The principle I address is that of “commitment and consistency.” According to Dr. Cialdini, this principle “is, quite simply, our nearly obsessive desire to be (and to appear) consistent with what we have already done. Once we have made a choice or taken a stand, we will encounter personal and interpersonal pressures to behave consistently with that commitment.”
Once we have decided, our subsequent actions tend to justify that decision. Like the other principles mentioned by Cialdini, the principle of “commitment and consistency” benefits us in most situations. It has the advantage of reducing the energy we need to invest in less important decisions. I believe it was philosopher Bertrand Russell who said: “Most men would rather die than think. Many do.”
The principle of “commitment and consistency” is particularly powerful when the decision or commitment has been made public, and even more so if it has been put in writing. So, if you want to lose weight, write publicly that you have decided to reduce your weight to 175 pounds by a specific date. You’ll see how much you’ll feel “obligated” to keep that commitment! Another public commitment related to investing could be to publicly declare your intention to save and invest 10% of your annual income.
At COTE 100, I now realize that it has been very beneficial for us to constantly communicate our investment philosophy, whether through the Lettre financière COTE 100, our conferences, the books we have published, and so on. This constant and public communication has firmly anchored this philosophy within us. I also believe that this is one of the reasons why we have, in my opinion, never strayed from this philosophy. As the author of Influence writes, “Public commitments tend to be lasting commitments.”
One could also say that the discipline of publishing our decisions might negatively influence us in our choices to sell certain stocks. This is a bias we recognize and must constantly confront. To counter it, we continuously reassess our investments, particularly the stocks that have not yielded satisfactory returns. I would add that our ongoing search for new investment ideas pushes us to sell the least attractive stocks in our portfolios, as selling an existing stock is the only way to finance the purchase of a new one in a fully invested portfolio.
It is difficult to change one’s mind once a direction has been taken. Moreover, we tend to associate with people who think like us and to avoid speaking with those who have opposing views. The confirmation bias, in which we tend to only consider information that confirms our decisions or opinions, is another factor that contributes to us digging in our heels. Social media amplifies this phenomenon and can partly explain the polarization of opinions in our democracies.
That said, even though the principle of commitment and consistency benefits us in most cases, it must not become an automatic behavior blindly followed in all circumstances. At times, especially for important decisions, it is essential to take the time to think, to take a step back, and to ask ourselves if our automatic responses are the right path to follow. If consistency is generally a good thing in life, rigidity must be avoided.
In my opinion, one of Warren Buffett’s greatest strengths is that throughout his career, he has repeatedly managed to reverse what he had said or written publicly. For example, he began his career by investing in stocks of companies with dubious quality but significant undervaluation (what he called “cigar butts”). However, over the years and through his association with Charlie Munger, he changed his approach and instead invested in high-quality companies at reasonable prices. Furthermore, a few years ago, although he had often written that technology was outside his circle of competence, he still invested substantial amounts in Apple. Less gloriously, he also invested in the four major U.S. airline companies, despite having always said that the industry was very unattractive.
This great open-mindedness displayed by Warren Buffett is a quality that investors should strive to develop. For example, in our own management, we also started investing in a few foreign companies in 2019, even though we had always said that there were plenty of choices in North America to satisfy us.
How can one counter the principle of commitment and consistency?
According to Dr. Cialdini, the solution lies in understanding the principle and the feeling it generates in us, as well as being aware of the emotions it triggers when it catches us in its grip. In such situations, we should ask ourselves this question: “Knowing what I now know, if I could go back in time, would I make the same choice?”
I would add that we must be careful with the actions we take on a day-to-day basis, which could inexorably lead us to positions from which it becomes difficult to turn back.
Philippe Le Blanc, CFA, MBA
Chief Investment Officer at COTE 100
