Why We Dig In

Every day we are presented with a choice – continuing on with a given long-held belief or changing our minds.

New evidence presents itself, or different ways of thinking become available. Do we amend what we’ve already thought and said? Or do we persist on the road we’ve already been headed down, stubbornly?

Sounds obvious and simple, but in practice it’s not.

We get cornered by the things we’ve already said publicly. Reversing a strong opinion already expressed makes us uncomfortable. It is a tacit acknowledgement that we were previously wrong about something. The more vociferous we are at expressing a belief, the harder it becomes to back off of it. Something extreme has to happen, most of the time, in order to do a 180 publicly.

Imagine pounding your fist on the table about an investing idea. It goes against you. Were you wrong? Just early? Is the market wrong? Did something unexpected ruin your thesis? Can you back off? How extreme were you? How outrageous was the thing you were saying? “Apple is dead!” “The market is going to crash this year!” “This is the top!” “Facebook is a bubble!” “The dollar is finished!”

Now what?

This is the problem with the mixture of social media and investing – you are mocked and crucified for changing your mind. Despite the fact that successful investors throughout history have bought and sold quietly as their opinions evolved for decades. Seeing this process in real-time makes it look ridiculous. Imagine if Peter Lynch and George Soros had to share their daily views on all their holdings in the 1970’s and 1980’s? They would have looked ridiculous and self-contradictory. It might have impacted the way they traded in a very negative way. “I don’t like this idea anymore but I’ve become associated with it publicly, so…we’ll see what happens.

But they didn’t have to do that. They may have given interviews to the media or spoken at investor events from time to time, but there was no live record of every entry and exit.

With politics, it’s the same but worse. If you covered your lawn with Trump signs and screamed your head off on Facebook last year, you’re probably a lot quieter these days. The populism you bought into gave way to a dominion by hedge funds, private equity billionaires and Goldman operatives. The “repeal and replace” Obamacare idea gave way to “Okay, we can’t actually strip 20 million people of coverage so we’ll repair and rebrand Obamacare instead.” It’s become apparent that the Wall, estimated to cost $21 billion, will do absolutely nothing to curtail the loan wolf attacks carried out by people who were born here (San Bernardino, Charleston, Orlando, Aurora, Sandy Hook, Fort Hood). The quantification of how much trade disputes with Mexico will hurt the Texas economy has taken the wind out of that sail as well.

And then the Russian stuff hits and you start going out of your way to avoid the news. And then the stuff with the judges. You’re much less vocal now, because previously held beliefs have begun to look ridiculous. You love the country and the constitution – and Hillary was terrible – but can you really get behind attempts to undermine our institutions? Something doesn’t feel right about this…

But can you change your mind? And say so out loud?

Hard to do. The impulse toward saving face is too powerful. Plus, it’s a slippery slope – if you were wrong about this very big thing, how many other things are you wrong about?

The subconscious process looks something like this:

* I believed very strongly about this specific thing

* I am very smart

* Therefore, this specific thing I believed in has to be true

You’re trapped, by your own past statements.

But there is a way out. A stop loss. It’s called an off-ramp. Set it up in advance. “I believe that I am right, but I will admit I’m wrong if the following happens…”

Where is your off-ramp? A stock drops or appreciates by 20% or more, contrary to the direction you thought it would go? That works. A political figure fills his cabinet up with the most ignorant and dangerous people imaginable with the express intent to get revenge on the other team? That works too.

You have to have an out. Human beings and investments aren’t gods or principles of science and physics. They don’t deserve your undying faith or unquestioning loyalty. They will let you down. The story will change. Their negatives will eventually outweigh their positives. Their true motivations or weaknesses will become evident in time. You don’t have to drink the kool-aid or go down with the ship.

“I’ve changed my mind because _____ and _____, which I hadn’t considered before.”

I learned this lesson with the worst investment I ever made in my life – a holding that brought me to tears and the brink of ruin. That was 11 years ago. It’s never happened since. It never will again. At the time, it was the worst thing I’d ever been through. In hindsight, it was the single most elemental development in my professional life. If I had to do it again, I would still put myself through it. Enlightenment wouldn’t have happened for me if I hadn’t fought my way through to the other side.

Take your off-ramp before the road goes off a cliff or leads smack into a brick wall. Your friends, peers, colleagues, clients and family members will accept you.

Dig out.

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“Once a stand is taken, there is a natural tendency to behave in ways that are stubbornly consistent with the stand.” – Robert Cialdini

“To make a mistake is only human; to persist in a mistake is idiotic.” – Cicero

‘While you’re saving your face, you’re losing your ass.’ – Lyndon B. Johnson

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This post originally ran here on February 14th, 2017

I hope you enjoyed this reprise. I am on my way to the Midwest today, will be checking in later. – JB