2 Ways to Create Discipline

Decision Making, Environment, Incentive, Market, Psychology, Time / Tuesday, August 28th, 2018

Failure to execute, or knowing what we should do yet fail to do so is one of the biggest challenges for long-term investors. We all have our fair share of regretful experience doing things as a result of short-term temptation. How can we have more self-control? These are the two ways that might work for you.


Our surrounding has a big influence on the way we think and act. If you can create a focused environment that fosters long-term thinking, how would it look like? This seems hard to answer. Or we can invert the question instead and ask “What kind of environment hinders long-term thinking?” This is relatively easy: Instant access to breaking news, daily share price, market discussion and so on. When you follow the market, thousands of things are constantly clamoring for your attention. You have little time and energy left to pursue the long-term work. In addition, there’s the tendency to trade frequently. One way to change this is to introduce friction. If you have a habit of checking the market through your phone, put it outside your reach. That’s one friction. How about putting it face down and out of your sight? That’s another friction. Delete those stock apps? A huge friction. You get the idea. More frictions disrupt routine and break up habits. If completing a task requires more effort, time, and steps, you’re less likely to do it. Conversely, less friction enforces a habit. If you want to get into the habit of writing down an investment thesis or using a checklist, make them visible right next to you. Who you associate with is just as important. Just as exposing yourself to the daily market price changes behavior, surrounding yourself with people interested in what the market is doing distracts the mind. An easy solution is to have no opinion. When you have no opinion about the market because you are smart enough to know you’re dumb, sooner or later, they will find you boring and stop asking you.


Munger called incentive the superpower. That’s why management with skin in the game—‘owner-operators’ with significant ownership in the business and a proper compensation policy are likely to make decisions that benefit their shareholders in the long run. If your incentive is to get excited in the market while having a long-term goal in mind, the goal will fail, not your incentive. How can we create an incentive system that incentivizes us for taking a long-term view? When I was working in the insurance industry, one of my jobs is to get the clients to review their insurance policy with a financial planner. An effective way to do that is to talk about their loved ones.  This changes their original incentive to avoid paying more premium to one that makes sure their loved ones are well covered in an unfortunate event. Similarly, before you buy a stock, ask yourself would you still make the same decision if it were your parents’ life savings. You’ll be more interested to avoid losing money than taking an immeasurable risk for a quick gain.

Another way is the 10/10/10 rule. This concept ask “If you buy a stock, how will you feel about your decision in 10 days, 10 months, and 10 years time?”  This rule demands you to think about the process of your decision regardless of the outcome. When you’re in the state of euphoria and the FOMO signal triggered by your amygdala is loud and clear, this can be helpful in taming your cocaine brain. This rule isn’t restricted to buy decision but any decision you take in investing as well as in life. You’ll realize most of the things that make sense right now would not pass the 10 years test.

Buffett’s 20 slots punch card is a concept where you can only make 20 investments in your entire lifetime. This long-term thinking approach is the opposite of “you can always sell any time” mentality. Who knew limiting your options can actually be a good thing. If you only have a limited amount of investment options, you’re going to think hard and long before you make a decision. You’ll miss out plenty of opportunities. That’s for sure. But the quality of your decisions and hurdle rate will go through the roof. Those are the two things that determine your long-term return.


These are just several ways you can create more discipline in investing. The big idea is to start thinking what are the ways you can manipulate your environment and incentives so you can leverage them to make it easier to achieve your long-term goals. You can use the 80/20 rule by asking – what is the easiest thing you can get rid of in your environment right now that will instantly improve your discipline in a big way? We want to score easy wins, not big, bold changes that take a long time. That is, reduce the friction of taking action.

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