Saturday, June 10, 2017

Ac-Quitting Well

While channel surfing last night, I caught a bit of Galaxy Quest, a self-referential scifi comedy that is more homage to Star Trek than parody. The actors play actors whose characters live by the slogan: “Never give up! Never surrender!” Nearly all of us since we were small children have been told we should cultivate this mindset. Coaches, teachers, parents, and comic book heroes all harangued us on the virtues of perseverance. There are times when this is sterling advice. If you’re being pursued (as are the characters in Galaxy Quest) by an evil alien reptilian general bent on killing you, there isn’t much downside to resisting to the end. In any sport with a time limit, there also is little downside for players on a losing team to keep playing hard long after defeat in a game is a practical certainty; it is good for players’ morale, they at least get some good practice, and the fans like it. In a lot of circumstances, though, the advice is lousy. Knowing when to quit is at least as important as knowing when to persevere. (I’m consciously avoiding a Kenny Rogers lyric.) “Don’t ever give up on your dreams,” we are told. Well, it depends on the dreams.

Professor Deepak Malhotra advises graduating Harvard MBA Students to “quit early and quit often.” This is harder than it sounds when it comes to the big matters. We resist doing it. “Sunk costs” are the problem. It is a quirk of human psychology that our instinct is to feel pain from losses far more intensely than any joy from equivalent gains. Consequently, a classic error of neophyte investors is to sell only stocks that went up while hanging on doggedly to stocks that went down in hopes that they’ll rise again to their purchase price – i.e. in hopes of not suffering a loss. The result over time is that a portfolio becomes filled with nothing but badly performing stocks, many of which never recover their purchase price. Meantime the investors incur opportunity costs: the rewards they could have from trading weak stocks for stronger ones. In the same way, we are apt to continue in a career we hate because we spent so much time and money on education and licensing. In general, this is not a good decision for either the wallet or peace of mind. Getting out early and moving on to something else is not necessarily failure but can be a path to success; even when it is failure, it may be a lesser one than sticking it out to a truly bitter end. (Yes, I’ve made plenty of quit-too-late and not-quit-at-all mistakes and am sure to make more, so I’m trying convince myself as much as the reader.)

Sometimes the refusal to abandon sunk costs can have horrific results. In the first few months of World War 1 the major combatants suffered hundreds of thousands of casualties – so many that none was willing to abandon the fight lest the casualties “be for nothing.” So, the war dragged on, casualties mounted into the tens of millions, and the end result was to make the world safe for fascism and communism. It would have been better for all in December 1914 to have swallowed the losses and called the whole thing off as a bad job.

How do we know when to persevere and when to quit? Dr. Will Meek at Psychology Today, making a similar point to that of Professor Malhotra, writes “a simple rule of thumb for when to quit is: when something is not improving with substantial effort.” The “substantial effort” qualification is key. Neither prof is encouraging anyone to quit just because an endeavor is tough. They recommend it when the toughness isn’t worth it: when one’s serious efforts don’t move the needle enough (or at all) in the right direction. Personal happiness counts as a “right direction.” Malhotra says, “I'm not saying quit something because it’s hard. I'm telling you to quit something because it sucks.”

So too for our personal lives and relationships. Most divorced couples will say they quit too late rather than too early. Once again, sunk costs (in personal time and effort) held them back. Perseverance is a dubious virtue while dating, too. Contrary to the plots of most RomComs, relentlessly pursuing an unwilling romantic interest will more likely get a restraining order than an inamorata/inamorato. Sometimes you really can’t win. That’s why there are beer and country music.

Linda Ronstadt – Sometimes You Just Can`t Win


  1. Ah "Galaxy Quest" still one of my favorite movies from the 90s. I get a kick out of it each time we watch it (usually in close proximity to one of other more serious Trek films for a nice bit of contrast).

    Failure is always an option, but it one that is so hard to look squarely in the eyes. I try to spin it as a learning experience and move on, but sometimes the sting of that failure is too painful to ignore. But more crippling to me is the fear of failure. I have to push myself to try something difficult. As you said, sometimes the path to something greater requires a little pain, a little embarrassment and some new experiences. Logic agrees but my primal brain hates the idea. :)

    1. Even Spock acknowledges the influence of the primal brain in “The Way to Eden”:

      Kirk: The cave is deep in our memory.
      Spock: Yes, that is true, Captain.

      We do tend to be our own harshest critics: arrogant and vain people most of all we often are told. I’m not sure I believe that last adage.

  2. Ha ha, country music and beer. There is something to be said about persistence and determination. The market is a whole other animal. There is probably some advice on when to take a loss that might be to one's advantage, but it's not written in stone.

    I've read one referring to holding a flatlined stock, and that is if it hasn't done much in a year or eighteen months--sell it. I'm sure too Buffet has also lost money in some of his stock picks, I think that's inevitable.

    I don't put a lot into Jim Cramer's advice or totally understand it either at times, but as far as selling off say half of a stock gain and taking a profit, seems fair. Try and play with the house's money is the goal. Easier said than done.

    1. It is the rare investor who beats the market, and there is a serious academic argument that the people who do just got lucky. It is possible however, to put oneself in a position to get lucky (the "you gotta be in it to win it" scenario) and it's possible to undermine oneself, too. Especially the latter. Game theory, which values gains and losses equally, violates human gut instincts.

      In a more general sense, there is indeed a time to keep trying and also a time to stop. As always, the trick is to know which is which.