Key Takeaways
✅ The concept of Via Negativa emphasizes the importance of avoiding costly mistakes
✅ Investors should try everything to minimize errors & steer clear of bad investments
✅ By doing so, the chance of achieving long-term success is significantly higher
The Concept of Via Negativa
The Via Negativa concept was first formulated 50 years ago in the context of an individual investor investing by the American Charles Ellis in his essay “The Loser’s Game” (Ellis 1975), although he did not directly use the term “Via Negativa”.
However, this very essay inspired John Bogle, the founder of Vanguard, the world’s second-largest fund management company today, to launch the world’s first index fund for individual investors in 1976!
Put simply, Via Negativa suggests that in both life and investing, success often comes from what we don’t do rather than what we actively pursue.
Via Negativa in Sports
I love playing tennis since I was 6 years old. I played tournaments as a teenager, got a tennis coaching license, and played club-level tennis for +20 years.
I was never really good, but good enough to have amazing fun.
Most non-professional tennis players like myself win tennis matches not because of the amazing winners we hit, but by making fewer unforced errors than our opponent.
It’s a pure numbers game. If someone like Novak Djokovic, the current world’s Nr. 1, takes the risk by going for a winner, the odds are in his favor.
But not for the average tennis player. It’s better not to risk 100% but ensure not to make an unforced error first.
Similarly, investing is about avoiding unnecessary risks and pitfalls to come out ahead.
Types of Mistakes Investors Should Avoid
We investors can benefit a lot from applying the concept of Via Negativa.
For example, we should try extremely hard to avoid any of the following mistakes:
- have too much cluster risk
- invest in stocks of companies in disruptive sectors like tech stocks
- going too far out on the risk curve
- avoid closed-end funds locking in your capital
- don’t use stop-loss orders to protect your profits
- avoid fraudsters and don’t be like me who recently fell victim of a financial scam
- steer clear of high-cost financial products like expensive insurance policies
- take on any, or too much, leverage
- avoid chasing past performance trends and relying too heavily on market timing or expert predictions.
Just by avoiding these mistakes, your downside will be limited, and the compounding interest can do its magic! You just need to give it time.
5 Best Tips How to Apply The Concept Of Via Negativa
1️⃣ Be a disciplined long-term investor and avoid trying to time the market.
2️⃣ Resist the temptation to chase hot stocks or investments based solely on recent performance.
3️⃣ Build a diversified portfolio of stocks or utilize low-cost index ETFs to minimize risk.
4️⃣ Steer clear of unnecessary fees, expenses, and complex financial products in general.
5️⃣ Only employ very moderate leverage, if necessary at all.
Conclusion
The concept of Via Negativa is a powerful concept that teaches us to prioritize avoiding mistakes over seeking perfection in our investment decisions.
By adopting a strategy of smart avoidance and sticking to proven low-cost investment methods, investors can increase their chances of long-term financial success.
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FAQ
What does via negativa mean?
Via Negativa in terms of investing is a concept that emphasizes the importance of avoiding costly mistakes, rather than only looking on how to generate outperformance.
By not taking on risks, investors avoid losing money, thereby setting themselves up for success. In other words, it involves identifying and eliminating what is unnecessary or harmful to uncover clarity.
Who invented via negative?
The concept of Via Negativa has roots in ancient philosophical traditions, particularly in the works of thinkers like Plato, Aristotle, and Plotinus.
However, when it comes to investing, it was first formulated 50yr ago in the context of an individual investor investing by the American Charles Ellis in his essay “The Loser’s Game” (Ellis 1975). The essay then inspired John Bogle, the founder of Vanguard, the world’s second-largest fund management company today, to launch the world’s first index fund.
What is the via negativa in investing?
In investing, Via Negativa refers to a strategy of achieving success by avoiding certain actions or practices rather than actively seeking out specific investments.
It involves focusing on low-cost, broadly diversified investments like index funds and ETFs, avoiding chasing hot stocks, minimizing unnecessary fees, and adopting disciplined, long-term investing strategies rather than trying to time the market. This approach aims to reduce risk and enhance long-term returns by eliminating common pitfalls and complexities in investment decisions.
Age when reaching FI: 40 in 2018
Left the rat race: May 2017
Living in: Singapore
Number of kids: 2
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