Sunday, December 04, 2016

The do-nothing strategy



"All of humanity's problems stem from man's inability to sit quietly in a room alone" - said the French Philosopher Pascal in his unfinished memoir Pensees (Thoughts). 

I think if we have to para-phrase this to the modern day - we are so used to action for action's sake - we forget that sometimes - all you need to do is give something the time it needs to do what it can. Action is not equal to progress.

The reason I am writing an article on something so mundane a topic is because I think we all need some positive reinforcement from time-time that maybe doing nothing is as good or even a superior strategy than doing something. Through the thanksgiving vacations - I have been analysing my stock loss making patterns / unable to maximise profits (in other terms selling out too soon or inability to sit tight when you already hold a stock with very good economic characteristics) in my holdings - and the quote from Pascal came to mind.

In today's world - we value a little too much of "Type-A" personalities. The reason is - we can quantify what they have achieved if and when they achieve something. Losses are harder to quantify - i.e., what I have lost due to my actions.

Sometimes, we feel that if you keep running around in circles - you are creating something of economic value. Example - generating reports on why something is where-it-is or looking too much into history and forecasting what something needs to be or looking into set of random data and creating patterns where none exist and creating complex models around them, etc etc are running around tree patterns. It is important for individuals to constantly ask a few simple questions:

1) Do I need to do something here or can I sit quietly and let something run on auto-pilot.
2) What are the second and third order effects of changing something in the system.
3) Why should I do X now (replace X with "reply to that email", "visit that customer who's only interest is price reduction", "increase / decrease price where you have X% MS% in hope of gaining", "introduce a more cost effective product and charge lower", "run that model for forecasting something 5 years out", etc, etc).
4) Am I adding value when I do X or substracting value or not generating any tangible value.



One of the things we need to do is what the 19th century mathematecian Carl Jacobi suggested:
Invert, always invert (“man muss immer umkehren”)

Jacobi believed that the solution for many difficult problems could be found if the problems were expressed in the inverse – by working backward. For example if you want to prove that all swans are white - you would do no good finding a million white swans, all you need to do is go searching for one black swan and you would have found your answer.

Coming back to my examples on stock markets - the conventional thinking says - high risk = high return (go big or go home). However, to get to someone like Buffett’s playing field, it takes lots of trial and error to go from “How much can I make?” to “How do I not lose money?” Same destination. Different road taken.

Coming to a business example - instead of looking at capital allocation decisions in the usual form of - "how much money will I make by creating this new product?"; it makes more sense to also ask the question - "will I lose something if I don't make this new product?". Again its important to ask - how can I go down from where I stand and do those things which will strengthen my position instead of always looking at systems as stable status-quo environments with infinite growth possibilities.

Anyway - Running around trees at speed of light will only make you f**k yourself in the backside. Its important to realize that sometimes doing nothing is better than doing something.

Ciao till next time...Harsha

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