Value Investing

Never Commit

Article by Tropical Value Investing

In Amazon’s 2016 letter to shareholders, Bezos introduced some tenets the company lives by. The one that struck me was “Disagree & Commit”:

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Third, use the phrase “disagree and commit.” This phrase will save a lot of time. If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes. – Jeff Bezzos

The principle seems to work great in the company – and I am certain they’re not the only one to execute this – and seems to fit the “real economy” execution challenge. As Taleb have put it in many different ways and forums, modularity and trial & error modus operandi leads to innovation without compromising the status quo. 

Well, I believe the “Disagree & Commit” modus operandi serves investors well, but via negativa. What I mean by that is: investors must disagree with the price of a stock when they either buy or sell it through story-telling, i.e., creating an investment hypothesis that should yield a different price for that security.

But what about committing? I’d like to share two angles:

  1. Derivative 1: Commit: when you actually buy / sell the security;
  2. Derivative 2: NEVER Commit. And that’s what I’d like to talk about.

My underlying assumption is that you should never really commit to an investment hypothesis because:

  • by design, each security price tells a different version of the future story;
  • different pieces of evidence can fit more than one hypothesis. Looking for satisficing hypothesis (MVP) is too narrow, leaving aside many plausible versions (open flanks) of the story in question (imagination & creativity are required);
    • What has real value is finding pieces of evidence that falsifies linchpin premises, not the other way around;
  • as working hypotheses might change along the way, you should never marry them;

We can intervene through greater understanding of what we can and cannot control, by knowing where potential deceptions lurk, and by a willingness to accept that our knowledge of the world around us is limited by fundamental conflicts in how our minds work. Certainty is not biologically possible. – Robert Burton

This is a risk-based approach to investment philosophy. It corroborates Buffett’s #1 rule of managing money, which is “Never lose money.” It corroborates other investors looking for similarities among different investment philosophies that found the one thing successful investors have in common is the ability to manage risk. It corroborates the need to allocate scarce resources well, in this case, our agendas. Without a strong defense, scoring is just dissipated energy. 

The skeptical have a biological/behavioral advantage in managing money. But I have gathered some “Never-Commit” tricks:

  • causality is generally hard to be delineated in complex problems. Instead, emphasize procedures that expose and elaborate alternative points of view;
  • design a process that clearly delineates their assumptions and chains of inference and that specify the degree and source of uncertainty involved;
  • periodically re-examine companies from the ground-up, maybe getting another person to look into it;
  • analytical conclusions should always be regarded as tentative. The situation may change, or it may remain unchanged while you receive new information that alters your initial appraisal;

In other words, commit without committing. My holding period is forever; until my appraisal changes.

Doubt is not a pleasant state, but certainty is a ridiculous one. – Voltaire

¹ The certainty epidemic

² Amazon 2016 Letter to Shareholders