´´ Procrastination: The Hidden Value of Delaying

Friday, October 23, 2020

Procrastination: The Hidden Value of Delaying

The reason for me to write this little post, which I intended to do a long time ago and have successfully been avoiding for quite a while, is to make the case for procrastination when it comes to stock market investing.

People following a puritanical ideology would like to see procrastination right at the top of the seven deadly sins. But wrongly so! In some professional activities, like sports, design, stock market investing, to name just a few, it should be wholeheartedly embraced. Consciously procrastinating, and astutely combining the different forms, is an art and should strike you as an intelligent behavior.

In ancient times procrastination was highly esteemed. The wisest Greek and Roman leaders and philosophers were masters in playing pocket billiard. They would basically sit around all day long doing nothing apart from thinking and debating. Only when they truly had to would they move their bloomin’ arse.

Viewing procrastination as a sin is quite a new phenomenon coming up in the 17th century, a time the puritans gained the upper hand in society. One of their main advocates was Jonathan Edwards’s, who declaimed over and scared the hell out of procrastinators:
"Those who delay doing good works flatter themselves that they shall see another day, and then another, and trust to that, until finally most of them are swallowed up in hell, to lament their folly to all eternity, in the lake that burns with fire and brimstone.” 

The most common definition of procrastination is "to put off intentionally the doing of something that needs to be done". This might be a bad idea when you have a decaying tooth and postponing the dentist visit. Or when you better had filled out your tax form and handed it over to the tax office. But when it comes to stock market investing, procrastinating can be incredibly wise.

Stock Market Investing and The Virtue of Procrastination

Recently, behavioral finance has gained a lot of popularity in the financial community. The majority is research about decision making processes. It intends to guide us to understand why we as human beings doing what we do, what we should or should not do, or how we should go about our affairs.

But little is said about timing. About when to do something, when to get active or stay inactive. Timing is everywhere. Think: Music, dancing, sword fencing, or stock market investing. Here, timing can provide a marginal rate of return in form of incremental information, which helps to improve the decision-making process.

Do not get me wrong. An early shot not seldom improves the efficiency at the time of execution. It is certainly reasonable when the goal is to improve the efficiency of machines. But when it comes to readjust the complexities of human behavior early execution is more often a bad idea.

Two more beneficial aspects of procrastination in investing come into mind. First, it provides the maximum amount of time doing nothing apart from thinking, planning, observing, and weighting up alternatives.

Second, and most important, it boosts flexibility. Postponing allows the final move fully utilizing the unique circumstances that prevail at the time taking action is finally warranted.

In many tasks procrastination is a hindrance. Mainly in those where the outcome is controllable. Stock market investing is not such an endeavor. There is no correlation between activity and outcome. Quite the opposite is true, research shows that activity diminishes long- term returns.

Therefore, I think investors who are refining the art of procrastination really got their act together. Being aware of what can and should be done, and what cannot be accomplished in investing, and hence is less relevant and worthless engaging in.

The Three Flavors of Procrastination

Literature on procrastination mentions three variations. The classification depends on what you do instead of working on something. You could work on:

(a) nothing

(b) something less important, or

(c) something more important

Type (a) procrastination is a tricky one. Good or evil depends on the task and action involved. Being a couch potato certainly isn't a good idea. But sitting on the coach every now and then doing nothing, or doing nothing apart from thinking, can be a good idea, as one can recharge and/ or stimulate the creative imagination.

Type (b) procrastination is evil. It makes people engage in activities weakly correlated to outcome at best. It can be even vicious, because often it does not feel like procrastinating, but rather like "getting things done”. Unfortunately, they are often the wrong things. Take the money manager boasting about having visited several hundred companies a year. Gosh! What did this guy do? Drive by the headquarter and wave?

Type (c) procrastination is good. Followers of it are active procrastinators. They consciously delay an activity, like watching ticker symbols, but therefore doing something that is more valuable. The type (c) procrastinators tend to rethink and balance their priorities and activities on a regular basis. And most importantly are they flexible.

Especially procrastinating investors who do combine (a) and (c) cleverly are stellar. They have an edge over the ignorant, restless, hyperactive and information overloaded Type B. They are working diligently on gaining knowledge on various fields, like history, culture, and science, but also about the psychology of themselves and of their fellow investors.

Snap Decision: The Vice of Going with Your Gut

Still not convinced about the virtue of procrastination in stock market investing? Listen to the story told by Frank Partnoy, the author of Wait: The Art and Science of Delay.

In 2005 Lehman Brothers had arranged a decision-making class for its senior executives introducing to them leading decision researchers. The most famous one just had published a book explaining the benefits of making instantaneous decisions. Lehman’s president Joe Gregory was so impressed by this book that he not only invited the researcher, but he had already passed copies of the book on the trading floor. The rest of the executives took the course, stormed back to their headquarters after the presentation and quickly executed on what would later be known as the dumbest snap decisions in the history of financial markets.

Prof. Partnoy itself is a huge fan of procrastination, claiming that when faced with a decision we should postpone as long as possible. The extra time gained is key to making the optimal decision. The wisdom in our snap decisions is faulted. True wisdom and good judgment only come from understanding our limited knowledge about the future. Contemplating about the relevant time axis of our decisions and the maximum amount of time we can take within that period to observe and process information about possible outcomes.

Procrastination: A Virtue Not Only in Stock Market Investing

Also, in fields other than investing procrastination can be advantageous. Design serves an excellent example. Generally, engineers are keen to be given the precise specification to a product so that they can then deliver to the design specs in a timely manner. But designers often hesitate and delay what freaks the engineers out. But why do designers delay? Rest assured, certainly not to upset the engineers. It is because getting the specs right is insanely difficult. Independently of how sophisticated the process is, by the time the product is shipped the specs are often outdated. Therefore, the best way to go in design is to procrastinate. Or putting a more positive twist to it "just in time delivery". It increases the likelihood that the system will adapt, is more flexible.

In personal affairs too, procrastination is often the way to go. Take marrying in Las Vegas in haste for example. A snap decision most people feel miserable about and regret badly within days. The way they should have gone about the affair is to get engaged beforehand. In financial terms a lease with a call option attached to it. Marrying in Las Vegas, on the other hand, is an outright purchase. Compare engagement to living in a house that you leased. What could be better to get a good feel for a premise that you might wish to buy at a later stage. Obviously, engagement is a higher level of commitment than dating. But it is more valuable too, because it is a commitment to explore the idea of marriage. If more people would look at engagement from this angle the divorce rate in the western hemisphere would implode.

Let us turn the spotlight to the arena of professional sports. It might surprise you, but it is seeded with procrastinators. Take a professional tennis player. He has about 500 milliseconds to return a serve. A tennis court is 78 feet baseline-to-baseline, and professional tennis serves come in at well over 100 miles per hour. Most would assume that a professional tennis player is better than an amateur because he is so fast. Wrongly so! They are better because they are slow. They can perfect their stroke and response, enabling them to free- up as much time as possible between the actual serve of the ball and the last possible millisecond when they must return it.

Creativity: Value Investing and The Art of Procrastinating

When you think that value investing is as much of an art form than it is science, as I do, then creativity comes into play. Creativity needs time and space to grow. Although, investors can engage in activities systematically and actively that are related to creativity, it is almost impossible to systematize the creative process itself. Because creativity is fundamentally about knowledge.

Nearly all creative ideas involve novel configuration of old insights. Basically, people finding new applications for existing knowledge. In addition, creative processes rarely involve steady and measurable progress (sounds familiar dear fellow investors?). Instead, being creative involves trying lots of different things. Struggling down several dead ends before finding the right solution.

The creative process also often entails the necessity to spend numerous hours learning about completely new areas of knowledge, or to have heated conversations with a colleague in order to see things from a slightly different angle and come up with a novel idea. Therefore, until the breakthrough finally arrives, a lot of creative activity often looks suspiciously like nothing more than sobbing out.

Procrastination? Not Guilty!

Epiphany stories sound great but are more often plain wrong. Warren Buffett did not become rich on one bold, well timed bet. Neither did Isaac Newton have an apple fall on his head. Nor did Thomas Edison suddenly discover the light bulb.

Nowadays most investors act in an environment that could be best described as playing Xbox on steroids. You can get the game in front of you. You see the ticker symbols constantly flashing green and red. Any second you can hit a button and buy, and the other second hit another button and sell. All that is surrounded by the 24/7 news cycle. Most of it comments by market pundits suffering the say something syndrome.

In such an environment of excitement and adrenaline how could one not be infected by the do something virus. Procrastinating investors, on the other end, seem to be brain dead. They are the frivolous, irresponsible segment in the investment community, seemingly out of step with the rest of an overachieving, hyperactive and result-oriented investing world. Wrongly so! Procrastinating investors behave rational and have their act together.

People can say what they like, but I opt for procrastination when it comes to stock market investing. And to those investors struggling with ever-increasing demands on performance on dwindling time, I would offer the following piece of advice: ''Never do today what you can put off till tomorrow''. (William Brighty Rands)



Reference:

Jonathan Malesic - America Wants You to Feel Ashamed About Procrastinating. Don't. - (New Republic)

Procrastination Is a Virtue - (Big Think)

Art Markman - To Get More Creative, Become Less Productive - (Harvard Business Review)

Megan Gambino - Why Procrastination is Good for You - (Smithsonian.com)

Good and Bad Procrastination - (Paul Graham)

Don Norman - Why Procrastination Is Good - (Linkedin)

MARY ANN LIMAURO - Procrastination Is A Virtue, Not A Vice - (New York Times)

2 comments:

  1. Are you Japanese? Your viewpoints are refreshing, and quite rare for a Japanese I think.

    ReplyDelete