Can an investment failure ultimately lead you to financial success? Yahoo Finance columnist Rick Newman, author of Rebounders: How Winners Pivot From Setback to Success, talks about how to rebound from a loss. Find out how to determine whether you should quit and minimize your losses or ride out a difficult situation till the end. Instead of being afraid of failure, use it as a learning tool.
Doug Goldstein, CFP® talks about the upcoming U.S. presidential elections and how their influence on market volatility. Listen for information about a free webinar on how the election results may affect your retirement savings. (Reserve your spot here.) Also find out about a common investment strategy that leads many investors astray – and what you can do instead.
Follow Rick Newman at: http://rickjnewman.com and on Twitter @rickjnewman
Watch Rick Newman- Author of Liberty for All, Rebounders and more on YouTube.Read the Transcript
Interview With Rick Newman
Douglas Goldstein interviews Rick Newman, a columnist for Yahoo Finance who’s written an amazing book: Rebounders: How Winners Pivot From Setback to Success. Rick unveils the key traits that all rebounders have and discusses why entrepreneurs love misery!
Douglas Goldstein: We are talking with Rick Newman, who is a columnist for Yahoo Finance and is based in New York. He has been covering business and economic trends and has written a book called Rebounders: How Winners Pivot from Setback to Success. Let’s talk about that. When things don’t go well for you, what do you need to rebound?
What Do You Need To Do To Rebound When You Don’t Succeed?
Rick Newman: It starts with having some experience at failing at something. One of the reasons I got interested in this was that I cover a lot of business people as part of my job. You hear it all the time: oh, what a great success this leader is or that leader is. He took some start-up and turned it into a billion-dollar business.
You don’t often get the full story. More often than not, those people struggled at something, something that really might have challenged them and made them think. It took up all their time, caused them to ask themselves a lot of questions, and led to several crucible moments. I got into this because I was interested in hearing the stories of people who had really struggled at something before they broke through. I think this starts at an early age when we were kids. I think there’s an art to learning how to fail at very small things that you might say are age appropriate.
Then learning that when you fail at something and when it doesn’t go your way, the world doesn’t end. You find a way around it. Often, in fact, almost all the time you can put it back together, figure out what you did wrong, try again, and get it right the second, or third, or fourth time. That’s where it begins.
Douglas Goldstein: Let’s assume that this is a little more sophisticated than just, “if at first you don’t succeed, try, try again.” Why is it more than just what your grandmother told you?
Rick Newman: It’s not, “If you don’t succeed at first, try, try again.” In fact, a lot of people do that and they never succeed and they wonder why. The reason is if you keep doing the same thing, that doesn’t necessarily raise your odds of success. I’m talking about people who try fairly difficult and complex things where success is nowhere near guaranteed.
You Need To Know When To Quit
Rick Newman: You are talking about persistence, which is to just stick at it. However, you need to know when to quit at something and try something else. If you are pursuing a bad idea, it doesn’t matter how persistent you are. You are probably not going to succeed. This is a hallmark of what I call “Rebounders”; they are willing to self-assess and they are able to self-assess.
This is not something you’re just born with. This is a learned skill, like learning math or learning how to play music. Just about anybody can do it, but you have to be able to question, why did I do the way I did it? Did I do it wrong? If you’re going to try again, try something different.
Try to figure out why it didn’t work the first time. This is a lot easier to say than to do, but people who have this ability to almost clinically analyze what was the reason that something didn’t go right are the ones that are able to break through.
Douglas Goldstein: Let’s focus on this one word, which is “quitting.” There are all sorts of great expressions, like winners never quit and quitters never win, but it sounds like you are knocking all my expressions down one after the other. Would you say that one’s not true either?
Rick Newman: Winners do quit. You have to make some distinctions here. What is quitting? I don’t want to get too semantic about it but if you just give up without giving it your best effort, or if it’s competitive and you just give up because you don’t feel like seeing it through to the end, that is not a great attribute. That is lack of persistence.
Rick Newman: The way to quit right, if you will, is a combination of persistence and analysis. Understanding whether you are persistent at the right thing. It’s really important to say, “You know what, if this is not the thing that I need to do, then I need to take everything I learned, and change my model a little bit or a lot.” That’s a way to remotivate yourself to give yourself a little bit of an emotional break, if you will.
You’re not just rushing into the same stone wall over and over but you are taking a different angle. You are trying something new. Maybe it’s not a stone wall anymore. Maybe it’s a different type of wall. Sorry for all these metaphors, but if what you’re doing over and over is not working, try something else.
Douglas Goldstein: Try something new. That makes a lot of sense. When I’m not on the show, I work as an investment advisor and I try to help people make smart decisions. A question always comes up: “Well, I’ve got some stocks that are winners and some that are losers, or some funds that are better than others. Which ones should I sell?”
Based on this quitting model is that academic studies seem to indicate that people who need to raise some money are usually better off selling their losers, meaning they should quit. They should quit what’s not working and hold onto their winners. It sounds a little bit like what you’re telling us. Is that something you’ve seen also in the world of money?
Rick Newman: I suppose. It’s basically the question of cutting your losses. One day, you have to say, “I have to get out of this.” One of the attributes of Rebounders is that you cannot get emotional about things that may actually be emotional to you. Or you have to find a way out of being emotional about them.
Don’t Let Emotions Cloud Your Judgment
Rick Newman: You see this all the time in investing and also with people who start a business. Some people are so emotionally invested in their business that they can’t give it up. But sometimes, that thing that you are so emotionally invested in actually clouds your judgment. This doesn’t mean that you shouldn’t be emotional. You have to be able to step out of your emotions sometimes so that you can more objectively analyze what’s going on.
This requires leaning on people that you trust. The obviously difficult thing about investing is that the investing climate changes all the time. Gold may be a terrible investment today, but in two years because the economy might change, it might be a great investment. That’s obviously another variable. What I’m thinking about is that a lot of this applies to careers and pursuing prosperity.
Douglas Goldstein: Let’s dive more deeply into this question about investment failure. A lot of times someone fails once, twice, or three times investing and over a career fails dozens of times. You talked about not following your emotions, but let’s be real. How can you get yourself to stand up and face the failure, like some of the successful Rebounders that you studied?
Rick Newman: Well, if you fail enough times at investing, you’re not going to have any money left to invest. You’re going to be forced to try something new. Here’s what I think of it. Every time you fail, you need to learn something from that. If you fail without learning, then that really is a failure but if you fail and learn something from it, that is not a failure. That’s a meaningful experience and growth opportunity.
You don’t get opportunities to learn those things in many other ways. You can take classes and listen to people tell you stories about how they failed. You can read about it in books; read what all the best investors tell you to do. But you never learn better than when it happens to you. With every failure, whether small or big, is an opportunity to figure out why that failure happened.
The more you learn about why those failures happened, the more you build a knowledge base, a database. In some ways, that is just experience and seasoning that is going to make you a lot smarter. You are going to react faster and you are going to able to anticipate what may go wrong better. That will lead to success.
Douglas Goldstein: What are some specific things that someone can do to develop personal resilience?
Developing Personal Resilience
Rick Newman: There’s been a lot of research into this recently. If you pay attention to the psychologists, a lot of times they talk about grit. It’s a new field of study that’s become very popular. How do you develop grit? First, you have to challenge yourself. Do not be afraid to fail. One of the things I’ve just found personally is that the more you understand how many successful people have actually failed before becoming successful, the bolder you will become. A lot of people may grow up in a family or in an environment where failure is frowned upon, and maybe there’s not much tolerance of failure. Not so in the Silicon Valley. There’s a lot of tolerance of failure in Silicon Valley. What they say out there is, “Fail fast.” Don’t do a slow motion fail that takes 10 years.
If you are testing an idea and taking a chance, do it aggressively and do it as quickly as you can. In Silicon Valley, quite often you are surrounded by investors who understand. VC for example, will probably hit it big in only one of the 20 things that they’ll invest in. They understand the failures, but they also know when to get out of the failure.
You quit because you have investments, such as money or because you’ve invested time, effort and emotional capital. That is why it’s really important to be as educated as you can and fail quickly.
Douglas Goldstein: How do you know that it is not working out versus you are just having a bad day? If you look at a company like Apple Computer, for years and years and years there was little to see in terms of growth. If someone was either working there or was investing in the company, you might have said, “Forget it. Fail fast. Let me just get out,” but obviously that would have been a mistake.
How can people apply this “fail fast” principle to making real decisions about real money issues?
Rick Newman: In real life, failure is not always binary. It’s not like, either you succeed or you fail. Quite often, you are on the cusp of something. You are not exactly failing, but you are not exactly succeeding. It’s actually very difficult to know. If you are in a dead-end career, do you just accept it and ride it as far as you can go, or do you take the risk of starting something new? That might mean you have to give up the old thing and accept a risk and some instability for a while.
When Is It Time To Quit?
Rick Newman: I actually think that in real life this is quite hard to figure out. That’s why I get deep in the weeds with people who’ve been through this. What happens is they hit a crucible moment where they almost cannot go any further. You’ll hear entrepreneurs saying, “All credit cards were maxed out. I was barely sleeping at night. I was having nightmares. I was borrowing money. I just knew this couldn’t go on anymore.”
Other times you’ll hear people say, “I set some goals and deadlines for myself. If I had not met those goals or deadlines, that’s the point at which I said, “I don’t think this is working,” Most of this happens in a gray zone. It’s not black and white. I think those are some of the ideas.
You have to know the toll it’s taking on you. You have to think about opportunity cost. “Can I be deploying my own personal resources?” Whether it’s money you’re investing or your own labor, ask yourself, “Can I get a better return on this someplace else?” and how about, “Am I happy at what I’m doing?” and “If this goes on for long enough.” This is one of the hardest things to do - getting yourself out of the gray zone and going and hitting that moment where you decisively do something.
Douglas Goldstein: Clients often ask me, “What’s the best investment?” I don’t know what the best investment is. It has to be customized for who you are. Also, you’ve got to be happy with what you are doing.
If you’re miserable, that’s probably a very good indication that maybe, you are not in the right spot. A rebounder is someone who is going to say, “I don’t want to be miserable. I’m going to go find something that makes me happy.”
Rick Newman: Yes and again, entrepreneurs love misery. They don’t love it but they are willing to go through it. At the closing chapter of my book, one of the nine attributes of Rebounders that I identified is that they are comfortable with discomfort. Nothing comes easy; no pain no gain. Anything worth attaining is worth working hard for. Put up with some discomfort, but set a limit and define these things for yourself.
How much discomfort is too much? You can’t answer that in any general way. It’s a personal matter. Define for yourself what success or failure is.
I think we all continuously redefine success as we move along. We probably have grandiose notions of success when we are young, and then we realize that it’s not so easy. We change our thinking a little bit. This happens continuously without us realizing it. What a lot of people do is they redefine success as they get more experience. As they get older, they focus more on the quality of life and less on acquisitions or material wealth.
What is success to you today? What is failure to you today? Once you know what those things are, these things are a little bit easier to comprehend.
Douglas Goldstein: Rick, how can people follow you and follow your work.
Rick Newman: They can visit my website: rickjnewman.com. I’m a writer for Yahoo Finance as you mentioned, and my work is there all the time. finance.yahoo.com.
Douglas Goldstein: We’ll link to that at the show notes of today’s show. Rick Newman, thanks so much for your time.