My favourite Michael Lewis book is Moneyball. The main character is Billy Beane, the General Manager of the Oakland Athletics baseball team from 1997 to 2015. The book first details Beane's life before becoming a GM. Beane was an incredibly gifted young athlete who was drafted out of high school into the baseball major leagues. Then, things went downhill:

Despite his physical gifts, Beane’s inability to deal with failure separated him from players who became successful, such as teammate, Lenny Dykstra:

Billy Beane

Billy Beane

Source: Baseball Wiki

Beane later went on to become one of the greatest general managers in baseball. The irony is his success as a manager was from drafting young players who weren’t physically gifted like him, yet they played a team role and were undervalued compared to other players.

The simple takeaway from Billy Beane's story is that people need to overcome failure to mature and become successful. But that's a little too neat. It doesn't address why people such as Beane can't handle failure.

Like many mental demons, it’s fear that’s central to people being unable to deal with failure. It’s likely that Beane’s fear of disappointing people close to him or disappointing the idealized version of himself led to his hatred of failure.

Having once been an elite athlete, I can tell you that these fears are commonplace among professional sportspeople. And the ability to tame them often distinguishes those who become great versus merely good.

What’s true for sport is also true for investing. Conquering fears, such as failing, are critical to success.

To help with this, we’re going to explore what fear is, what types of fear there are, and the best ways to overcome it.

All of us are driven by fear

Dr Pippa Grange is one of the world's most sought-after psychologists, having worked with the Australian Olympic team and several AFL clubs. In her book, Fear Less, she outlines what her work has taught her:

Dr Grange says there are two types of fear. There’s in-the-moment fear, which happens in a crisis or high stress situation, and one that you can’t help but recognize. Then there’s not-good-enough fear. This is the kind of fear that’s running your life and making your choices, almost on autopilot. It’s the fear about what happened in the past or what might happen in future. It’s the fear of disappointing people and failing, like Billy Beane had as a baseball player.

She says these fears can become distorted and lead to behaviour such as jealousy, perfectionism, staying isolated from others, and staying smaller than we really are.

Facing fears

Dr Grange says facing your ‘not-good enough’ fears is a kind of growing up:

She suggests several methods to overcome fear, including:

  • Replace fear with a different story. Think of yourself as a failure? Drop the label and rewrite your story into something else.
  • Replace fear with purpose. Purpose can direct your attention, influence decisions, and create meaning for you.
  • Replace fear with surrender. This comes from Eastern philosophy; that the best way to conquer fear is to accept it and let it go. Easier said than done!
  • Replace fear with dreams and desires. Like purpose, dreams can direct attention, so you don't get flustered by fear.

Applying this to markets

What’s this got to do with investing? If you think about the common mistakes that people make with their money, many relate to fear. For example:

Leaving money in a saving account for years instead of investing in markets. This common mistake can come from many different fears: of market dips, uncertain outcomes, lack of market expertise, or repeating past investment failures.

Selling stocks after the market falls. This can be driven of fear of further losses and failure, sometimes being spooked by scary media market stories, or hearing the horror stories of other investors.

Buying a trendy growth stock before it crashes. This happened to many investors in 2020-21 during the meme stock craze:it's the fear of missing out.Greed is a close cousin to fear. It can also relate to wanting to connect with like-minded people.

Listening to a hot tip that goes awry. Again, this is likely the fear of missing out.

Buying complex funds/stocks/products that investors don't fully understand. This can come from ignorance, fear of missing out, or wanting to prove yourself to others.

Giving into fear can mean making irrational decisions that lose money.

How can investors overcome these fears? There are many different methods though the best way may be to take the advice of Dr Grange and have a larger investment goal or purpose. That is, to have a financial plan and the discipline to stick with it. A plan that’s suited to you can act like a lighthouse does to a ship, providing a navigational aid even when things can get stormy, or distractions can easily take you off course. It’s likely to reduce fear-related unforced errors.

Funnily enough, Billy Beane came up with his own plan later in life as General Manager. It was a radical plan that encountered immense resistance even from those within his baseball club. It didn’t work at first as his team hit rock-bottom. Yet, despite the initial failures, Beane stuck with the plan, and eventually found success. In the process, he revolutionized baseball.

James Gruber is assistant editor at Firstlinks and Morningstar.