Force for thought — 22.11.24
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
How many times have you fallen victim to the tyranny of choice? To test whether people really benefit from an abundance of options, two professors from the universities of Stanford and Columbia conducted a jam experiment at a high-end grocer. On alternate days, passersby encountered a display booth with six and 24 varieties of jam respectively. The findings? While the display booth with more varieties generated more interest, only three per cent of passersby made a purchase. Oppositely, in the case of consumers faced with limited choice, the display booth generated less interest yet purchases increased by 10x to 30 per cent. While this is a low-stakes example of the paradox of choice, no more extreme is this affliction than in the world of investing.
How so? Every day, self-sustaining investors — who want to time or beat the market — are susceptible to choice paralysis, detracting focus from the ultimate challenge underlying their investment: how to hold onto it. Superficially, people love the idea of choice but practically, they buckle under the pressures and responsibilities of discerning between a good decision and a bad one. Take the nonstop activity of the S&P500: it is one of the most heavily traded but rarely held indexes in the world. Why? Because of the temptations of choice. Investors are far better off consigning their monies to an investment vehicle like Force500 that exposes them to the index but eliminates the tyranny of choice by shifting focus elsewhere. After all, an abundance of options of what to hold is useless without a mechanism that solves for how to hold them.
To Have on Hand
More is not always more. Just look to Procter and Gamble, one of the preeminent business innovators and long-standing residents of the S&P500, for proof. In an inflection point in the business, P&G reduced the number of its Head and Shoulders shampoo varieties from 26 to 15. The result? The company minimised decision fatigue on the part of its consumers while boosting their purchases — driving a 10 per cent uptick in sales.