Updated: Jul 16, 2020
"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
One of my favorite mental models is the tension between two opposites.
Here are just a few examples:
Save money, but spend money to make money.
Be humble, but confident.
Be open to changing your mind, but have conviction.
Block out the noise, but pay attention.
Trust people, but don’t get taken advantage of.
Be decisive, but deliberate in your decision-making.
After all, the world is not black and white. There’s gray, there’s color, there’s mess. Watch out for binary statements. People love binary-ness (not a word) because it takes the complexity out of things.
It’s easier to say something like, “Everyone should go to college” rather than think through the complexity in an individual situation.
As humans, we’re wired to do that; it’s all about saving energy. But the truth tends to lie in the tension of two opposites. Take reversion to the mean and momentum as they relate to the stock market.
Reversion to the mean is like gravity and water. What comes up must go down and what goes down must resurface.
On the other hand, momentum is like Newton's First Law. An object in motion will stay in motion unless acted upon by an outside force.
Ok, let's make this more concrete.
A stock is at a 52 week high. Buy or sell?
Reversion to the mean would indicate a sell. After all, something that goes up, must come down.
Momentum would indicate a buy. A stock going up will continue to go up unless acted upon by an outside force.
A classic tension between two opposites.
The crazy thing is that they can both be true. Of course, the outcome is dependent on many other factors, but navigating this tension is important rather than just giving up because it makes our brains hurt.
Nuance always exists.
Reversion to the mean may be more accurate in the longer-term, say, 3-5 years. But momentum may have the upper hand in the shorter-term. Digging deeper and accounting for this nuance is crucial.
Or take "changing your mind" for example.
It is a crucial skill to not get too attached to a stock if it is underperforming, but we also need to have conviction to hold through drawdowns.
Again, what are we to do with this tension between two opposites?
The key is to sit in the tension. Here are two things that help when trying to do so.
Tension is not pleasant. Often it feels unnatural, like you're out of control. But that doesn't mean we shouldn't welcome it. Usually when we feel that tension, it's a sign we're growing.
Let's go back to a simple example of deciding whether to buy or not buy a stock. It's a binary decision: buy or not buy.
And, in this tension, we typically fall into simplistic thinking. We shut off our creative minds because there are only two options right? Right?!
At a fundamental level, the binary-ness (there it is again) exists and you can't get around it. But on the other hand, the way you structure the decision can still be creative.
For example, maybe you don't buy the stock today but you are looking for a better entry point so you sell some puts on it.
Or maybe you do buy the stock but you make it very clear what your thesis is and the things you'd like to know to keep holding it. Then, you will have more clarity around the sell decision, especially if you don't know the company super well yet.
Or maybe you don't buy the stock, but you set a reminder to look at it again after the next earnings announcement.
The point is: while sitting in the tension, our creativity usually goes to sleep. But, just because something seems inherently binary or it actually is, doesn't mean we can't think of creative ways to navigate the tension.
Another thing that helps with navigating the tension between two opposites is thinking about how it relates to your identity.
Wait, I thought we were talking about stocks? What's this identity business?
Allow me to explain 😁
For instance, let's say a stock in your portfolio has been underperforming for awhile and you think it would be a good idea to sell. However, you can't bring yourself to do so.
Think about your identity in this context. What is the story you tell yourself?
Do you believe you are someone who doesn't give up on something? Or maybe your identity is that you aren't a great stock picker and so you don't trust yourself to sell one stock and buy another?
But what if you could construct a different identity so that you can make an optimal decision?
Step one is figuring out what your main goal is.
Is it to make the best return possible? Is it to get a good return with minimal risk? Or something else?
Step two is discerning what the best identity would be that aligns with your goal.
If the goal is to make the best return possible, an ideal identity would be: I am a money-maker.
This shocks you out of the inability to sell a stock. If the best decision is to sell, then you will, if your identity supports it. Obviously this is simplistic, but the main idea remains: identity plays a bigger role than we think.
Most of the time we don't specifically realize what our identities are. Instead, they subconsciously affect our choices. If we aren't aware of them, we will resort to making emotional decisions.
While the tension between two opposites can be tough to navigate, figuring out your underlying identity is extremely helpful.
The tension between two opposites exists all around us. Should we speak up or say nothing? Buy or sell? Make a decision or do nothing?
However, we must love the tension these opposites create. By digging deeper to think creatively and find out our underlying identities, we can make better, more nuanced decisions.
Here's to sitting in the tension!