Friday, January 25, 2008

Want to Succeed: Have a Strategy

And more than that, stick to it.

The article ACT FAST AND KISS YOUR RETURNS GOODBYE by Brian Richards, featured on The Motley Fool talks about what's called "the action bias." Acting fast and losing applies to the stock market ... and also to life. In fact, here's an analogy they give from the soccer world, about how to succeed.

Unless something has fundamentally changed, they say, "The most dangerous thing you can do in those cases is to lose your sense of perspective. Because once you do that, you'll convince yourself that you need to do something...[and] doing something is trouble, pure and simple."

From the article:

Soccer really does explain the world
The next time you experience a down day or portfolio gyration, think about those words of wisdom before jumping from one strategy to another. Or even better: Don't do anything at all. (One good way to handle volatility is to simply not quote your stocks so much.)

In a 2005 study, "Action Bias Among Elite Soccer Goalkeepers: The Case of Penalty Kicks," five Israeli professors found that while "the utility-maximizing behavior for goalkeepers is to stay in the goal's center during the kick, in 93.7% of the kicks the goalkeepers chose to jump to their right or left."

In other words, in a high-stress situation, the most efficient decision -- inactivity -- was taken but 6% of the time. The researchers hypothesized that the reason for the discrepancy was "action bias":

According to the norm theory, people have stronger feelings associated with outcomes when they come from abnormal causes. Consequently, because the norm is that goalkeepers jump to one of the sides, the disutility associated with missing a ball might be greater following a non-common behavior (staying in the center) than following normal behavior (jumping to the side).

Next time you find yourself with an itchy trigger finger on a tough market day [or just a tough day], remember the plight of the elite soccer goalkeeper.

And keep this in mind about emotions. It's necessary and good to have them, and to know them, but that doesn't mean you have to take your emotional temperature or pulse 20 times a day.

Let me help you learn more about emotional intelligence. Email me at for programs, courses, and personal coaching.

Read the full article here.

In the article, they quote Tim Hanson's stock advice:

  1. A consistent philosophy.
  2. A sense of perspective.
  3. Daily discipline.
Not a bad game plan.
Let me help you strategize for success.

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