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What I Learned from Losing $200 Million - Issue 31: Stress - Nautilus

Abandon the illusion of control

The illusion of control can be adaptive, in the sense that it encourages a focus on problem-solving behaviors as opposed to an emotional response.

Producing your best-informed guesswork prevents the anticipation in stress testing. However, there will always be some things you cannot completely control.

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What I Learned from Losing $200 Million - Issue 31: Stress - Nautilus

What I Learned from Losing $200 Million - Issue 31: Stress - Nautilus

http://nautil.us/issue/31/stress/what-i-learned-from-losing-200-million

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Key Ideas

The illusion of control

Stress testing is a standard technique used to test how someone will perform in the "worst-case" scenario. The problem is that the "worst-case" scenario is subjective, causing an illusion of control.

  • It can make a person overconfident in themselves, believing that they have complete control.
  • Circumstances can make people feel like they're engaged in acts of skill rather than luck, which make them overestimate their prospects.

Success and crisis

Success in “normal” circumstances does not mean that you will succeed in a crisis since, in a crisis, the rules change. However, it can make you feel confident and make you highly vulnerable to the next crisis.

Drawing up your own tests

Your own incentives may support an illusion of control. If you draw up your own worst-case scenarios, you will always pass, but as a result, you will develop blind spots.

Encourage innovation in risk models to increase diversification and decrease risk.

Stress tests

Stress tests cannot be improved. History is a much better predictor than a stress test. But even history requires a model to interpret it.

We always have a preconception of cause and effect, and therefore some prejudice for how to interpret the data. That does not mean that we should revert to inaction for fear of the worst possible result.

Abandon the illusion of control

The illusion of control can be adaptive, in the sense that it encourages a focus on problem-solving behaviors as opposed to an emotional response.

Producing your best-informed guesswork prevents the anticipation in stress testing. However, there will always be some things you cannot completely control.

SIMILAR ARTICLES & IDEAS:

“Focused” and “Diffused” Modes

When learning, there are times in which you are focused and times in which you allow your mind to wander. Both modes are valuable to allow your brain to learn something.

Take regular break...

Chunking
This is the idea of breaking what you want to learn into concepts. 

The goal is to learn each concept in a way that they each become like a well-known puzzle piece. 

In order to master a concept, you not only need to know it but also to know how it fits into the bigger picture.

Beware of Illusions of Competence
There are many ways in which we can make ourselves feel like we have “learned” a concept.

Instead of highlighting or underlining, rather take brief notes that summarize keys concepts.

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Playing it safe: a silent killer

The dangers of playing it safe appear so gradually that they rarely get noticed.

It is like a slow leak in a tire, you only notice it when you are stuck. You don't have an idea of how it h...

Hanging onto old ideas

People try desperately to hang on to antiquated ways of doing business because of a false sense of security. They believe that they can maintain their old ideas indefinitely, even if all evidence shows the contrary.

Question everything

Questioning everything could help you to spot problems and create a culture of understanding and action.

What does this business look like in five years?  What are our customers worrying about today? What will concern them tomorrow? Where are we failing to communicate? Are we capitalizing on all our strengths? What opportunities are we missing?

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Paper Money

The instruments of trade and finance, like paper money, are groundbreaking inventions, put to use by collective acceptance using authority and seals of trust.

Money's Worth

The financial crisis of 2008 showed that the system can buckle anytime and money may not always be worth the same.

As we get hyper-connected, the state-backed authority of currency, and what Money is really worth, is being rethought. Society has historically tried to invent new forms of currency, most recent being Bitcoin, a cryptocurrency.

The Idea of Libra Currency

The idea of Facebook's Libra, an attempt to create a new currency made from the architecture that powers Bitcoin, is that the value of new money is not derived from state authority, but a combination of mathematics, global connectivity, and trust that resides in people using Facebook.

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Considering risk
It is not always possible to anticipate the effects of unexpected events that occur throughout the business cycle.

But those who routinely examine the way risks propagate across the entir...

Risk along the value chain

Most companies only examine the most direct risks facing a company and tend to neglect secondary risks that can have an even greater impact.

Companies need to learn to evaluate aftereffects that could weaken whole value chains.

Competitors

All differences in business models can create the potential for competitive risk exposure. This does not mean that a company should imitate its competitors, but that it should consider the risk when they have different strategies.

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Recessions come and go
Recessions come and go
  • A recession is "good" or "bad," depending on who it impacts and how badly it affects them.
  • In the last thirty years, a recession has come and gone somewhere in ...
Recessions are far from equal
  • Banks are better able to handle a financial crisis than a decade ago. The 2008 recession was about the housing market and shares, which affected higher income groups.
  • The present crisis seems to be hitting the lower-income groups, the vulnerable workers, young, and less skilled. It is similar to the late 70s, early 80s recession, which affected young and unskilled workers.
  • Another lesson from 2008 is that recessions don't always lead to significant numbers of job losses. Layoffs were concentrated among a small number of people, and they stayed unemployed for a long time.
  • In this recession, far more workers will be at risk if social-distancing rules remain in place over a long period.
GDP during a crisis
  • A drop in GDP was expected during the 2020 lockdown. Shops and businesses were closed, and the total value produced by goods and services decreased. In turn, this affected the staff of those businesses earning less money.
  • Furloughs. At its peak, about nine million people in the UK were paid a furlough - the government paid 80% of their salaries, and the employer could choose to top up the rest. Other countries have similar state-backed furlough schemes. These schemes will be coming to an end, and employers will have to decide if they have to lay off employees permanently.
  • The losses are not yet crystalising. People are taking mortgage and credit holidays. It means the losses are pushed further down the road. The financial sector bubble will burst, and we will see real turmoil again.

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Our Subconscious Beliefs
  • Our beliefs, the stories we keep telling ourselves daily, along with our constant thoughts and emotions drive a lot of choices we make.
  • These unconscious beliefs and thought patter...
Our Thoughts Make Us Weak

False subconscious beliefs include a feeling of nobody caring about what you have to say, a feeling of worthlessness and imagining yourself to be a miserable failure.

The astounding part is that we live most of our lives carrying these chronic false beliefs in us, manifesting them into unconscious actions leading to eating disorders.

Curing The Negative Self-Image

The cure to a negative self-image formed by your beliefs is to be aware of what you think, speak or do. If you start to recognize your behavioural patterns, your hunger cravings and just pause before a habitual activity is starting, you can get a grip on the underlying emotions that drive these beliefs and corresponding actions.

Awareness and body-connection become your starting point, and one can then learn to recognize, manage, accept, and allow emotions, with eyes wide open.

The Motivation Decline

Having a high paying job that is going well and getting better does not mean that you will always be motivated to go to work each morning.

Your motivation can start to decrease despite promot...

Finding New Motivation

Consider these questions: 

  • "What kind of work would you and consider satisfactory if you had to do it until you're 80?"
  • "What would make you feel excited to wake up every day for the next 45 years that could also earn you enough money to cover your expenses?"

Two types of drivers
  • Extrinsic motivatorsThis is what you do because you have to pay the bills or want to buy a new car. This type of motivation doesn't last. When you hit your goal, you might feel good for a week, but then it wears off quickly.
  • Intrinsic motivatorsThis is what drives you to do things when there isn't a carrot or stick. For instance, hobbies are driven by this. This kind of motivator does no wear off.
Voltaire

“History never repeats itself. Man always does.”

Voltaire
History lessons
The most important lessons from history are the takeaways that are so broad they can apply to other fields, other historical times, and other people. 

The point is that the more specific a lesson of history is, the less relevant it becomes.

Adopting new views 

One of the interesting parts of the Great Depressions from history is not just how the economy collapsed, but how quickly and dramatically people’s views changed when it did.

People suffering from immediate, unexpected adversity are likely to adopt views they previously thought absurd. It’s not until your life is in full chaos (with your hopes and dreams your dreams unsure) that people begin taking ideas they’d never consider before seriously.

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Losing a Loved One

Extreme grief, like losing a loved one is normally handled by an individual's support group of friends and family in stereotypical ways.

There seems to be a 'support gap' in which p...

Choose Life

The key is to choose life, and not lose the ones we have, to what we have already lost.

Accepting the good and deciding to shift towards life during matters of death is an effective psychological technique, which is referred to as 'benefit finding'.

Resilient People

Studies after the 9/11 terror attacks showed that experiencing positive emotions created a buffer against depression. Resilient people can work out ways to include hope, love, humor, pride, inspiration, serenity into their lives.

We all can use nature therapy, inspirational movies, and books, music, and sports to fuel our positive beliefs and emotions.

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"Just do it” - not a solution for procrastination

If we repeatedly find ourselves avoiding certain tasks, an underlying problem needs to be addressed.

Once we identify the real cause, we can search for the appropr...

Most common reasons that lead us to procrastinate:

1. We feel like we’re not making progress.

2. We’re not sure where to start.

3. We’re afraid of failing.

4. We dislike the task itself