder, stress, and volatility.
As Taleb explains in the book:
Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.
So being antifragile goes beyond merely being resilient: it refers to something that outperforms and improves during severe stress.
Thinking ahead and understanding the qualities of something that’s “antifragile” can help you position yourself to do better in a collapse.
For example, how would you make your income “antifragile”? Ask yourself: what services or products would become more popular in a collapse?
Consider what occured with the coronavirus. While this was a pandemic, and not an economic collapse, there were winners and losers. Some sectors suffered (such as universities and restaurants) while others thrived. For example, online therapy, fitness equipment for home gyms, and e-commerce soared. Amazon announced the hiring of 100,000 new delivery drivers. Local farmers that sell to the public also did a brisk business, especially when meat shortages arrived.
We saw that in an emergency people will be driven to find a way to get rid of their stress (therapy, working out) and will buy more goods online than in stores (which leads to more jobs in those sectors). And of course, everyone needs food.
Another prompt for your thought experiment might be found by looking at historical episodes of hyperinflation. For example, plumbers and blue collar trades often have been in demand during these periods while white collar professions and academia suffered. Put another way, anyone who knew how to fix broken things and keep machinery and vehicles running, was in high demand.
Having an antifragile lifestyle will directly impact your mindset.
The Stockdale Paradox
The Stockdale Paradox is based on the experiences of POW James Stockdale and how he handled being a prisoner of the Viet Cong from 1965 to 1973. Dealing with the situation was done by (1) facing its reality and (2) retaining a rational optimism.
The torture endured by Admiral Stockdale consisted of having his hands cuffed behind his back and the use of ropes to pop his shoulders and elbows out of their sockets. This type of torture was performed on Stockdale over 20 times. He would be left to hang along with other prisoners for days in this position. During regular intervals, the guards would return to tighten the ropes.
Focus on What You Can Control
Realizing he couldn’t change what was happening during his time as a POW, he decided to focus on how he would react to his circumstances. He knew that to survive, he couldn’t just have faith that everything would turn out okay. That just set him up for disappointment. Instead, he faced the desperation of the situation and had a small amount of optimism, knowing he would get through it.
Facing the effects of a crashing economy pale in comparison to what Stockdale went through. But his philosophy can be used to deal with falling stock prices or a lost job or subsistence farming. Facing the harsh reality of the situation and coming up with a plan to get through it may even turn out to be a significant turning point that will lead to a brighter future.
Summary
All three of these methods used to combat adversity focus on facing the problem at hand and preparing yourself in advance to survive and thrive. Understanding and accepting the negativity of the situation removes emotions and allows you to take action.
Enduring and sustaining yourself during an economic collapse will be easier if you first train your mind and plan ahead by using these tools.
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