Some housekeeping

Happy Thanksgiving to all of you! Sorry for not posting last week, but I wanted to get this piece right and it didn’t feel right last week.

Finally, just want to say a small thank you to all of you for your support. This past week I passed the 100 follower threshold, and at the danger of failing to celebrate the small wins, I figured I would share this with all of you. The newsletter has mostly grown by word of mouth so thanks to all of you who have given feedback, shared with your friends, and given words of encouragement. Means a lot to me.

And now, back to your regularly scheduled programming.

Don’t always quit, but make a plan to

TL;DR - Before starting a business venture, a career path or an investment idea, always define what it would take for you to abandon your chosen path. Defining this beforehand makes it more likely that you will be able to quit when the risk/reward profile no longer makes sense, which will save you both time and money.

One of the best books I recently read was Annie Duke’s “Quit: The power of knowing when to walk away”. The title of the book certainly grabs your attention, since most of us grew up with the belief that quitting is a character flaw.

Losers quit, and quitting should be avoided at all costs. It is one of the most deeply ingrained maxims in American society.

Don’t believe me? Here are just a few stories and quotes on quitting that you are no doubt familiar with.

• “If at first you don’t succeed, try, try again.”

• “I never once failed at making a light bulb. I just found 99 ways not to make one.” - Thomas Edison

• Abraham Lincoln’s political career before becoming president of the United States during the most tumultuous time in our country’s history:

  1. 1832 – Defeated for Illinois state legislature

  2. 1838 – Defeated for Illinois House Speaker

  3. 1843 – Defeated for nomination to the United States Congress

  4. 1848 – Defeated in his renomination to the United States Congress

  5. 1854 – Defeated in the United States Senatorial race

  6. 1856 – Defeated in his bid to become Vice President of the United States

  7. 1858 – Defeated in the United States Senatorial race

  8. 1860 – Elected President of the United States

The lesson? Never quit. American culture in many ways is built upon the foundational principle that you can become anything you want to become, as long as you work hard and you persevere through inevitable hardship.

But are we missing some nuance in this discussion? Yes.

Paradoxically, does perseverance actually prevent us from winning? Yes.

Even more troubling, does perseverance under the wrong circumstances lead to catastrophic losses? YES.

As we discussed a few weeks ago, if one of the main things to avoid is catastrophe, then learning how to quit and under what circumstances you should quit is crucial to success in both personal finance and business.

The worst time to first think about quitting is when you are in the heat of battle, which is why we need to come up with a “quitting plan” before the battle even begins.

What does an investment have to look like for me to pack up, cut my losses and move on to another position?

If I am looking to start a business, at what point do I know things are moving in the right direction? At what point do I need to rethink whether this business venture makes sense? What are the signs I should be looking out for?

We need to answer these questions before we make a decision. Defining what your “quitting plan” looks like before you choose to go down a path gives you objectivity that you won't have when you are two years into an investment or business venture.

Learning how to quit saves our most crucial resource that any of us have: time. And since time is money, it saves us money too.

Quitting when it is clear that the risk/reward profile of maintaining the status quo no longer makes sense gives us an opportunity to pursue a different path with a greater risk/reward profile.

We only have so much time in our lives. If we waste our lives persevering when all evidence suggests we should abandon ship, we risk wasting our life, and that would be the greatest tragedy of all.

If you want to climb Mt. Everest, plan to quit before you start

One of Duke’s most effective examples of defining the importance of having a quitting plan is her exploration into how the world’s best climbers summit Mt. Everest. We tend to think that the hardest part of climbing Mt. Everest is getting to the top of the world’s highest peak.

But that is wrong.

The hardest part of climbing Mt. Everest is summiting the world’s highest peak and then making it back safely so that you can live to tell the tale.

What does quitting have to do with this? Climbers define a “turnaround time” prior to climbing, which is the time at which you are forced to stop your climb regardless of whether you have summitted or not and go back to camp.

Why? Because as difficult as climbing up Mt. Everest is, climbing down is even more perilous. “Climbers on the descent can suffer from a combination of fatigue oxygen deprivation, frostbite, changing weather, becoming lost or disoriented, falling into a crevasse, and darkness if they persist too long in their summit attempt. The darkness and fatigue multiply the likelihood of making a mistake and slipping.” – “Quit: The power of knowing when to walk away”, Annie Duke.

A staggering eight times more people die on Everest on the way down than on the way up.

A turnaround time gives climbers an objective time when they must turn back. While they might not make it up the mountain, turning around gives them another chance at summiting on future climbs that carry a better risk/reward profile.

Extending the metaphor further, defining when an investment no longer makes sense (i.e., the turnaround time) allows us to prevent a catastrophic loss of capital (i.e., death) so that we can reinvest what is left of our capital in a venture that has a greater risk/reward profile (trying to summit on a future climb where the chances of a successful return are greater).

Why it is so hard to quit

So hopefully by now I have convinced you all of why quitting is a virtue, not a vice. That was the easy part. The hard part is still ahead of us.

Duke does a great job of describing the myriad of reasons why we are biologically, mentally and culturally predisposed to be bad at quitting. I encourage you all to read the book to get a more in-depth understanding of the challenges ahead of all of us.

For those of you who would rather just get a quick and dirty version of the challenges the best quitters face, here are a few of my favorites:

1. We tend to have a bias towards sticking with the status quo (i.e., we are predisposed to keeping things the same).

2. We tie our identity to the choices we make, which then makes it much harder to change courses. Changing our path means changing our identity. “When your identity is what you do, then what you do becomes hard to abandon, because it means quitting who you are.”

3. People who love and care for us might see our life more objectively than we do. However, they are hesitant to tell us their true feelings because they are worried about hurting our feelings. This means that we cannot always rely on those around us to pull us out of the mess we find ourselves in.

4. When we are in a losing position, we are more likely to stick to that course of action and even double down (what is called the escalation of commitment).

5. We tend to not like to close out a losing position because that crystallizes the loss making it real, as opposed to theoretical. Refusing to close out the position means there is always the theoretical possibility that the position to reverse course, even if all evidence points to the contrary.

With all of these things working against us, how do people ever quit anything?!

What does it mean for all of us

Like everything we talk about, the most important thing is to take it one step at a time.

The first step?

Make a quitting plan. Define (before you start) when you should start to question the path that you are on.

One of the toughest parts of quitting my job and going down this entrepreneurship path was creating a quitting plan for this next chapter in my life.

How could I ensure that I didn’t continue on this path past the point where all signs were telling me that I should turn around? How could I make sure I didn’t succumb to the status quo bias, or that I didn’t double down on a losing path?

I figured making the checkpoints as objective as possible would be the most helpful to me (i.e., “if I am not making X amount of money from the various business opportunities I am pursuing, then it is time to reassess”). I set some goals for what type of progress I wanted to make in a year, wrote them down, put them in a drawer and will revisit them this time next year. 

Hopefully I will be able to have an honest conversation with myself when the time comes.

Whether it is with a bad business venture, a losing investment strategy or a miserable job, the best thing we can do is quit. It is up to us to train ourselves to recognize when we should quit.

Winners don’t always quit, but losers never quit.

^{Disclaimer: Nothing contained in this website and newsletter should be understood as investment or financial advice. All investment strategies and investments involve the risk of loss. Past performance does not guarantee future results. Everything written and expressed in this newsletter is only the writer's opinion and should not be considered investment advice. Before investing in anything, know your risk profile and if needed, consult a professional. Nothing on this site should ever be considered advice, research, or an invitation to buy or sell any securities. Rohan Muralidhar is not a licensed securities dealer, broker or US Investment adviser or investment bank. This newsletter is not an offer to buy or sell, nor is it a solicitation of an offer to buy or sell or to participate in any advisory services or trading strategy.}