Melita's Inspirational Corner
Expect the Worst
I, like all people, live my life by a
set of rules and strategies based around my beliefs. Some
of them are completely unconscious, but after many years
of self-work, I am knowledgeable and conscious of many
that work very well for me.
This week, however, I experienced a
real unexpected blow (more about that later) because I
didn’t follow one of my cardinal rules: go into every
situation expecting the worst but hoping for the best.
Now initially that may sound like a
pessimistic way to live, yet it is actually a very
optimistic rule and has served me immensely in many areas
of my life.
By expecting and preparing for the
worst possible situation, I can psychologically deal with
anything that is thrown at me. I get myself grounded and
clear about how bad it would really be and usually that
worst case isn’t quite so bad. Regardless of that, I can
make sure that I have an action plan in place. And
anything that happens, other than the worst case scenario,
is cause for celebration. That’s a great way to live!
Many people do the opposite
(especially where money is involved). They go into a
situation with rose tinted glasses thinking that it is
going to be the answer to their dreams, whether it is an
investment, a new home or a business decision. Their
version of the rule is that “Everything will work out
great!” And they try not to think about any potential
But when things don’t quite work
out as they envisioned and the problems do appear, they
start to panic, lose balance and often become a
“victim” to the circumstances. They start to look for
someone or something to blame, or worse still, they
chastise and put themselves down and often find themselves
in a big financial mess.
I first noticed that I followed my
version of the rule when I went into the world of real
estate investing. I remember going to seminars where
everyone was showcasing best case scenarios. They would
highlight the terrific returns, how much money you could
make and how big the tax savings would be. The realtors
would show the best property (and most expensive) after
showing you the cheaper ones, to push you over the
emotional and financial edge (“you can’t afford not to
buy the best one…”) and the banks would take the
borrowing capacity as far as they could, encouraging you
and assuring you that you can afford those few extra
dollars (welcome to the sub prime mortgage crisis).
Thankfully that ruse didn’t work
When I looked at properties, I
didn’t look for how much I could make, I was always
looking at how much I could lose in the deal. I would look
at worst case numbers. I would price out the cost of any
major damage or unexpected problems and looked at my cash
flow situation if one or more of my places were unrented
for a year (it happens more often than you may know).
Would I be able to afford to hold onto my properties if
interest rates went back to 15% (rather than imagining
that THAT could never happen again)? If I could withstand
those types of things and still hold onto the property in
a favorable way, then it was a spectacular deal because
the only way is up.
And for the record, I have bought and
sold a lot of properties and I have made money on every
one of my real estate deals. This included one that
didn’t pay rent for 9 months, one that was burned and
uninhabitable for 14 weeks and various other tenant
issues, expenses and hiccups along the way. I was prepared
and able to weather the storm. In fact, the only thing
that I wasn’t prepared for was a murder/suicide that
occurred in one of my properties, but that happened
exactly 3 days after I had sold the property and actually
closed it. Divine intervention perhaps? I still feel bad
for the purchaser to this day – I guess neither of us
saw that coming!
So how does this apply to the non
real estate investor?
Well it’s exactly the same.
If you are only going into a trade
looking at the upside, you could be doomed.
Often I hear about people going into
trading or business because they “need” to make a
certain amount of money each year just to get by. If they
are going into trading or business with that concept in
mind then, nine times out of ten they are setting
themselves up to lose. A far more intelligent approach is
to say “I would like
to make XX% per year, but I can also afford not to make it
for at least XX months or years.”
Take a look at some of the worst case
things that can go wrong. What would you do if you lost
all of your capital? Or got caught in a margin call
situation? How would you cope? What would you do if you
lost your job and couldn’t get another one easily?
If you don’t know how far you can
be stretched, then you may easily find yourself in one of
those situations and grasping for a floating device that
isn’t there to save you. And it’s all of your own
making because it is easily circumvented.
As I said in the second paragraph, I
broke my cardinal rule this week, and it was in the health
arena. I went into the doctor’s office completely
convinced that my tumor was shrinking because I was
feeling so well. I was on cloud nine and ready to tell him
about my plans for the summer. I was only thinking about
the best case, and hadn’t thought about the worst.
However, I was completely wrong, and
found out the tumor was growing again. The impact was huge
and has been devastating to me over the last two days. But
as usual, I will pick myself up and move on to the next
step and treatment. I am simply telling you this because I
didn’t follow my rules. If I had walked in preparing to
hear the worst (like I did in the original diagnosis), it
would still have been hard to hear, but I would have been
much better prepared to cope and the fact that I am still
alive, would have been cause for celebration.
It may be a strange example to get
the point across in a trading newsletter, but it is a rule
that can be used in all situations – business,
relationships, health, investing. Prepare for the worst
and hope for the best. My wish in telling you this is that
it will at least prompt some of you to think about where
you could be a lot worse off. Then you may find that every
day is not so bad, and you will start to feel wonder and
appreciation for all of the little things, especially the
things that “didn’t go wrong and weren’t so bad
Melita Hunt is
the CEO of the Van Tharp Institute. If you would like to
keep up with Melita’s progress regarding her recently
diagnosed lung cancer (she is a never-smoker). Please feel free to read her blog
You can contact Melita at email@example.com