Seeing the Bigger Picture

We are generally wired to focus on current events and extrapolate them towards the future. This makes us oblivious to risks and rewards that are going to come in our life journey. And here lies the hope as well as the caution as we need to look beyond what is happening in the now.

Let me give you my own examples –

–       When I started my career in 1995, I was sacked in my first 3 jobs. And that too within the first 3 months. I started thinking that something is woefully wrong with me. Sacking from 3 jobs in a row cannot be just a coincidence. And then I correlated that with other happenings and concluded that bad things are happening to me. In fact, in my fourth job, till the first 6 months, I was anticipating that any day I could be called by my boss and yelled “You are sacked”.

–       When I started my own practice in 2003 first as a partnership firm, then in 2005 as a company, suddenly business was happening at a good pace. I continued my good run till 2007. During this 4 years golden run, I felt, I can do no wrong. I had a magical grip on my clients and my advice on the market and fund selection was super-duper. So, I thought.

Both these examples are the illustration of how my focus on only the current situation blinded me to the opportunity and risk that lies ahead. In the first situation, I was extremely nervous and accepted my fourth job at a much lower salary than my actual potential. In the second scenario, I was so overconfident that I even rejected a few extremely attractive opportunities to expand my business.

I had not contemplated these situations till I read a wonderful book “Thinking fast and slow” by Nobel laureate Daniel Kahneman. He argued that our inability to see the bigger picture and only focusing on the current events makes us blind to future opportunities and risks. Only a handful of people have the ability to think hard and make the planning accordingly. But the ability to see the bigger picture is crucial and separates the super achievers against mediocre achievers.

The inability to see the bigger picture is most prominently displayed in the field of investments and savings. When you are earning well, you fail to recognize the fact that in future your active earning will diminish and then you will be facing consequences of not saving or investing enough. This is equally true for people who are not earning well as they feel that their earning is too low to be invested. They also fail to recognize the fact that even if they save a small amount, this will grow big due to compounding over the period of time. Along the way, they will develop saving muscles and maybe propel themselves to increase their earning and saving.

But the bigger picture ability is most missing in the stock market. Look at the stock market analysis in the TV channels and you will see how easily so-called experts change their opinion as per the current market situation. Their whole future prediction is based on what is happening in the now. Their viewers are better off realizing that the future is always uncertain, hence can’t be predicted therefore listening to those experts is nothing short of a waste of time.

In fact, very often what is described as risky is an opportunity and vice versa. People who see the big picture very well know and respect what is called “Reversion towards the mean” concept. This is a prominent statistical term which can be described in simple words as “things often revert back towards their mean or averages”. So, if the stock market has a good run for a considerable period of time, then it will be a time for correction. Similarly, if the market has been low for some time, then reversion towards the mean ensures that it will go up going forward. But again, this cannot be generalized and what is good advice for one cannot be the same for others.

The point here is not to time the market but to go beyond the current happenings. Life is a combination of all kinds of situations, events and cycles. When you focus on the bigger picture you are better prepared for all the positive as well as negative surprises. And capitalize them too.

Manoj Pandey
CFP