As investors we face a constant barrage of information every day that triggers our urgency instinct. The urgency instinct makes us want to take immediate action in the face of a perceived imminent danger.
This instinct must have served us well in the distant past. If we thought there might be a lion in the grass, it wasn’t sensible to stop and analyze the probabilities. We needed to act quickly with the information we had.
Urgency instinct is still useful today when we need to take evasive action, but it can backfire when it comes to making complex decisions.
In his book Factfulness: Ten Reasons We’re Wrong About the World–and Why Things Are Better Than You Think, author Hans Rosling shared a painful yet important story about controlling our urgency instinct.
Working as the only doctor in Nacala, a district of more than 200,000 extremely poor people in Mozambique, Rosling diagnosed hundreds of patients with a terrible, unexplained disease that had completely paralyzed their legs within minutes of onset and, in severe cases, made them blind.
Not 100% sure the disease wasn’t contagious, Rosling met with the mayor to discuss their options. “If you think it could be contagious,” the mayor said, “then I must avoid catastrophe and stop the disease from reaching the city.”
The mayor was a man of action. He stood up and said, “Should I tell the military to set up a roadblock and stop the buses from the north?”
“Yes,” said Rosling. “I think it’s a good idea. You have to do something.”
The mayor disappeared to make some calls. The next morning, some 20 women and their youngest children were already up, waiting for the morning bus to take them to the market in Nacala to sell their goods. When they learned the bus had been cancelled, they walked down to the beach and asked the fishermen to take them by the sea route instead.
The fishermen made room for everyone in their small boats and sailed south along the coast. Tragically, nobody could swim and when the boats capsized in the waves, all of the passengers drowned.
That afternoon Rosling headed north again, past the roadblocks, to investigate the strange disease. Along the way he came across a group of people pulling bodies out of the sea. He ran down the beach to help, but it was too late. He asked one of the villagers, “Why were all these children and mothers out in those fragile boats?”
“There was no bus this morning,” he said. Several minutes later Rosling could barely understand what he had done, and 35 years later still never forgave himself.
Why did he have to say to the mayor, “You must do something?”
When we are afraid and under time pressure and thinking of worse-case scenarios, we tend to make really stupid decisions. Our ability to think analytically can be overwhelmed by an urge to make quick decisions and take immediate action.
Recognize when a decision feels urgent and remember that it rarely is. To control the urgency instinct, take small steps:
- Take a breath. When your urgency instinct is triggered, your other instincts kick in and your analysis shuts down. Ask for more time and more information. It’s rarely now or never, and it’s rarely either/or.
- Insist on the data. If something is urgent and important, it should also be measured. Beware of data that is relevant but inaccurate, or accurate but irrelevant. Only relevant and accurate data is useful.
- Beware of fortune-tellers. Any prediction about the future is uncertain. Be wary of predictions that fail to acknowledge that. Insist on a full range of scenarios, never just the best or worst case. Ask how often such predictions have been right before.
- Be wary of drastic action. Ask what the side effects will be. Ask how the idea has been tested. Step-by-step practical improvements, and evaluation of their impact, are less dramatic but usually more effective.
As investors our instincts are constantly put to the test. Like during the last quarter of 2018 – when the market bottomed out on Christmas Eve after nearly a 20% decline. Or during the onset of the pandemic, when markets crashed 34% in March 2020. Or in 2022, when stocks and bonds crashed after Russia invaded Ukraine and central banks began hiking interest rates to curb inflation.
Gloomy headlines often proclaim the worst days ever for the stock market, while market pundits almost gleefully predict more pain in the future.
Did you act on your urgency instinct and make changes to your portfolio during any of those periods? Cut your losses and move to cash? Or did you control the urge and stick to your plan?
Patient investors have always been rewarded handsomely for staying the course. Despite the volatility and some doom and gloom, a global stock portfolio would have earned an annualized return of 10.13% over the past 10 years.
“Back in Nacala in 1981, I spent several days carefully investigating the disease but less than a minute thinking about the consequences of closing the road. Urgency, fear, and a single-minded focus on the risks of a pandemic shut down my ability to think things through. In the rush to do something, I did something terrible.”
We spend years carefully crafting our investment strategy, saving diligently, and promising ourselves we’ll stick to our plan through thick and thin. But all of that planning can be wiped away when something triggers our urgency instinct and forces us to act irrationally.
Maybe you heard about an investment opportunity and had to ‘act now or lose the chance forever.’ Or, the slightest market correction triggers financial crisis flashbacks and you panic.
Relax. Take a breath. Things are almost never that urgent – especially when it comes to investing.
As the late Jack Bogle once said, “don’t just do something, stand there.”