Force for thought — 25.10.24

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

We often hear about hindsight and foresight, but what about intertemporal choice? That is, the value we assign to two or more payoffs that unfold across different points in time — like enjoying an indulgent meal now or weighing less on the scale later, or forfeiting tomorrow’s concert to save up for a holiday at the end of the year. Whether we are programmed, like Charlie Munger, to relish delayed gratification or not, one thing is for certain: given a future payoff has less utility now than an immediate one, it makes sense to discount its present value. But how much? Harvard social psychologist Jennifer Lerner explains everyone is prone to hyperdiscounting — it manifests everywhere in our lives, from credit card debt to overeating. So, what gets us carried away? Of course, it’s our emotions. In her studies, she demonstrates that how we feel has an outsized impact on our choice of immediate or future rewards. That means what we experience today (perhaps joy, fear or sadness) may lead us to make myopic decisions that limit our future selves.

So, what can we do about it? While we can work on regulating our emotions privately, we have no control over the outside world. So, we need to put systems in place to optimise our cognition. In the examples above, that may mean enlisting a nutritionist or making a budget to stay on track. In investing, we need a similar behavioural template — like Force500’s feedback system — to orient our present selves towards a secure future. Per Lerner, our emotions play a fundamental role in consequential life decisions: who we marry, how we grieve, what we spend on, affecting us in vital ways. Wherever the pendulum swings in the present, we need a mechanism to zoom out so we never lose sight of what lies ahead.

To Have on Hand

Often, the simplest truths are the hardest to accept. For example? That the greatest obstacle between us and our desired outcomes — be it to become fit or to realise our investment goals — is ourselves. Think of all the ways we hyperdiscount throughout the day: like snoozing our alarms even if it makes us late or enjoying a mid-afternoon caffeine hit even if it encumbers our sleep. The best antidote, via Abraham Lincoln, to short-term thinking? “Discipline is choosing between what you want now — and what you want most.”