From Gerd Kommer and Felix Großmann
Successfully accumulating wealth or preserving existing wealth is not just a question of “What to do?”, but also a question of “What not to do?”, “What not to do?”, “Stop what?” – i.e. about error prevention and error termination.
“Avoid mistakes!” – that sounds boring and old-fashioned as advice on money matters and in life in general. However, this action-guiding concept can also be given a sexier name, for example as the “via negativa principle”. Via Negativa, “the negative path” or “the path of avoidance”. Via Negativa in this sense stands for the method of achieving good results by avoiding harmful decisions and ending negative states. The focus here is not on positive actions, but rather on negative avoidance and termination.
The via negativa term originally comes from the philosophy of Plato (428 BC – 347 BC) and was also used in early Christian theology. The thinker Nassim Taleb has the term in his book Antifragile (2012) has recently been re-popularized. A successful short summary can be found at Chakraborty 2020.
However, the person who first formulated the concept in the context of private investor investing almost 50 years ago was the American Charles Ellis in his essay “The Loser’s Game” (Ellis 1975) – but without the name Via Negativa to use. It was this essay that inspired John Bogle, the legendary founder of Vanguard, now the second largest fund company in the world, to launch the world's first index fund for private investors in 1976.
The via negativa principle
The via negativa principle essentially states that the cumulative financial and other success in our lives - as it appears at a certain age - is determined not only by what smart, right and good things we have done up to that point (the "positive" decisions), but equally or perhaps even more by what stupid, wrong and bad things we have omitted or stopped doing (the "negative" decisions).
This can be illustrated by looking at the sport of tennis. Here you can win a match by focusing on making fewer mistakes than your opponent. In fact, Ellis argues in his essay mentioned above that in amateur tennis (as opposed to professional tennis), the player with the fewer unforced errors typically wins. These are your own mistakes for which you bear the main responsibility, not mistakes that result from the superior play of your opponent.
How the strategy of avoidance and exit helps us in investing
To illustrate: A private investor places – e.g. B. because he read one of our books – creates a global portfolio of low-cost index funds (ETFs) and also practices buy-and-hold and rules-based rebalancing. At the same time, this private investor still has significant investments in expensive, low-yield capital-forming life insurance policies, cash in a bank account above the statutory deposit protection [1] and shares in a closed-end fund that invests in container ships. This private investor did the smart and right thing on the positive side. However, on the side of negative action, the via negativa, he failed to act equally consistently. To do this, he would have to take steps to end the three investment mistakes mentioned.
As illustrated at the beginning with Charles Ellis' famous essay "Winning the Loser's Game", one can even argue that passive investing with index funds on a buy-and-hold basis arose from via negativa thinking in the first place. In the 1950s and 1960s, empirical financial market research in the USA had repeatedly shown how poorly active investing in the stock market worked, i.e. that it generated returns that were usually below the corresponding market return. This gave rise to the idea among a handful of University of Chicago graduates to set up a fund that simply left out everything that obviously didn't work in actively managed funds: stock picking and market timing. The first index fund was born in 1971 from the philosophy of avoidance and omission.
A structural reason why the focus on the negative side, on avoiding the bad and wrong, is so powerful lies in the strangely often overlooked fact that our knowledge and understanding of downsides (adverse effects) and what not works, is more comprehensive, precise and reliable than our knowledge and understanding of what works.
This can also be shown by the millennia-old question of what makes people content or happy. We are pretty good at judging what reduces people's satisfaction and happiness, but we are much less good at judging what maintains or increases satisfaction and happiness. Satisfaction and happiness can probably be better increased by refraining from or stopping actions and situations that make you unhappy, rather than looking for what makes you happy.
If you were to ask a very financially successful person what practical and measurable “Top 10 Financial Success Advice” he would give to a young person who also wants to achieve financial success in life, then this list of 10 would probably contain more advice like “Avoid behavior X” than “Do Y.”
What characterizes wealthy people
Wealthy people who became rich through their own efforts also became so because they consciously or subconsciously understood the via negativa principle and applied it more consistently than less wealthy people. Wealthy people tend to make fewer economic mistakes and stop making mistakes more quickly than poorer people. So it's not just their particularly smart, positive decisions, i.e. making this or that investment, that create wealth, but also their ability to make fewer bad, negative financial decisions than others, i.e. avoiding or rejecting this or that investment.
The great financial and non-financial importance of the via negativa principle for success in our lives - almost no matter how you define success - is vividly expressed in the following three quotes:
- “The 20 percent of really dumb decisions that we make in life tend to hurt us a lot more than the smartest 20 percent of our decisions tend to help us.” [2] – Nate Silver, American statistician, former professional poker player and self-help author
- “You only have to do a few things right in your life as long as you don’t do too many things wrong.” – Warren Buffett (billionaire, founder and CEO of the US company Berkshire Hathaway)
- “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” [3] – Charly Munger [1924 – 2023] (billionaire, business partner and deputy of Warren Buffett)
- “Sometimes your best investments are the ones you don’t make.” – Donald Trump (real estate entrepreneur and US President)
- “I am as proud of many of the things we [Apple] haven’t done.” – Steve Jobs [1955 – 2011] (co-founder and long-time CEO of Apple)
Successful investing is rarely a one-off event or the result of a few individual events, but rather an ongoing process that leads to success if, over a long period of time, (a) as many smart decisions as possible that lead to an upside (a beneficial effect), and At the same time (b) as few unwise decisions as possible are made that cause losses or opportunity costs (lost profits) - the Via Negativa principle. This combination allows the compound interest effect to do its good exponential work best.
We believe that many private investors focus too much of their thinking and necessarily limited attention on the topic of wealth creation on (a) and too little on (b). The reasons for this false balance could be that, firstly, the via negativa part of wealth creation is less spectacular than the positive search for the proverbial jackpot investment, secondly, the contribution to success of negative decisions (avoidance, omission, termination) is less easily measured than the contribution of positive decisions and thirdly, the traditional media, the Internet and advertising in the financial sector focus much more on reporting around "making profits" and "getting rich" than on reporting around “how do I prevent myself from losing money or becoming poorer?”.
Up to this point we have only talked about theory. How does the Via Negativa manifest itself in the practice of investing for private households?
In practice, it is expressed primarily in (a) making the classic behavioral investor mistakes as rarely as possible and (b) investing in bad financial products as rarely or to a small extent as possible. First to (a).
Investment mistakes we shouldn't make or stop
Examples of serious investment mistakes:
- Preferably invest in what has gone well in recent years (procyclical investing, recency bias)
- Ignoring cluster and concentration risks in your own assets, i.e. not practicing enough real diversification
- Failing to recognize the long-term high opportunity costs (lost profits) of interest-bearing and non-interest-bearing bank deposits
- Don't pay off debts as quickly as you can
- Make price forecasts or other forecasts from “experts” or yourself the basis for your own investment decisions
- Believe that “experts” or yourself can reliably find the best time to enter the stock market and invest accordingly
- Believe that taking individual value risk on stocks and corporate bonds is worthwhile in the long term
- Consider real estate to be a particularly safe investment
- Not being able to tell the difference between packaging and contents of financial products, e.g. B. in capital-forming life insurance or in private equity investments
- Underestimating the importance of the additional costs of investing for the final assets that can be achieved
- Not taking seriously the serious conflicts of interest that exist in financial advice and asset management at almost all banks
- Ignoring the fundamental difference between wealth creation and wealth preservation/protection in one's own investments and not implementing the measures that should have the insight into this difference
We did a more in-depth analysis of ten common investor mistakes in a blog post some time ago (Link here).
Financial products that we should not have in our portfolio
The bad financial products that you should have as rarely or as little as possible in your portfolio include:
- Capital-forming life insurance (see our blog post here)
- Private pension insurance (see our presentation here)
- Actively managed stock or bond funds (bond funds)
- Actively managed mixed, sector, theme and fund of funds (see blog post here)
- Hedge funds (see our blog posts here, here and here)
- Closed funds
- Certificates
- Open real estate funds (see our blog post here)
- Rental properties if you are not a full-time real estate investor and own more than approximately six residential units (see our blog post here)
- Art, if the main reason for purchasing the work of art is the supposedly attractive increases in the value of art (see our blog post here)
Why and in what respect these financial products are bad and worth rejecting is explained in the blog posts linked above and in the books by Dr. Gerd Kommer explained in detail.
Conclusion
The sum of decisions and actions that promote long-term successful wealth creation or long-term wealth preservation can be conceptually divided into a positive and a negative sphere. Both spheres are equally important for long-term success, but we dedicate ourselves to the positive sphere, the “What to do now?” much more attention than the negative sphere, the “What not to do now?” or “Stop what now?”. The financial media reinforces this harmful imbalance. Anyone who takes the via negativa principle seriously and implements it in their monetary decisions will increase their financial success.
Endnotes
[1] Statutory deposit protection in the EU is limited to 100,000 euros per bank-customer combination. For account balances above this amount, there is a considerable risk of default in the event of a systemic banking crisis such as the one from 2008 to 2011. There is no comparable deposit protection system with government backing in Switzerland (see our blog post on bank deposits here).
[2] “The 20 percent of really stupid decisions in life harm us more than the 20 percent of really smart decisions help us.”
[3] “It's remarkable how big of a long-term advantage we get by trying to be consistently not stupid rather than very smart.”
literature
Chakraborty, Abhishek (2020): “Via Negativa: The Process of Making Good Decisions by Eliminating Bad Ones”; Jan 2020; Internet reference here
Dobelli, Rolf (2024): “The Not-To-Do List: 52 Ways to Avoid the Biggest Mistakes in Life”; Piper Publishing; Oct 2024; 352 pages, see here
Ellis, Charles (1975): “The Loser’s Game”; in: “The Financial Analysts Journal; Vol. 31; No. 4; July/August 1975; pp. 19-26
By Hohnhorst, Lukas (2019): “The art of omission: Why “via negativa” is an underestimated concept”; blog post; Nov 2019; Internet reference here
May, Patrick (undated): "Via Negativa - less is better. About simplifying and letting go"; blog post; Internet reference here
Mike & Mollie (2021): “Via Negativa: The Study of What Not To Do”; June 2021; blog post; Internet reference here
Morin, Amy (2014): “13 Things Mentally Strong People Don’t Do”; Dec. 2014; Book; William Morrow; 272 pages (also available in German)
Ritholz, Barry (2025): “How Not To Invest: The ideas, numbers, and behaviors that destroy wealth – and how to avoid them”; Book; Harriman House; March 2025; 496 pages