In the 2016 movie Arrival, a linguist named Louise Banks is recruited by the military to learn an alien language that even the brightest minds on earth are unable to interpret. The story mixes ominous sci-fi themes with a personal arc interwoven in cut scenes that seem incongruous at times, but that ultimately reveal something surprising about the nature of reality. Without giving away too much, Louise eventually learns that language wires our brains in a way that shapes our perception of time. And when one learns to speak and think in a new way, standard ideas we all take for granted like the linear nature of past, present, and future no longer seem so set in stone.
While it makes for a cool movie, viewers may be surprised to learn that the core concept is based on actual psychological phenomenon. The way we speak, write, and think affects how we interpret the world around us. From the implicit framing bias we subtly insert into discussions by the words we choose to the linear performance charts that flow from left to right like our natural western language, words not only have meaning. They influence the way we think.
When discussing investing and the nuances of backtesting methodologies, I have come to learn that some of the concepts are hard to explain to everyone. It’s not that it’s rocket science. I think sometimes it’s just a new language that not everyone understands, and the thought process it nurtures takes time to sink in. Like moving from a sentence written from left to right to truly understanding the timeless circular ink blots on the window, it’s more than just about knowledge. It’s about how our minds work.
So if you’re interested in getting a glimpse through the glass to a different way to perceive investing numbers, grab some popcorn and find a comfortable chair. This article is for you.
The Power of Words
The inspiration for the core plot mechanism in Arrival is an idea called the Sapir-Wharf hypothesis. Attributed to linguist Benjamin Lee Whorf and his teacher Edward Sapir in the early 20th century, the idea proposes that language influences cognition.
Whorf applied the idea to his research into the native Hopi language in the United States, where he noted that they had no words for linear time and space and it should not be assumed that they perceive time in the same way as other people. While most people ultimately rejected the premise that language alone determines how people think, the idea of a softer form of linguistic relativity made a lot of sense. Words do not dictate our view of reality, but they can certainly push our perceptions in a certain direction.
You may think that the concept of language affecting how we think of time may sound pretty farfetched, but several behavioral finance researchers over the years have studied this idea of how language influences our understanding of time-based issues like investing.
In his paper “The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets“, Keith Chen notes that some languages like English have a strong separation of future time that grammatically distinguishes things like “it rains” and “it will rain”. But others like German and Chinese have a weaker future time reference (FTR) as in “it rains tomorrow” that blurs the distinction.
Chen notes that speakers of strong FTR languages perceive the future as more distant and tend to have lower savings rates, less retirement wealth, and weaker long-term health behaviors. Conversely, speakers of weaker FTR languages see the present and future as more continuous and tend to plan more patiently for their future self. While isolating correlation from causation with other cultural factors is difficult, he concludes that the evidence for language playing a distinct role in shaping human behavior is stronger than you might think.
Another good example is “Metaphors and the market: Consequences and preconditions of agent and object metaphors in stock market commentary” by Michael Morris et al. They note that the metaphors investors use to describe markets tend to fall into two categories. Agent metaphors treat market movements as purposeful actions by a living entity (“The Dow climbed higher”, “tech stocks charged ahead”), while object metaphors treat them as passive movements by an inanimate object (“stocks swept upward”, “bonds dropped like a stone”). They found that investors tend to favor agent metaphors when markets are steadily rising, and that this preference reinforces a linear trend-continuation mindset. Your mental picture affects your outlook.
Still not convinced? Perhaps the most well known research on the effect of language on perception is described in the paper “The Framing of Decisions and the Psychology of Choice” by Daniel Kahneman and Amos Tversky. They studied the broader issue of how framing a choice with certain words clearly influences preferences in predictable ways. For example, describing a retirement plan with a gain frame (“90% success rate”) makes it far more appealing than using a loss frame (“10% failure rate”). And words can also directly influence behaviors. “Your investments are up 5% this quarter” encourages holding, while framing the same result as “You’re 5% below your target” can trigger selling.
One of my personal framing pet peeves is when people classify assets they like as “investments” and assets they don’t like as “speculation”. I see what you’re doing there. Investing good, speculation bad. Can you also explain your preference using neutral framing that is less dismissive?
Or more subtly, what is instinctively more desirable — alpha or beta? One is commonly used as shorthand for the return of active managers, and the other as the return of a total market index. Have you ever wondered why so many active money managers love to use that particular jargon? Beyond sounding smart with some math-adjacent Greek words, maybe it’s also because the bias built into the language naturally aligns with their own self interest.
So even though speaking the right words isn’t like casting a spell or twisting the space-time continuum, research has shown that language influences how we perceive time, understand trends, and evaluate tradeoffs. Applied to investing, the impact is quite profound. Words have power. They influence how we think, and we all come pre-programmed with a certain investing mindset that is more hardwired than we may want to believe.
Investing Charts And Time Perception
With that bit of context, I want to circle back to the original topic of time. One of the things I think about most — investing visualizations — are naturally time-based with a standard format that everyone expects. For example, in a line chart found as the default display in almost every financial website you can think of, values are always on the Y-axis and time is on the X-axis.
Performance of US Stocks
EOY 1969 through 2025
Why the X-axis? Studies have also shown that language affects how people perceive the spatial metaphor that describes the flow of time. Consistent with the flow of written language, English speakers picture time as flowing from left to right while Mandarin speakers picture it flowing from top to bottom. So the dominant western-language speakers writing about investing tend to create charts that follow their own vision of time.
Another interesting characteristic of that mental framework is that time is seen as linear with a clear past, present, and future. In investing, you can even see that in the basic terms people use like “backtesting” and “forecasting” where history is behind you and the future is in front of you. When engaging the topic of returns, those words immediately place you in a mental mode of thinking about investing purely linearly.
The effect of this framing is that one intuitively sees themselves at a certain point on the line.
Performance of US Stocks
◆ You Are Here
Stop and think for a moment about how this mindset predisposes people to think in certain ways. The past is always behind you, and those old flat decades and sharp drawdowns feel like ancient history. To the extent that people do look backward, it’s usually to try to imagine what the line will look like moving forward. Will it continue to grow exponentially, or is it due for a major correction?
I would argue that the art of stock valuation is also a reflection of a linear investing mindset, seeking patterns in the past to predict specific movements in the future. What does a CAPE of 35 imply about what will happen tomorrow? Layer on a few Morris-style agent metaphors like the markets charging higher, and you’re more likely to view the current trend as something to chase. Or frame it as increasing your odds of a correction, and you’re more likely to sell. Either way, you’re living in the present linear moment.
What if I told you there is a different way to think about returns?
Seeing Everything at Once
It’s natural to think of Portfolio Charts as a backtesting site. Yes, I study a lot of historical data. As we discussed with “backtesting” and “forecasting”, however, the word itself evokes a mentality that is way too linear and does not fully capture how I see numbers. Maybe the better way to articulate how I think is that I like to use measurable results to understand the inherent nature of individual portfolio choices. And I prefer to do it nonlinearly from a perspective that preserves real-world sequence of returns but is otherwise neutral to time.
I understand that it probably makes zero sense at first. So let’s go back to the common language of charts. The best representation of my mindset in the linear form you’re already familiar with looks like this.
Performance of US Stocks
◆ You Are Here
Instead of seeing myself peering back from my perch at the end of the timeline, I systematically vary my reference point to every year in history. What if this is 1999? Or 2009? How would the opposite futures of those two very-real possibilities affect my plan? And how can I build a strategy that succeeds under every situation?
If it’s not clear how to easily do that, imagine rearranging the chart by attaching a blue line to the right of every red diamond and dragging the diamonds to the same starting point. You’ll get something like this.
Performance of US Stocks
◆ You Are Here
That messy tangle of lines represents 56 measurable realities that real people in your situation experienced. They’re not forecasts in the sense that they try to predict a specific future, but viewed as a collective group they reveal something deeper about investing all of your money in US stocks. The ride is wild, and the spread of possible outcomes is quite wide.
Now picture yourself at the red diamond. Time is no longer a linear journey from A to B, and you’re looking forward at every outcome at once. Knowing there is a very good chance that your own performance will also be somewhere in that range, what might you want to do today to plan for the worst case while tightening the spread of potential outcomes?
While thinking this way about one portfolio is interesting, your mind will really start to grasp the possibilities when you realize how asset allocation affects things. The visual above is based on a Portfolio Growth chart that can be used to study any portfolio you like. Start comparing different portfolio options from this perspective, and their individual natures begin to reveal themselves. For example, here is the same chart for to polar opposite portfolios — the Total Stock Market above and the famously consistent Permanent Portfolio.
Here you can see many differences. The Permanent Portfolio is naturally far more consistent, while the Total Stock Market has much higher long-term returns. I also snapped the goal line to the original 10k because it lets us visualize the longest drawdown on record. Make sure to switch your mental framing. Which portfolio would you most enjoy for the long term gains? And which one would you be more likely to hold for the full duration of a prolonged drawdown?
Picture portfolio performance not as a single fixed timeline but as a multiverse of realistic outcomes, and a lot of what passes for investing analysis suddenly feels like a temporary worry rather than a fundamental issue. Current stock valuations? You have already accounted for when they were way higher. Gas shortages from a crisis in Iran? Have you read about the 1970s? History never repeats, but it often rhymes. Once you explore every history rather than just the one path that always leads to where you are right now, things start to get a lot more interesting.
Stop thinking linearly about numbers and open your mind to an explosion of possibilities, and investing becomes less of a soloist stressed about the next frame and more of an ongoing perpetual symphony in its natural element. As boisterous or peaceful as you want it. And even though you have no idea how it ends, based on the totality of the reviews of everyone else who has come and gone you can be sure you’re going to enjoy the show.
Regardless of the present moment that feels so viscerally important to you right now, every portfolio has its own timeless nature. Like Louise Banks contemplating circles on the glass, you just need to internalize the right language to see it.
I have a lot of unique charts to help with the process. But ultimately the catalyst is your own willingness to see things differently.
Where Do We Go From Here?
Like learning a new language, shifting gears from traditional linear investing analysis to nonlinear exploration is admittedly not an easy process. From the words we hear to the ordered spreadsheets we use and the standard charts we are taught to value, certain ways of understanding numbers are baked into our experience to the point that other paradigms can sound just plain weird. I get it.
If you’re looking for a place to start, I recommend first making a conscious effort to focus on language.
Think about the words you use to frame investing ideas and how they might tip the scales in how you and others interpret them. Once you notice how seemingly throwaway word choices like “investing” vs. “speculation” or “chance of gain” vs. “chance of failure” are framing an idea in a biased way, your view of portfolio discussions may change. And when you recognize agentic metaphors like “the markets are charging ahead” or “the run is exhausted” feeding a sense of market self-determination, you’ll be able to predict how likely people are to chase the market trend. But remember — if you can see it in others, they can also see it in you.
Once you’re comfortable with that level of introspection on the intersection of language and thought, the next step is to contemplate how you think about time. No, I’m not talking about seeing your entire life at once like in a movie. More like reevaluating how your own investing biases may be influenced by linear thinking.
As one example, I often see complaints about any portfolio backtest containing gold because of how the end of Bretton Woods in 1971 caused an unrepeatable one-time price spike that skews every number after that. That’s 100% true if you only think of history as a single line, and the use of the word “backtest” is a verbal cue that you’re doing just that. But do the same starting in 1980, 1981, 1982, and so on, and the original argument honestly no longer matters because the vast majority of timelines were not affected by those early years at all. By focusing on the big picture, thinking nonlinearly helps to immunize you from the danger of data bubbles.
Other common topics of temporal discussion are measures like valuations or interest rates as an attempt to predict where the line will go from here. While it sounds very scientific, its predictive power is far less reliable than you probably realize. By thinking beyond point-in-time metrics and understanding how countless investors before you did under very different conditions, it is possible to construct a portfolio plan that is neutral to things like valuations and can do just fine no matter what happens. Concepts like risk parity approach portfolio management not from the perspective of actively steering a single line but from one of designing something that works in any situation.
And finally, I think it’s important to understand that everyone is different and not everybody speaks the same language. But by working to become financially multilingual, you can also become a better communicator.
Orderly financial advisers who think linearly in terms of net present value and future cash flows can reach engineers who are comfortable navigating messy things like engineering tolerances, stress tests, and the Heisenberg uncertainty principle. Total return investors can explain their thinking to dividend investors without being so smug about it. And just maybe, a guy who likes sci-fi movies and spreadsheets can finally connect with a curious reader staring at strange charts and wondering what it all means.
How does your choice of language affect how you think about investing?
Take the time to pull that thread, and you may be surprised by what you find.
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