Seeking Wisdom X – About the Psychology of Misjudgements (4) – Consistency


“if life gives you lemons, make lemonade, but drink champagne”

Consistency – I don’t know about you, but when I’ve made a commitment – a promise, a choice, taken a stand, invested time, money or effort – I want to be consistent. I want to feel I’ve made the right decision. And I’ve noticed that the more I invest in this behaviour the harder it is to change.

The Scottish philosopher and economist, Adam Smith, said it in a more eloquent way in his “Theory of the Moral Sentiments”“The opinion which we entertain of our own character depends entirely on our judgements concerning our past conduct. It is so disagreeable to think ill of ourselves, that we often purposely turn away our view from those circumstances which might render our judgement unfavourable”.

In other words, the more time, money, effort, pain we invest, the more we feel the need to continue, and the more highly we value something – whether or not it is right – as we hate to waste our efforts. If people challenge our decisions, we become even more committed to the notion that we are right. And the more individual responsibility we feel for a commitment, the harder it is to give up. Warren Buffett, the Sage of Omaha, who just turned 91 a few days ago (Happy Birthday Warren!) said: “What the human being is best at doing is interpreting all new information so that the prior conclusions remain intact”.

 I don’t want to stir too much the conscience of those investors among you who have found themselves once or manifold in the following uncomfortable situation: “I don’t want to sell this declining stock and face a loss. I put X amount into this. I must prove to others and myself that I made the right choice”.

From my own experience, after I buy a stock, I find myself more confident it was a good purchase than before I made the investment. I don’t think that this is idle sentiment, but rather a vested interest. Maybe you are like me in the feeling that you made the right choice and keep your belief consistent with what you’ve just decided. But let’s remind ourselves that before the purchase and after the purchase, nothing has changed.  The stock doesn’t know you own it. There is no emotion attached to it, except yours and mine, as it is the same business before and after.

“Facts do not cease to exist because they are ignored”, said Aldous Huxley.

So let’s just keep in mind that there is nothing wrong with changing a plan when the situation has changed. Irish writer Jonathan Swift said “A man should never be ashamed to own that he has been in the wrong, which is but saying that he is wiser today than he was yesterday”. Even more practically, according to Charlie Munger, Berkshire Hathaway Vice Chairman: “You can’t avoid wrong decisions, but if you recognize them promptly, and do something about them, you can frequently turn the lemon into lemonade”.

But the real pearl of wisdom comes from John Maynard Keynes: “When somebody persuades me that I’m wrong, I change my mind. What do you do?” I’m tempted to reply: “Lemonade!”. Well at the end of his life, on his deathbed, the great economist had reached another level of wisdom when he simply said:

“My only regret is that I have not drunk more champagne in my life”.