Confidence and Overconfidence: Getting the Formula Right, Part 2

On  Monday, I explained why overconfidence in taking on new initiatives may lead to failure: You are likely to jump into projects that have little or no chance of succeeding,

But I pointed out that under-confidence, too, can lead to failure. In this case, because you pass up good opportunities, fearing that you don’t have what it takes to turn them into achievable goals.

To be successful, what you need – in terms of how you feel and what you think – is the right blend of confidence and caution. In his very good book “Bull’s  Eye Investing – Targeting Real Returns in a Smoke and Mirrors Market,” John Mauldin calls it “cautious optimism.”

How do you achieve cautious optimism?

Here are a few suggestions:

1. First, determine your basic nature.

Are you instinctively an optimist or a pessimist? (If you haven’t already done so, go back and take the self-quiz in Monday’s  Action Plan.

2. If you are an optimist, curb your enthusiasm.

Understand that there is a piece of your brain that is not operating very efficiently. That is the part which, in other people, causes doubt and fear. Be happy that you have a frame of mind that gives you the feeling that you can accomplish just about anything, but promise yourself that you’ll run all your important impulse decisions through an outside filter.

  • Don’t sign any contracts or agree to any business deals without running them by a trusted lawyer and accountant beforehand. Tell your advisors that their job is to spot the problems that don’t and to be tough on you when you try to dismiss them with quick rhetoric. (That’s what you’ll want to do when they toss a pail of cold water on your fire.)
  • Don’t buy anything expensive on the spot. And don’t agree to buy anything on the spot either. When you find  yourself alone in a sales situation, try to cancel the meeting and reschedule it for a time when you can be accompanied by a trusted (i.e. pessimistic) advisor. This applies to all significant purchases, including investments in financial instruments, real estate, businesses, and toys. Decide for yourself what is significant. A good rule of thumb: anything that amounts to more than 1% of your (or your company’s) net worth.
  • Don’t hire anyone on the spot. (Follow the advice above.)
  • Don’t fire anyone on the spot.
  • Don’t take a job on the spot. If it’s perfect and you love it, say, “I’d love to accept this right now because I know it’s perfect for me and I’m sure I’ll do the job you are expecting me to do. But I promised my wife (mother/uncle) that I’d speak to her/him first, and I never break my promises. Can I get back to you with a positive response at 9 a.m. tomorrow morning?
  • Don’t send out “reactive” e-mails on the spot. Wait 24 hours and then either delete or modify the e-mail. If, in reading the e-mail 24 hours later, you get angry again and want to send it out unchanged, hold off for another 24 hours. Don’t send out that first e-mail under any circumstances. You will regret it.
  • Don’t ever say anything in an e-mail about anyone unless you wouldn’t mind them reading it … because they surely will.
  • The same rule applies to anything written in letters or spoken on the phone or in person

3. If you are a pessimist, fill your glass a bit more.

Accept the fact that you have some deficiency in your brain chemistry that makes other people feel good about everything. Recognize that your instinctive tendency to see the dark side can sometimes limit your success by dampening your enthusiasm or the enthusiasm of others.

  • Be happy that you have a natural ability to detect the potential problems in every situation. Use that talent to assess the risks and problems inherent in any major venture you undertake.
  • Make it a habit to always say something positive before you say whatever it is that’s on your mind. If you think the soup is over-salted, say, “Gee, this soup has a great texture and a perfect temperature. It would be even better if it were a little less salty.” (Note: Try always to avoid the dreaded – and easily detected – “but” signal, as in, “The soup was great, but …”)
  • After you get through writing your daily task list, spend five or 10 minutes visualizing every task. Imagine yourself happily accomplishing the intended objective. Even if you find the job odious and the person you are doing it with repugnant (see Word to the Wise, below), find some way to imagine actually enjoying the experience. This may seem like advice that borders on the silly – it certainly did to me when I first tried it – but you’ll be amazed at how well it works. Not only will you feel better about the task when you do it, you’ll accomplish your objectives more easily and with less resistance from the other parties involved.
  • Practice smiling in the mirror. Do this as often as you can stomach it. And then do it some more. Again, this advice may seem ludicrous … but it will work.
  • When talking on the phone, smile. The person on the other end is cueing off the energy from your voice. If you want him to respond enthusiastically to your ideas, you need to breathe that enthusiasm into the tone of your voice.
  • Every time you see someone for the first time, greet him with a firm handshake, a smile, and a confident “eye-lock.”

Whether optimistic, pessimistic, or something in between, recognize that whatever your goals are, you’ll have a better chance of achieving them if you follow a formal goal-setting program.


[Ed. Note.  Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]