10-10-10

10-10-10

It’s been a tough time for some of the stocks on the MyWallSt shortlist lately. The likes of Peloton and Zillow are currently 70% off their all-time highs. Bumble and Zoom are 50% off. Upstart is down 40%. In fact, you can basically copy/paste this statement for any of the stocks that were doing well last year.

There are both general and specific reasons that all of these companies are in the red at the moment, but the bigger question is how do we deal with this volatility as long-term investors? One strategy I’ve recently started to use is the 10-10-10 strategy, first coined by business journalist and author Suzy Welch.

It’s a pretty simple concept. Every time you have a decision to make, there are a number of possible futures that will unfold depending on the option you pick. What the 10-10-10 strategy does is challenge you to think about what the consequences of each option might be in 10 minutes, 10 months, and 10 years.

This 10-10-10 strategy is really useful because it slows you down and stops you from making decisions in the heat of the moment by moving regret in front of the decision.

When we’re typically faced with a decision, we select an option and then face the consequences, good or bad. If it’s good, we continue on with our lives in blissful ignorance, but if it’s bad, our lizard brains force us to wrangle with the regret of making that choice for a time afterward — despite the fact that there’s nothing we can do to fix it now. Regret is an entirely useless emotion. As Nietzche said, regret adds “to the first act of stupidity a second.”

However, if we try to simulate the experience of regret before we make the decision, it helps us to understand the potential consequences of each option a little more and hopefully make a more informed decision.

Something that you’ll still regret in 10 minutes’ time is not really all that consequential in the wider scope of your life. Something you regret in 10 months’ time is a little more serious. Something you regret in 10 years’ time is a life-changing event and, as such, should be treated with that level of gravitas.

Let’s use a real-world example.

Despite all of its recent woes, Peloton is still up about 50% since we first added it to the shortlist back in April 2020. But perhaps all the recent news and commentary about the stock has spooked us a bit and we’re trying to decide whether we should cut our money and run. Looks like we have a decision to make.

For the sake of this article, let’s give ourselves a binary option in this scenario: we can decide to either hold on to our position or we can decide to sell it.

Holding on means that we might stand to make more of a return on the position if the price starts to rise again, but it also means that we could potentially lose more of what we’ve already made if it keeps dropping.

Selling, on the other hand, means that we will lock in an okay profit right now but will miss out on any future gains that Peloton might experience. Of course, we’ll also miss out on further losses too.

So what would be the biggest source of regret for you? If Peloton went 10x from today’s price, would the regret of missing that haunt you for 10 minutes or 10 years? If it dropped another couple of percentage points, would that be one you’re telling the grandkids about?

There’s no right answer to this, of course. Every person has different goals and will experience different levels of regret over different things. 

What the 10-10-10 isn’t is a key to a lifetime of making perfect decisions. There’s no framework that can give you that unfortunately. If you’ve ever read Annie Duke’s excellent book, ‘Thinking in Bets’ — the place where I came across the 10-10-10 strategy first in fact — you’ll understand that life is akin to a game of poker — you can make the right decision with the cards you are dealt every time, but luck can still be sitting across the table with a pair of aces to completely upend you.

What the 10-10-10 is, however, is a system to allow you to assign the proper rationale and weight to every decision you make. Figure out what option has the potential for the most regret, figure out the probability of it happening, and then make your decisions accordingly.

For what it’s worth with the Peloton example though, in the five or six years I’ve been doing this, I’ve heard waaaaay more investors talk about their regret of getting out of a stock too early than those talking about getting out of a stock too late.

JamesJames

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