Season 4 Episode 10:
Why Investors should be better quitters with Annie Duke

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Today we’re speaking to author Annie Duke. Annie’s work bridges behavioural finance theory and practice. Her latest book Quit asks whether quitting gets a bad rap and whether we should all embrace the power of walking away from things that aren’t working so we can reallocate resources to better ideas.

After all, the ability to quit a decision is what allows us to take decisions quicker, yet we tend to be loathed to use the quit option – why? Annie unpacks some of the psychology at play here. Can we be better? Annie runs through some important frameworks that can help investors to reassess their decisions.

All investors will benefit from Annie’s wisdom on decision-making and ability to bridge between theory and useful practice advice. 

Links mentioned:

We discuss:

  • Why “Quit”, why write it now?
  • What makes quitting hard
  • Investors could/should be good quitters
    • It’s often said that sell decisions are as important and harder to get right than buy decisions
    • But the behavioural “baggage” around it all is real
  • We talk about the practical solutions and how these can apply to investors
    • Set quit criteria in advance
    • Try hard to take the outside view
    • Use a decision log (and why does no one do this?)
    • Think in terms of opportunity cost
  • Quitting vs saying no (or not buying, in an investment context) - what's the behavioural difference? 

  • The danger of common sayings, particularly "quit while you're ahead"

  • The psychological challenges created by how we tie our identity to our decisions and our underlying desire to be consistent in our choices. We discuss what "Consistent identity" means and why it stops us from quitting

  • Annie shares some interesting examples of good 'quit' decision-making from the book

  • Having one person making buy decisions and a different person making sell decisions? Where does the sometimes used "devil's advocate" role fit into this model?

  • The idea of “fresh blood” not being tied down by previous decisions and more able to quit things that aren't working (example of bad debt?). What implications could that have for investment decision-making teams?

  • Quitting should be thought of as a way of looking forward

  • Where Annie thinks we in general go wrong with decision-making in general

    • Is decision-making an underrated skill?
    • What’s driven Annie to focus time and energy on decision-making specifically
  • If investors could do just one thing to improve their decision-making, what would that be?

What’s one thing you would like listeners to take away from this: 

That quitting gets you to where you want to go faster. If you quit things that aren’t worthwhile, you’ll achieve your goals more quickly.

What is the most underappreciated thing about investing?

How hard it is to quit things once you’re losing. When you’re “in the losses” your decisions about what to sell and not to sell become troublesome. We tend to not appreciate how true that is and also how hard it is to overcome.

Any recommendations for good books or podcasts:

The Patient – new TV show starring Steve Carrel

The Power of Regret by Daniel H. Pink

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