Force for thought — 29.11.24
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
In 2018, IKEA conducted a fascinating experiment. In an anti-bullying campaign, IKEA installed two plants, in identical conditions, across schools in the UAE. While both plants were exposed to the same water and sunlight, each plant was played a different audio track on a loop. One plant repeatedly received compliments while the other plant was repeatedly bullied. So, how did both plants fare after 30 days? Their appearance said it all: while the bullied plant appeared sad and drooped, the complemented plant was thriving. The experiment was certainly instructive for the school children involved, but it has much wider application that extends to investing too.
How so? The experience of holding the S&P500 is not dissimilar to riding a rollercoaster. Investors are constantly barraged with volatility and change. In other words, they face ceaseless and potentially destructive torrents of noise and information that can derail them from realising their investment goals. That is why most investors fail to reap the underlying benefits of the index and why it is critical to train oneself to fixate productively. Investors need to be anchored to a system — like Force500’s feedback loop — that routinely restores equilibrium and keeps them even-keeled. Both plants in IKEA’s experiment, after all, were exposed to the same environmental factors with a caveat that one was fed positive news and the other was fed negative news. What we magnify impacts our outcomes, for better and worse. Naysayers will say it’s psuedoscience — but they need only to look to the historical data behind the S&P500 for counter-ammunition. It is well-documented that the average investor holds the S&P500 for four to six months. Why? Because any ingredients for success — be it sunlight or savvy stock-picking — are only as useful as one’s ability to survive the process.
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.