On Emotional Strength

The key to being a great investor, a great human being, and winning in a chaotic world.

Imagine this: You’re clinging to a steep rock face, the icy wind howling around you, your fingers numb and your breath coming in ragged gasps. Just below, an abyss stares at you. Cold. Dark. Deep. You’re trapped on a steep cliffside, miles from safety. You have no way to contact anyone. The sky darkens as a fierce storm is rolling in, bringing with it biting winds and blinding snow. Your situation gets worse each passing minute. Your hands, raw and bleeding, cling to the icy rock, and now your mind starts to race through a whirlwind of fear and doubt. How did I get here? This is now pure chaos. Pure shock. Pure fear. Am I going to make it?

This isn’t a scene from a thriller movie or my life — it’s a real-life account from Laurence Gonzales’ Book, Deep Survival. It’s a 2003 book that I read some time ago and recently re-read. It is phenomenal and is secretly a book about being a great investor.

Gonzales goes on to talk about the mountaineer in the story. As the storm raged on, he had to make split-second decisions that would determine his fate. Every choice was a gamble between life and death. Would he succumb to panic, letting the terror paralyze him and seal his doom? Or would he harness the power of his mind, drawing on every ounce of his training and experience to navigate the treacherous path to safety? Survive or die?

The book makes a crucial and surprising observation: the survivors of extreme situations aren't always the strongest or most physically fit. Instead, they're often the ones with the greatest emotional strength. The ability to handle & recover from emotional challenges.

From plane crashes to mountain climbing accidents, Gonzales found that physical prowess alone won’t determine who lives and who doesn't. Instead, it's this ability to adapt, to maintain composure under pressure, and to make clear-headed decisions in the face of uncertainty and emotion that often spells the difference between survival and tragedy.

The Survival & Investing Connection

It should be really obvious by now that this has massive repercussions for us as investors.

Just as a lost hiker must keep their cool in a hostile environment, an investor must keep cool in the face of market volatility. Panic selling during a downturn or overconfident buying in a bubble can be as detrimental to your financial survival as poor decision-making in a life-threatening situation.

Consider the Great Financial Crisis in 2008. Volatility and thoughts of losses often shook investors out of positions they should have held. Those who succumbed to fear and hastily sold their holdings missed out on the subsequent recovery. In contrast, those who maintained their composure and stuck to their long-term strategies weathered the storm and even capitalized on opportunities.

Counterfactually, we could’ve bought NVDA at 11x forwards then. It’s at 47x now. Okay this one is cheating a little since AI was dwarfed by housing back then. But we could’ve bought AAPL at 13x forwards and it’s 34x now.

Similarly, during the early days of the COVID-19 pandemic, the market crash led many to panic sell. However, investors who remained level-headed and either held their positions or bought more saw massive gains as the market rebounded.

We could’ve bought SPX at 14x forwards then, it got to 30x and is 23x now.

And the 2023 banking crisis was another test of investor resolve. Panic selling ensued, but those who kept their cool and made informed decisions were better positioned to navigate the turmoil. Truth be told, you could’ve bought just about any bank at the lows and have produced massive returns.

We could’ve bought KRX at 8x earnings then. It’s at 14x now. We could’ve bought JPM at 8x forwards then. It’s at 12x now. And on and on and on we go.

The common theme in all of these market-based shake outs or individual name-based shakeouts is twofold.

First, there is an unbelievable amount of volatility, Markets in Turmoil, Cramer yelling SELL SELL SELL, and general craziness. And it affects us, or at least tries to. It makes us emotional, raises pulses, and gets our juices flowing.

And second, humans are hard wired to react to the above. In the face of extreme volatility, your brain short-circuits. The amygdala—your neural fire alarm—blares, flooding your system with stress hormones. This biological hijacking overrides your prefrontal cortex, the seat of rational thought. Suddenly, long-term planning crumbles. Your mental scope narrows dramatically, fixating on immediate threats. The thoughtful investor becomes a panicked trader, making snap judgments based on fear rather than facts. You sell when you should hold, buy when you should wait. In these moments, your brain isn't an ally—it's a saboteur, prioritizing perceived short-term survival over long-term prosperity. Recognizing this mental mutiny is your first step towards true financial strength.

So rather than make you read the whole book, here are the three big ideas I took away that we can all use to make us better investors and humans.

1. Breathe In & Zoom Out

Gonzales found that survivors are often the most level-headed individuals in a crisis. They accept reality, stay organized, and make decisions calmly.

Consider this: humans can last 3 minutes without air, 3 days without water, and 3 weeks without food. Yet many in survival situations perish long before these limits are reached—not due to physical deprivation, but because they lose hope and give up. Emotions get the best of them.

In the face of adversity, the first step towards survival often begins with a breath. Deep, deliberate breathing is a powerful tool that survivors consistently employ to regain control and clarity. By activating the parasympathetic nervous system, deep breathing initiates a cascade of physiological responses: heart rate slows, blood pressure drops, and muscles relax. This not only calms stress but also increases oxygen intake, clearing the mind and sharpening focus. As Laurence Gonzales observes in "Deep Survival," this simple act of breathing deeply brings survivors back to the present moment, reducing anxiety and paving the way for clearer decision-making.

With a calmer mind, survivors can then tap into the power of perspective and hope - the twin pillars of mental resilience. Gonzales's research reveals that those who survive against all odds do so not because of physical prowess, but due to their indomitable spirit. They "zoom out" to see the bigger picture, then focus on small, achievable goals, creating a sense of progress and control even in dire circumstances. Call it rational optimism.

Gonzales frames this mindset powerfully: "Survival is the celebration of choosing life over death. We know we're going to die. We all die. But survival is saying: perhaps not today. In that sense survivors don't defeat death, they come to terms with it."

I love that, “perhaps not today”.

The impact of this hopeful perspective extends beyond immediate survival. A study in the Journal of Health Psychology found that optimistic individuals had a 35% lower risk of cardiovascular events, and a 14% lower risk of early death compared to pessimists, I’m sold. And this outlook proves invaluable not just in life-threatening situations, but also when facing financial losses, adverse market conditions, or any of life's major challenges. By combining deep breathing to slow down with a perspective of hope, we can navigate the worst of the worst. Or said simpler, this too shall pass.

Breathe in & zoom out.

2. Harness the Power of Humor

Gonzales discovered that survivors often maintain a sense of humor even in dire circumstances. They find ways to laugh, make jokes, and see the absurdity in their situations. This ability to find humor is not just about staying positive—it has a biological basis and plays a crucial role in survival.

Consider this: laughter can decrease stress hormones like cortisol and epinephrine while increasing the release of endorphins, the body's natural feel-good chemicals. Yet many in stressful situations forget to laugh—not because there's nothing funny, but because they're too focused on the gravity of their circumstances. Remember to laugh.

In many cases, it's not the seriousness of the situation that leads to poor decision-making, but the inability to find moments of levity. When faced with challenging circumstances, the ability to laugh becomes just as important as the ability to think critically. Humor helps regulate the amygdala, promotes clearer thinking, and can even strengthen social bonds in group survival scenarios.

For instance, in Deep Survival, Gonzales recounts the story of Robertson Morrow, who survived six days in the brutally cold Wyoming wilderness. Despite severe frostbite and dwindling hopes of rescue, Morrow maintained his sense of humor, even nicknaming a nearby hill "Robertson's Folly". This ability to laugh in the face of adversity wasn't just a personality quirk—it was a survival tool that helped him maintain his mental resilience.

The key takeaway here is the power of humor as a coping mechanism in both survival situations and financial setbacks. Maintaining the ability to laugh, find absurdity in dire circumstances, and use humor to bond with others can significantly increase one's chances of survival and financial resilience. In the face of investing losses, a well-timed joke or self-deprecating quip can help reduce stress hormones and improve decision-making. Just as survivors use humor to maintain morale in extreme situations, investors can leverage wit to navigate market volatility. It's a reminder that in both life-threatening scenarios and tumultuous market conditions, our sense of humor can be a powerful ally in managing stress, maintaining perspective, and preserving mental clarity.

Harness the power of humor.

3. Embrace Your Inner Child

Gonzales discovered a surprising truth: in survival situations, young children often outperform adults. These kids, typically aged 6-12, demonstrate remarkable resilience not through physical strength or extensive knowledge, but through three key attributes: unwavering focus on survival, taking small, manageable steps, and quickly accepting their new reality.

Consider this: adults often waste precious energy and time denying their situation or longing for rescue. Children, on the other hand, adapt quickly, focus on immediate needs, and keep moving forward, one small step at a time. Their simplicity and directness become their strength.

In many cases, it's not the complexity of survival skills that determines success, but the ability to focus on basic needs without being overwhelmed by the bigger picture. When faced with dire circumstances, the child-like ability to live in the moment and tackle problems one at a time often proves more valuable than adult-level planning and strategizing.

For instance, in Deep Survival, Gonzales recounts the story of a 6-year-old girl who survived alone for 11 days in the Russian wilderness. This blew my mind. She didn't panic or give up hope; instead, she focused on finding berries to eat and staying warm, taking one small step at a time towards her survival. Her simple, direct approach to her immediate needs ultimately saved her life.

The key takeaway here is the power of a childlike mentality in survival situations. Maintaining a curious, open-minded approach to challenges, breaking problems down into simple, manageable parts, and swiftly adapting to new circumstances can significantly increase one's chances of survival. Children often possess an uncanny ability to see the world without preconceptions, tackle problems creatively, and bounce back from setbacks with remarkable resilience. This childlike perspective reminds us that in both extreme situations and everyday life, sometimes the most effective approach is to strip away adult complexities and embrace a more straightforward, intuitive way of thinking.

Embrace your inner child.

Adrift?

Tying it all together Gonzales told one of the craziest survival stories I’d ever heard of. And it’s one where all three tips were used in surviving the unthinkable.

In 1982, Steven Callahan's small sailboat sank in the Atlantic after a collision with an unknown object. Armed with only a life raft he dubbed "Rubber Ducky," a few supplies, and his indomitable spirit, Callahan drifted for an astonishing 76 days across 1,800 miles of open ocean.

He battled relentless sun, violent storms, and circling sharks. Dehydration, starvation, and despair became his constant companions. Callahan had to become hunter, navigator, engineer, and philosopher - often all in the same day. Yet, against all odds, he survived, pushing the boundaries of human endurance and will. For 76 days! And here we are getting bent out of shape when the market goes down 5% in a day.

This grueling odyssey tested both his physical limits and mental fortitude. And Callahan discovered that survival hinged not just on his physical endurance, but on three crucial mental strategies:

Staying hopeful: In his book "Adrift: 76 Days Lost at Sea," Callahan wrote, "I learn that it is within my power to exceed my wildest expectations." This powerful statement encapsulates the essence of emotional resilience. When faced with seemingly insurmountable odds, Callahan discovered reserves of strength he never knew he possessed.

Harnessing humor: Despite his dire situation, Callahan found moments of levity. He joked about his "seafood diet" and named the fish that followed his raft. This ability to laugh in the face of adversity helped maintain his mental balance.

Embracing his inner child: Callahan approached each day with simple, achievable goals. He noted, "Every day is a new day. You don't know what's over the horizon. All you can do is the next right thing." This child-like focus on immediate needs and small steps was crucial to his survival.

Thrive in Times of Chaos

I’ve dealt with more than my fair share of flat-out hard life events. Ones that felt like absolute gut punches that took the breath out of me. And I’m sure you have too. And I bet that some of you are dealing with one of them right now.

And so this one is for you. And for the future me that has to deal with it too.

In the face of uncertainty, our emotional strength becomes our greatest asset. By zooming out & maintaining hope, harnessing humor, and embracing a childlike mentality, we can survive and thrive in situations that we might never dream we could.

Epictetus said it best:

“It’s not what happens to you, but how you react to it that matters.”

May we all find strength in chaos.

May we all stay cool when everything is melting down.

And may we all prosper together for our friends, our families, and our loved ones.

The best is ahead,

Victaurs