November 2023

Willpower, often referred to as self-control or self-discipline, is the mental and emotional ability to resist short-term temptations, desires, or impulses in order to achieve a long-term goal or make a deliberate, rational choice. It involves the capacity to control one’s actions, thoughts, and emotions, even when they run counter to immediate gratification or instinctual reactions.

Willpower is repeatedly being challenged, constantly under threat, and it’s more than just the frequent need for delicious doses of dopamine. We are constantly bedeviled by easy, quick-fix pleasures such as those offered by social media platforms, junk food and get-rich-quick schemes. FTX. MTI. BHI. 3 letter acronyms for 3 seconds of unbanked pleasure. It feels to us that the abyss of investing is constantly being deepened and widened by fads feeding a fetish for the slam dunk, one-in-a-million-lottery win.

The truth is, we are increasingly being bombarded with promises that initially seem appealing but ultimately turn out to have downside…very often only downside!

In the quest for personal and professional development, the interplay between willpower and habits emerges as a crucial dynamic. It’s also important to recognise that there is a difference between a good habit and a bad one. In ‘The Power of Habit,’ Charles Duhigg explores the science behind habits and their potential for transformation. Duhigg investigates the reasons behind habit formation and modification, drawing insights from scientific breakthroughs and real-life instances. Emphasizing the significance of keystone habits, he illustrates their impact on personal and organizational success, spanning areas such as exercise, weight loss, business, and social movements. The book contends that comprehending the mechanics of habits empowers us to revolutionize our lives, businesses, and communities. Additionally, Duhigg suggests that fostering a new, positive habit is facilitated by linking it to an existing habit or routine.

Breaking habits and embracing new ways of thinking can be tough because our brains love routine and familiar patterns; we resist change and hang onto the familiar, like an old comfortable chair. Instant rewards often beat delayed ones, and our biases tend to favor what we already know. Peer pressure, culture, and our emotional bonds to the status quo also play their part.

Most of us have at least a habit or two that is hard to break – we accept a ‘tried and tested’ way of thinking, a narrative that we bought into some time back and are reluctant to revisit or reconsider.

Within the investment industry, there is a prevalent narrative that emphasizes the importance of time spent in the market. However, it is worth considering how this narrative defines both time and the market. As an investor, if your goal is to remain invested over time, aligning your returns with the market becomes a crucial aspect. In fact, achieving returns in sync with the market can be a highly effective strategy for generating impressive long-term returns. It reinforces what can be called the “willpower effect,” minimising the emotional rollercoaster within the investment process, avoiding unintended consequences, and reducing unexpected surprises. Nonetheless, it is important to remember that while this approach may be straightforward, it is not necessarily easy. Volatility is an inherent part of all asset classes, particularly equities, so a resilient and rational mindset are still essential components in navigating this journey.

The graph below illustrates the difference between the best and worst-performing General Equity Fund over the past decade. A closer examination reveals that the “market/index tracker” outperformed a significant 83% of all General Equity Funds during the ten-year period ending on October 31, 2023. This underscores the challenge of selecting an active manager who can consistently outperform, given that the “market” surpassed 83% of the funds within this category. Furthermore, according to S&P Indices an estimated 40% of funds were shut down in the past decade, primarily due to significant underperformance.

For the committed investor, especially one already ingrained in the practice of investing, incorporating index management into their portfolio can only enhance an already established positive habit.

In his book, The Intelligent Investor, Benjamin Graham says, “To invest successfully over a lifetime does not require a stratospheric IQ. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.

If you know the enemy and know yourself, you need not fear the results of a hundred battles.
-Sun Tzu