The Best Investors Are Good Quitters
A former world poker world champion explains why we need to quit more and how to do it
Professional poker players have a saying - poker is one long game.
This hand, this game, this competition - it is just one of many that will be played over a career. Remembering this helps them quit when odds and circumstances are allied against them. Knowing when to fold ‘em really is as valuable as knowing when to hold ‘em.
Annie Duke - a former world champion poker player turned decision strategist - believes we should view our lives this way. Her latest book Quit: The Power Of Knowing When To Walk Away explains why we need to quit a lot more often and how to do it effectively.
This book is important - for investors in particular - because we are built with an array of biases that make us bad quitters.
We Almost Always Quit Too Late
Freakonomics author Steven Leavitt set up a website for people struggling with decisions. Users posted important questions like: ‘should I quit my job?’. The website then flipped a virtual coin and replied yes or no.
Seems silly, but when Leavitt checked in with people months later he found surprising results. The quitters reported themselves much happier than the persisters.
People had gone to the site because they thought the quit or persist question was a toss-up. But it wasn’t. Most people had already reached the point where quitting was the right option, they were just biased against that course of action. When they were ‘forced’ to quit, even by a random process, they were happier.
When We Do Quit On Time, It Feels Wrong
There are some people who get it right. Stuart Butterfield, founder of gaming start-up Glitch abruptly shut the company down just after a dedicated marketing push delivered its best ever growth in users. Why? Because he realized that despite hitting this milestone the path to long-run profitability wasn’t feasible. Employees and investors protested loudly: to everyone except Butterfield it felt like he was quitting too early.
It turned out to be precisely the right time to quit.
Once he had some distance - once he was no longer ‘in the decision’ as Duke would say - he was able to see that Glitch’s core technology could be repurposed into a messaging app. He went on to found Slack - the now ubiquitous messaging software worth $26 billion. Quitting frees us to look at the world afresh and see better opportunities.
(That said...a close friend of mine literally retired early because his company insisted that all communication be over Slack. If you’re over 40 and have tried to use Slack, you’ll sympathize).
What We Fear When We Quit
We fear that we’ve failed. We fear that we’ve wasted time. But...if you are quitting something that’s no longer worth pursuing, that’s not a failure, it’s a success. If you’re continuing to pursue something that is no longer worth pursuing, that’s a failure.
To Duke, success means following a good decision process.
What Makes Good Investment Decisions?
I spent my career using models to make investment decisions because they helped deal with many of the biases Duke talks about. She’s not against this, but her emphasis is not on automation but rather on systematization.
Her advice: identify the elements of good investment decision making and then create a system that ensures these steps are followed:
Build an investment thesis with specific details about what the world will look like if you are right and if you are wrong.
Set kill criteria - the triggers that will cause you to exit the position.
Kill criteria should be watched and acted on by someone who isn’t personally involved in the investment. (30 seconds).
Scan the universe for OTHER things you can be doing. Continually evaluate your goals against alternatives.
Keep a shadow portfolio of positions you close because research suggests the sell decision is the weakest link in the investment process.
Sure, you can build all these things into a model. But you don’t need to - these elements can be acted on subjectively but systematically.
The Dark Side Of Goals
This was my favorite section of the book. In the same way we ignore the downside of persistence, we also forget that setting goals has a downside, even a dark side.
Goals are important. We learn from the process of setting them, they improve focus and public pre-commitment help us reach them ( eg: hey Facebook friends I plan run a marathon this year). But they come with risks to both our physical and mental health. Here’s a couple 30-second clips from my interview with Duke where she explains:
Determination to reach goals mean we ignore new information that tells us we should be quitting - leading to physical injury or worse.
The pass/fail nature of goals can cause us to treat significant accomplishments as failures.
How To Become A Better Quitter
Reading this post won’t make you a better quitter. Sorry. I mean, sure, retelling these stories will make you an (even more) interesting guest at a dinner party, but it won’t make you a better quitter.
As tragic evidence Duke talks about professor Jeffrey Rubin. He was a world expert on how ‘escalating commitment’ makes us bad decision makers - the more you have already put into something, the less likely you are to quit, even if it’s no longer worthwhile or even safe.
Rubin was an avid hiker and had climbed 99 of New England’s 100 highest peaks. He and a graduate student were climbing number 100 when fog rolled in. The student said they needed to turn around because it had become too dangerous; peak 100 could wait. But Rubin kept going - he was committed to meeting his longstanding goal - and was found dead two days later.
If just knowing about these biases isn’t enough, what can you do? Here’s my best attempt to summarize Annie Duke’s advice:
Persevere in the things that matter, that bring you happiness and that move you towards your goals.
Quit everything else.
Avoid the dark side of goals by:
Identifying the hardest part of what you want to achieve and tackle that first.
Set kill criteria that have a “state” and a “date” - the conditions you need to meet and when you need to meet them.
Get a quitting coach. A person that cares about you, but will hold you accountable to your kill criteria.
Interested in learning more? Listen to my discussion with Annie Duke on Top Traders Unplugged: The Ideas Lab.
All the best,
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