Odysseus (known as Ulysses) was the king of Ithaca.
After fighting the war against the city of Troy, he started his journey home.
During the sea voyage, he was confronted by the sirens.
The sirens were dangerous characters in Greek mythology who would enchant voyagers with their enchanting voice and get their shipwrecked on their island.
Ulysses wanted to be able listen to the sirens while making sure that he can escape the shipwreck.
So, he entered a pact with his men.
According to the terms, it was agreed that his men’s ears would be plugged with wax, and he would be bind to the mast of the ship and whatever he says, no one would release him till they have sailed past the siren’s island.
The wax will make the men immune to the siren’s voice enabling them to sail past successfully.
The twentieth century behavioural economist used this story to create an “Ulysses pact” also otherwise known as the “Commitment device”.
The idea is to bind yourself today in to a choice that would lock you in from a future action.
Essential but Difficult
Most of what’s essential in life is also very difficult to achieve as temptations abound in our path of achievement.
Think about ensuring that credit card bills are paid on time so that you avoid the usurious interest rates or eating healthy to avoid getting fat or disease etc.,
There will always be the temptation to use the extra cash to buy a new phone or to eat a sweet/fried snack because you are just too tempted.
Setting up an autopay in your bank account on the day of your salary credit or avoiding keeping fried snacks/sweet at home are examples of a Ulysses contract.
Stephen Pinker in his book “rationality” describes the Ulysses story as Ulysses having surrendered his ability to act and his sailors’ their option to know.
While this might sound irrational, in investing this applies perfectly.
Putting wax in the ears, means focusing on your objective and destination by
- Avoiding the noise
- The daily market movements
- Avoiding checking daily valuations,
- Resisting the temptation to look at the hot theme or the hot pic.
Keeping focus on your fundamental investing objective and quality of your portfolio on a pre-defined periodicity is like checking the compass to ensure that you are on the right path.
For the rest “Use Wax”.
Long-term investing is more to do with “inaction” than “action”.
Tying yourself to the “mast” means it should be difficult for you to act.
- Not keeping online access to your brokerage account
- Not maintaining watchlist on Bloomberg or moneycontrol might help you go in the right direction.
This doesn’t mean ignore reviewing your portfolio.
All it means is that you don’t have to do it every minute of your existence.
Sticking to reviewing portfolio only on pre-defined periodicity is all you need.
Investing is about avoiding bad decisions and the less you act, the better your chances at achieving that.
In football, when a penalty kick is being taken, the best position for the goalkeeper is in the Centre.
A study of over 575 penalty kicks in football, threw up ma very interesting observation, in over 85% of the kicks the goalkeeper made a move under the pressure of being seen to be doing something instead of standing still and acting once the kick has been taken.
Just what you need to avoid gets done.
Maybe the goalkeeper also needs a commitment device
So, bottom-line, “Use wax” and “rope” for investing success