Procrastination- the habit of losers

Yesterday, as a part of my weekend reading, I was going thru blogs by Dan Ariely, someone whose work I greatly admire. One of his more recent blogs was on Procrastination and how it impacts our lives. I found that this human behavior lies at the heart of some of the problems in trading and investing. So here is my take on it.

Procrastination is the habit of putting off into the future what you can do now. We are all affected by it and we shall continue to be affected by it, as human beings we are all hard wired to procrastinate. All of us have that lazy streak, some more than the other, and it is this that keeps us from starting that exercise routine today or begin that diet control right away. It is always pushed to the always-postponed tomorrow. Like Dan says, in the future we are good guys but in the present we are terrible chaps.

That is because the present demands action. The future is (mostly) a wish list. So the slim and trim you, the efficient 6 am up and about you is also a figment of the future. Right now in the present you are the fat slob and the 8 am waker who scrambles to reach the workplace in time. It is the same in the market. The trade that you have on is bleeding and demands that you cut it. But you are, in your mind, this mean profit-making machine of the future and hence put off taking that loss into the future by which time it should turn profitable (or you hope). Now contrast that with an opposite situation where you are making profits in the present but you also know that if you hang on you will probably make even more. But once again, you are that mean profitmaking machine that cannot tolerate the loss going away perhaps if you don’t take it now. So you jump at it and take it off for a few points only to watch it speed away towards glory.

The actions you took in the two situations are contrasting. When you needed to really take action (i.e. cut your loss) you procrastinate. Your eye is in the future where you hope the loss would go away. When you really need to procrastinate the action (i.e. taking profits), you act. Your eye is in the present where you hope that the profit would not go away. Either way, proper analysis is not being done, appropriate action is not being taken.

The solution to the problem, as Dan says in his book “ Predictably Irrational” is to first acknowledge that you act with such biases. Only then can we overcome the habit of following our immediate desires and doing what is needed for the long term.