Contributors:
Colby McFadden
Justin Singletary
Patrick Morehead
April, 2025
I started scribbling this piece in January 2025, mulling over the market’s wild ride and where we’d landed since the last significant bear market. Most days I am able to see the world with humor and playfulness but for some reason this day I couldn’t shake the contrast—my own path over the past 25 years running a firm and raising a family in a low interest rate credit leveraged economy and the scars from past crashes stacked against the mess the younger crowd was slogging through: sky-high housing, punishing interest rates, the looming threat of inflation or stagflation, all while dodging the relentless slop of nonsense flung across social media and, frankly, mainstream headlines too. It got me thinking: how do you navigate a storm when the noise is deafening and the ground keeps shifting? That’s where this story kicks in—a look back to steer us forward.
March 2000, smack in the dot-com meltdown. I’m staring at my screens one morning, and there it is: ‘Nasdaq Crashes as Dot-Com Dreams Fade.’ My gut reaction? ‘Holy hell, we dodged a freaking bullet.’ Three months earlier, my mentors had stormed into my office with a bombshell: ‘Colby, next month’s quarterly letter—we’re telling clients to yank 50-75% of their accounts into cash.’ Why? I’d pressed. ‘We’ve made a killing these last two years, us and the clients—this hot streak’s gotta end soon.’ No slick CFA charts or ivory-tower theories—just raw instinct and street-smarts screaming the party was over. When that headline hit, it was a ‘phew’ moment, a damn blessing. But you know how it goes: every blessing there can be a curse.
The curse? My clients started eyeing me like I was some market oracle, gifted with X-ray vision for every twist ahead. Truth was, I’d just hitched my wagon to sharp folks with killer money noses—pure luck, not genius. And luck’s a shaky peg to hang an investment strategy on. So, I set out to bury that fluke, diving headfirst into the guts of market cycles and a mind-bending gem called Behavioral Finance—tools to swap chance for something a little more sound.
Behavioral finance offers a lens to understand how risk appetites shift in markets, blending psychology with economic decision-making. It suggests that investors aren’t always rational actors—emotions, biases, and cognitive quirks often drive their willingness to take risks, rather than just cold, hard data.
One key idea is overconfidence bias. When markets are booming, investors tend to overestimate their ability to predict outcomes and underestimate risks, leading to a higher risk appetite. Then there’s herding behavior. Risk appetites often shift collectively—when others are greedy, you feel safe being greedy too (cue Warren Buffett’s “be fearful when others are greedy”). Social proof amplifies this: if everyone’s jumping into GameStop or Bitcoin, the fear of missing out (FOMO) jacks up risk tolerance. But when panic sets in, like during the 2008 financial crisis, herding flips to mass selling, shrinking risk appetites overnight.
Is this sounding eerily similar to 2025? If so, that’s the point, and why I bring this subject matter to you now.
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The emotional pendulum of the social collective has swung wildly since the Great Recession of 2008–2009, a time when discouragement seeped into every corner of life. Back then, the mood was a heavy fog—people weren’t just down, they were paralyzed, haunted by the next inevitable loss, clinging to bare necessities as confidence evaporated. Economically and financially, it was a bleak abyss.
Fast forward to January 2025, and the vibe flipped: fueled by a Trump-driven market surge, investors—big and small—gobbled up equities and crypto with a fervor that vacuumed up every dip, propelling financial markets to dazzling new highs. Risk was no longer a specter; it was a thrill. So, with this year kicking off in a blaze of enthusiasm (at least in the markets), why turn the spotlight on discouragement?
Booms don’t last forever—beneath the glitz, cracks fester. The longer the party rages, the easier it is to gloss over flaws, swept up in the irrational exuberance that reckless risk-taking feeds. Then, out of nowhere—BOOM—a spark ignites, the bubble bursts, and the growth streak collapses just as people were hitting their groove.
Warren Buffett nailed it: ‘You never know who’s swimming naked until the tide goes out.’ And nothing ushers in discouragement quite like the sight of exposed, floundering tycoons caught off-guard.
It’s an emotion that blindsides us, one few truly decipher until it’s too late. This article peels back its layers, revealing its slippery essence, and equips you with tools to sidestep its ambush or fight through its grip when it lands
Discouragement doesn’t usually crash in like a tidal wave—it seeps in slowly, drip by drip, as setbacks and failures stack up. Each stumble chips away at our resolve, and over time, we start doubting our own grit. It masquerades as a ‘natural’ reaction, lulling us into missing the real threat: discouragement is a hungry beast that feeds on itself, turning into a self-fulfilling trap. One misstep breeds gloom; gloom saps our drive; a weakened effort courts failure—and that failure pours fuel on the fire of despair, round and round it goes. Left unchecked, this quiet spiral can drag us into a pit we’ve dug ourselves, a shadow harder to escape the longer we linger.
Discouragement, at its core, is an inside job—an internal reaction we brew up within ourselves in response to something we perceive as a disappointment. That’s the silver lining: markets might tank and life might unravel, but we hold the reins on how we respond to these outside stimuli. Often, that’s our only shield against forces too big to control—the power to pick our mental stance. Sure, staying upbeat when life’s got us on the ropes is no small feat—easier preached than practiced when every kick seems to land harder. Sometimes, life doesn’t play soft. But reining in those dark feelings is imperative if you want to avoid the slippery slope of gloom to despair. Even a flicker of discouragement, if ignored, can snowball into a self-fulfilling cycle of defeat—and fast.
How does this happen?
And when it does, how can we work our way out of it?
It’s a brutal trap—turning into our own worst critic right when we’re already bruised. When our feelings have us against the ropes gasping for some air, we often unleash a torrent of harsh, relentless self-talk—stuff we’d never dream of slinging at someone else. It’s venomous, and yet we convince ourselves it’s ‘tough love,’ a kick to get back on track. But here’s the rub: when we’re already limping, that inner drill sergeant doesn’t inspire—it crushes. Make a mistake, say the wrong thing, spill the proverbial milk: mentally flogging yourself after the fact doesn’t sharpen your edge; it just deepens the rut.
The smarter play? Nurse that battered self-respect back to life by leaning on what we know we’re good at, not shattering it further with a barrage of negativity. When faced with the darkness of negative thought, bring the light of gratitude and appreciation into the room and watch that darkness convert to light. A process long known to work by the adage “the mind can’t serve two masters”.
When your inner critic starts dragging you down, there are several practices you can try to shift its tone or quiet it altogether. One of my favorite techniques is fashioned after “The Work” of Byron Katie where you first, catch that negative rant in the act. Notice when that voice pipes up—pinpoint what it’s saying: “You’re useless” or “You’ll never get this right.” Naming it stops it from running in the background unchecked.
Next, question it. Treat it like a nosy skeptic instead of gospel truth. Ask: “Is this actually accurate?” or “Would I say this to a friend?” Often, the inner critic exaggerates—like calling you a failure over one slip-up when you’ve got a track record of pulling through. Look for evidence that contradicts it. Maybe you’ve nailed similar tasks before, or someone else stumbled on the same thing. It’s important to judge yourself and other based on the balance of their work, not just one act.
Reframe it. Turn the critic into a coach. Instead of “You suck at this,” try “Okay, that didn’t work—what can I tweak next time?” It’s not about fake positivity; it’s about making the voice useful instead of paralyzing. Studies—like those from cognitive behavioral therapy research—show this shift can cut down self-inflicted stress.
It’s a classic blunder—throwing in the towel before the fight’s truly over. This isn’t surrender; it’s a dodge, a way to trick ourselves into feeling in control by bailing before the inevitable (or so we assume) defeat hits.
This misstep can be a beast to tackle because sometimes quitting is the smart move—knowing when quitting equates to a wise “cut your losses early” decision versus an emotional flinch takes real self-awareness and a cold read of the battlefield. Too often, we’re not tapping out because the game’s lost; we’re just discouraged, worn down, and done with the grind.
Consider this: the average millionaire’s been bankrupt over three times. What sets them apart isn’t a golden horseshoe—it’s the stubborn fire to dust off the ashes and charge back in, failure after failure. That’s the first hurdle.
The second? We’re masters at spinning excuses, dressing up our retreat as ‘realism.’ We sigh, ‘Well, shucks, I gave it my all, but it just wasn’t in the cards,’ and for a fleeting moment, the weight lifts.
But here’s the catch: coasting on that relief won’t unlock your ceiling. To find out what you’re really made of, you’ve got to shove past the cozy, familiar edges of what you already know.
Research on “learned helplessness” (e.g., Martin Seligman’s work) shows people often stop trying when they feel outcomes are beyond their control. Quitting early can be a subconscious grab for agency—choosing to lose on your terms rather than risking an uncontrolled fall.
One practice that has been found useful is Journaling or self-reflection exercises can help identify this pattern. Ask: “Am I stopping because it’s truly over, or because I’m scared of what’s next?” Tracking past decisions where you bailed versus pushed through can reveal the dodge in action.
One more trick to dodging this misstep? Consider keeping in mind that YOU are not your circumstances. By unhooking your emotions from the result, you help disarm the stress and anxiety that may accompany that negative self-talk. Keep chasing the goal—steady, disciplined, all-in—but don’t let your heart and self-worth ride on the end result. Instead, look to find pride and joy in the path, and the efforts you exert along the path, as opposed to the observable results. That balance keeps you sharp and moving, not paralyzed by our perception of what might or might not come.
A comprehensive financial strategy can help you make smart investment decisions.
Reflections are a must—mistakes are goldmines if you dig out the lessons. But once you’ve got the takeaway, it’s time to drop the shovel and move on. Too often, a gut-punch from life—like a brutal loss—sucks us into the quicksand of endless, self-indulgent brooding.
Picture this: you just made a huge mistake in life. You’re a wreck, stomach churning, replaying the disaster. You sit, you stew, and finally—lightbulb!—you spot the blunders. Better yet, you figure out how to dodge them next time. Mission accomplished, right? Time to roll forward with that wisdom.
Except it’s not that easy. Most of us can’t just flip a switch and shed the weight. Instead, we churn: ‘God, why’d I do that? If I wasn’t so irresponsible…, Only if I would be like…I am such a loser for…’ Round and round, a mental hamster wheel to nowhere. That’s the detour to self-defeat. We’re not marching into a smarter future; we’re lugging the past like a ball and chain.
That spiral’s a dead end. There’s zero to gain from marinating in regret. Pocket the lessons, sure—but ditch the baggage and step into what’s next.
Cognitive psychology shows over-rumination—endlessly replaying errors—spikes anxiety and depression (e.g., Susan Nolen-Hoeksema’s work on rumination). It’s the opposite of adaptive learning; it traps you in the past instead of arming you for the future.
If you happen to find yourself stuck in the mud, try a “structured reflection” exercise. After a mistake, write down: What happened? What went wrong? What’s the one key lesson? Limit it to 15 minutes—force yourself to dig efficiently, then stop. This keeps the focus on takeaways, not wallowing.
What does discouragement have to do with Red Zone Retirement Investing? When you’re within 10 years of retirement—or needing your invested funds for major expenses like healthcare in that timeframe—a single threat can derail your confidence: a bear market or a “lost decade,” like the stagnant markets of 2000–2010. So close to the retirement finish line, steep losses from recessions or downturns can feel crushing. The best way to stop that discouragement? Minimize exposure to those risks. That might mean seeking out new tools, resources, or even allies to protect your nest egg and keep your goals on track.
Considering my career started before the dot com era, you could say these lessons were forged in the fire of the dot-com bust, tempered through the bleak haze of the Great Recession, and sharpened by years of wrestling discouragement’s pull. I offer them now as tools to grip if you ever feel that slippery slope into the gloom, today or down the road.
In closing, I would like to give a special thank you to Jason Haver of www.pretzelcharts.com. When I began this piece, I thought I was writing about disappointment until I read Jason’s writing “The Psychology of Discouragement: How Traders Sabotage Themselves”. Please give him a follow, I found Jason and his blog back in 08 when I found myself in a state of discouragement and became determined to find new tools and allies, his writings and words are as pragmatic and insightful as you can find.
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