Beware the reality distortion field

Beware the reality distortion field

December 14, 2021

Several years ago, I read Walter Isaacson’s excellent biography of Apple founder Steve Jobs. It was a fascinating book, full of interesting insights into the mind and character of one of the brightest consumer marketers of our time. No doubt about it, Steve Jobs was a visionary and he had an uncanny way of getting people to set aside their preconceptions and come up with new solutions to tricky problems. He was so adept at it that some of his contemporaries referred to this ability as his “Reality Distortion Field.”

In the years since reading the Isaacson book, I have thought a lot about the idea of a reality distortion field. I admit I am of two minds. On one hand, there is no doubt that progress rarely comes unless we challenge existing beliefs about reality. Neal Armstrong would never have set foot on the moon in 1969 if Copernicus had not challenged existing beliefs about planetary motion in 1515. On the other hand, just because we imagine something to be true or possible, doesn’t make it so. No matter how much you may desire it, you will not grow rich simply by wishing for it. Wealth creation requires that you take action in harmony with true “realities.”

The problem, of course, lies with our brains. The human brain is a wonderful thing, but sometimes it is difficult to discern between reality and distortion. We are all subject to distortions in our thinking, something psychologists refer to as “cognitive distortions.” Cognitive distortions are thought habits that warp our ability to see what is real or to perceive the world accurately. When we act on these warped perceptions, we make poor decisions that undermine our progress and happiness. Cognitive distortions can also undermine our financial success.

Some cognitive distortions are especially relevant to investing. Learning how to recognize and overcome them will help you improve your investment experience and your long-term financial success.

A common cognitive distortion is known as “catastrophizing.” We’ve all known people who see disaster looming around every corner. They exaggerate bad news and carry it to its logical—often catastrophic—extreme.

For investors who catastrophize, every market downturn is the beginning of a market meltdown. Fearing the worst, they sell their investments at the slightest sign of weakness. Because they cannot maintain their convictions, they often end up selling out before their investments have the opportunity to bear fruit.

If you find yourself catastrophizing with your investments, you can work to overcome it by reminding yourself that markets ebb and flow like many natural systems. Think about ocean tides. We don’t panic when the tide is going out, fearing that somehow the water will keep receding until we are left with only a dry ocean bed. So it is with markets. They may recede for a time, but they eventually come back. Making sure you have a well-diversified portfolio of high quality investments can help you have confidence that your investments will still be there when the overall market recovers.

Another common cognitive distortion is called “filtering.” When we filter, we see only one side of an issue, magnifying its importance while ignoring or minimizing information that supports the opposite point of view. Were you ever blind-sided by a market rally that seemingly came out of the blue? For example, at the bottom of the COVID-driven market collapse in 2020, did you refuse to buy into the rally because it was clearly unwarranted? If so, you were probably suffering from filtering.

If you want to see filtering in action, think about your last social media debate. When did you ever convince anyone to change their opinion on Facebook? You can also see filtering on most cable news talk shows. Pundits, whether political or financial, are world champs at filtering. Of course, we don’t want to ignore problems, nor do we want to become pessimistic. You can correct filtering by intentionally looking at situations from multiple viewpoints. Reality is often found where those viewpoints intersect.

Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey. He welcomes questions you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to