🏆 The newsletter Mbappé should have read ⚽
Happy Friday everyone!
What a week.
China’s celebrating the 100th birthday of the Communist Party, the sausage war is under control, Elon Musk moved into a $50,000 house in Texas - but more importantly (let’s be honest) - Portugal, Germany, and Croatia all got eliminated from the Euro Cup - as did France, on penalty kicks.
I’m going to propose, however, that France could have avoided elimination with a simple strategy - and it has everything to do with behavioral economics (yes, time for a sexy subject)
You see, there is something in human behavior called activity bias.
We, humans, are often more likely to do something rather than to do nothing, even if doing something leads to a less optimal outcome.
In other words - it can be god damn hard for us to do nothing, even if doing nothing is the right thing to do.
Nowhere is this clearer than in football - and particularly with goalkeepers.
A fascinating study out of Israel finds that on a penalty kick, 94% of goalkeepers choose to jump either left or right.
However, the same study shows that, statistically, the best thing for the goalkeeper to do is actually to stay in the center - and do nothing.
So if the optimal move is to stay in the center, why do goalkeepers always jump left or right?
Because goalkeepers feel that a penalty scored feels a lot worse if they do nothing than if they jump… even if the jump wasn’t the optimal thing to do in the first place.
In other words - the bias towards action is so strong that goalkeepers voluntarily sabotage themselves because the pain of doing nothing is too strong.
Maybe it’s the humiliation of “just standing there”, the media ridicule, their trainer telling them “to do something! ANYTHING!” or just their inner voice that makes the need for action so strong.
Or maybe it’s a combination of all these things.
But jumping left or right is almost always the worst decision.
So if goalkeepers are biased toward action, the best move for players is then to shoot… in the middle.
If Mbappé had known this, he could have used the goalkeeper’s psychology against him to keep to give France a better shot (no pun intended) at staying in the competition.
Of course, if all players start shooting in the middle, goalkeepers will likely change their behavior over time.
But this just means that new patterns of shot optimization would emerge.
In the meantime, however, the bias toward action is so strong that goalkeepers continue to ignore statistics in favor of the perceived value of an action.
And unfortunately, that’s how most people invest too.
Activity bias is so strong that we feel we must do something, all the time.
If our investments go up, or down - or sideways - we feel that we must do something.
We must buy, sell, re-evaluate our thesis, read reports, follow the news and listen to everyone and their cousin.
We find it so hard to buy something and walk away… and so we spend countless hours following, navigating, pondering, causing tons of undue stress.
But it’s all for nothing.
The data is clear: the best strategy is to buy great assets and let them compound for years - ignoring the news, the market, other people, and pretty much everything else.
But we are so biased toward action that we panic-sell, greed-buy, change our minds every 5 minutes, and need constant assurance that we did the right thing because half of the world’s “experts” think it’s a terrible idea.
Banks and brokerage companies love this, by the way. They make billions every year from all this toxic trading back and forth.
And if that’s you - don’t worry, you’re not alone. An overwhelming majority of professional investment managers are in the same boat. As a result, they massively underperform the average market returns.
Blaise Pascal put it best:
“All of humanity's problems stem from man's inability to sit quietly in a room alone.”
Damn, Blaise. Nailed it.
When it comes to investing - just like penalty kicks - doing nothing is the better strategy.
It’s hard, I know. But great investing is mostly about emotional fitness - and controlling your impulse for action.
As I’ve told you before, Warren Buffett spends the majority of his time clearing his head to make one great decision per year. The rest of the time, he mostly just plays bridge.
As I’m sure Bruce Lee would have said - “be Buffett, my friend.”
Speak to you next week,