In defense of inaction

Imagine you are stuck in the extreme right lane in slow grinding Mumbai traffic. Almost on cue, the lanes on the left start moving while your lane is still stuck. You know that the traffic jam will ensure that finally even those lanes stop or that your lane will start moving along with the rest. Question is despite knowing this, will you cut into the left lane or at least be tempted to do so?

Imagine you are the coach of the Indian cricket team. You have selected the best 11 for two tests but have lost both of them. Will you be tempted to change the team for the third test because the current 11 has failed you?

Imagine you are a fund manager. You have done your home work and have selected what you think are the best possible stocks from your universe. But for two consecutive months your fund has lagged other funds. Your performance for the last two months is so bad that you are in the bottom quartile amongst peers. Would you be tempted to make some changes to your portfolio?

Imagine you are a system trader who has done extensive work at the system selection stage to ensure that you have the best possible system at your disposal. Unfortunately, the last four trades have been loss making. Will you be tempted to make some changes to the system or discard it in favor of another which would have avoided those loss making trades or actually profited in the last few trades?

If your answer to at least 3 of the questions is an unqualified NO--that you will not be tempted then congratulate yourself. You are either an advanced cyborg, a man machine, who has learned to control his emotions a la Spock of Star Trek or you are an inveterate liar who can convincingly lie to not only the world but also to yourself. Pick your choice.

The reason I say this is because the propensity for action is inbuilt in human nature. When the going is not so good, there is a great deal of pressure both external as well as internal to act and make changes. It is always better  to have done something and failed than to continue to do the same thing that has failed in the recent past.(Especially so if your inaction is likely to be questioned after the event i.e with the benefit of hindsight)

A cricket coach for eg. will be ridiculed if he selected the same team for the third Test and again lost. His rational logic that he selected the best 11 would not hold any water. On the other hand if he made 4 changes and still lost, there would be less regret both among the paying public as well within himself because it would feel as if he did take some action to change a bad situation. Nobody will question whether the same 11 of the first two tests could have turned around the situation in the third Test and won it. Nobody will question the decision to change 4 players because the recent performance of the 11 was bad.

This bias towards action is not always optimal specially when the initial plan of action was an informed choice-a well thought out decision. But invariably we will find ourselves attracted to choosing some action, any action, over informed inaction.

I, on the other hand, am hardly ever tempted to take action. Both to cut lanes when stuck in traffic or to change systems even when they are not working. No, that does not make me a cyborg as I had said earlier in my note. In my case, it is laziness that trumps over this incredible propensity to action. Looks like my weakness has now become my strength!

Now that you have read this beautiful note till here and appreciated it, I suggest, just this once, that you fall prey to the bias for action. Pick up the phone or type on berg and quickly send MAPE an order-even if it means doing some unnecessary changes to your portfolio!

Oh and just so you know, I am long and will do NOTHING until Nifty futures trades below 4896 at which point, I will cut my long positions and go short!