Force for thought — 07.02.25

To Have and To Hold

How do you hold onto a good thing and not let it go before it has time to work its magic? By mobilising a method that works. No one is insulated from the challenges of sticking with something promising — not a diet, nor an exercise regimen, or even a first date — the moment it becomes uncomfortable and hard. Why should investing be any different?

We’ve collected more than four million data points that demonstrate how a particular methodological communication enables investors to hold on for the ride. The proof stretches beyond investing: our ability to hold on when we least want to — in order to withstand things that can cause our undoing — has application everywhere. Each week, we’ll show how and why a mechanism for holding on, in investing and in life, is so powerful.

Zooming in

Have you heard of the availability heuristic? In essence, heuristics are mental shortcuts to help problem-solve, cast judgment and make decisions. Consciously or not, we use them daily. They can accelerate our arrival at a solution or a decision, but they are not always efficient or correct. Case in point: the availability heuristic — defined as relying on information or memories that are easily accessible to inform our decisions. In 1973, two of the foremost thinkers in behavioural economics, Daniel Kahneman and Amos Tversky, conducted a series of tests to determine the costs of the availability heuristic. For example, participants were asked to guess whether more words begin with the letter K or if more words exist with the letter K as their third letter. Despite an average body of text containing twice as many words with the letter K as their third letter, 70 per cent of participants incorrectly guessed that words beginning with K are more common. Why? On the limited basis that these are easier to recall: kangaroo; kitchen; kookaburra — these come to mind more readily than bake, like or ark.

It’s a simplistic example, but the stakes can be grave. Dramatic events — like a plane crash, a natural disaster or a bad stock pick — can imprint on our minds such that our belief in their probability to recur becomes distorted, adversely influencing our decisions. This happens constantly in the stock market: events that are overemphasised are easiest to recall and thus can disproportionately affect our judgment and sway us in the wrong direction. That’s why awareness of our availability heuristic is not enough on its own — it has to be neutralised by a selective feedback system that enables us to curate our decision-making. Without said system, Kahneman and Tversky correctly contend that many of our conclusions will not only be wrong but could engender significant errors, getting us nowhere fast.

To Have on Hand

In this episode of Hidden Brain, host Shankar Vedantam and political scientist, Brian Klaas, unpack the ways random, unknowable events disrupt our sense of control — but also have the potential to liberate us. Per Klaas, if every moment is uncertain, perhaps we would do well to divert focus from precedents and predictors to practising resilience to reckon with the unexpected — or else our investment journeys may be short-lived. As he says: “Our brains have evolved to overemphasise patterns and this helps us survive because you’re more attuned to what might be a threat. But it also means we see patterns where they don’t necessarily exist.”