“When men know not what to do, they ought not to do what they know not.”–Abigail Adams.
The answer is five because deciding to do something isn’t the same as actually doing it.
From childhood, we are instilled with a bias for action. In many cases, it is a useful trait. It is even possible that our bias for action is a genetic hand-me-down from our pre-historic ancestors and it enabled us to avoid being devoured by predators by reacting with haste to the slightest rustling in the bushes.
Is this bias toward action something that we may need to unlearn?
The answer is a qualified yes. Scientists studying the odds of goalies trying to stop penalty kicks concluded that a goalie’s best strategy was to stay put. If they had followed this course of action, goalies would have been successful 33 percent of the time. According to the data, however, they only employed the strategy 6 percent of the time.
There is a reason for this: people don’t like “doing nothing.” In fact, people who don’t act often feel a deep emotional pang of guilt for their inaction. In the case of a goalie during a shoot-out, for instance, the goaltender would feel worse for standing there than he would have if he had dived left on a kick to the right. This is true even though the outcome would have been the same – a goal. In common parlance, “At least he did something.”
The example of a goalie staying still might seem trivial, but the implications for staying put can have real-world implications. Consider the stock market.
It is not uncommon for people to rush in and buy a certain stock when others are doing the same. The result, as a spate of investing “bubbles” have recently demonstrated, is the creation of artificially high and, ultimately, unsustainable stock prices. Counter-intuitively, many people also follow the actions of others when selling a stock. They sell only because other people are selling—not because the underlying of the fundamentals of the stock has changed.
Warren Buffett is one of the world’s richest men, but his sage partner, Charlie Munger, says “Half of Warren’s time is spent sitting on his ass and reading; the other half is spent talking on the phone or in person to a highly gifted person that he trusts and trusts him.” In other words, Buffett has a bias toward inaction.
A bias toward inaction can also reap other unexpected benefits. Have you ever been traveling down the freeway and then spotted the other cars moving over into a more crowded lane? What is occurring is that drivers in the trailing cars believe that the action of the drivers in front of them are based on the knowledge of something that they can’t yet see and so they decide to mimic the action. Sometimes there really is something ahead in the road, but sometimes it is the result of nothing more than two cars simultaneously shifting lanes for arbitrary and unrelated reasons.
The problem begins to manifest itself as this faulty logic gains momentum and subsequent drivers shift lanes and thus create more “evidence” for others to shift lanes.
If you want to get ahead on the freeway and in life in general it behooves you to wait to “jump off the log” until you actually have access to compelling information that requires movement.
Homework Assignment #58: For the top five stock holdings in your portfolio, write down your rationale for holding the stock as well as the length you expect to hold it. Next, list the conditions under which you will sell the stock. Before you sell the stock revisit your notes.