November Newsletter: ‘The Voice Of Reason’

15 November 2023

In the midst of a world seemingly engulfed in crises it almost feels dishonest to write a positive newsletter. The recent Middle East news merges with the ongoing Ukraine war. The relentless spectre of climate will loom large FOREVER. It’s undeniably tough out there. Shouldn’t it be that the tough get going at this point?

Losing our inner voice of reason is easy even in the good times. I do it most times I step out onto the golf course. Trudging through a recent miserable round, the halfway house – that little shack after the 9th hole which tempts golfers with refreshments – offered respite. The bartender asked how my golf was going. Managing to swallow rather than cough up the first bite of the bacon roll I refused to answer. Instead, I asked her a question. What do golfers normally say when you ask that question. ‘Oh, they moan. Well 95% of them do. Occasionally one will say I just made a nice putt or hit a great drive. But they mostly moan”.

It appears that despite hours of practice, commitment and not to mention cost, the majority of golfers aren’t actually enjoying themselves. “Shouldn’t I be doing better?”

This disappointment is akin to a runner not always hitting their personal best or an investor seeing their portfolio below its highest points. It can be, at least in part, attributed to something called ‘Peak-End Rule’. This principle suggests that we humans judge an experience on how we felt when we were performing at our best-ever level, and how we felt at our low point. We disregard the overall experience in favour of these two moments.

For investments this effectively means disappointments affect our game.  The human psyche sabotages our performance. We can’t help but feel the sting of losses more acutely than the pleasure of gains. A well-known phenomenon called loss aversion. So, when the going gets tough we run for the door. Investing at the wrong time, selling in the bad times and adding to our investments when our portfolios hit new highs. This – according to recent research from an Oxford company – impacts our investment returns negatively over the long term by a massive 3% each year! That seems high to us but still you get the gist.

So, recognising our fixation on peaks and troughs can help us navigate challenges with our investments, on the golf course or in absorbing the constant barrage of bad news we encounter. When we are pessimistic things tend to improve and vice versa.  If we can embrace the fact that our experiences are not solely defined by their highest and lowest points, we can pave the way for a more resilient and happy self. Somewhat wonderfully since that halfway house encounter my golf has gone from strength to strength. After all, if the weather is good enough to play golf in November there really isn’t anything to moan about. Is there?