Strategies
Recognising A Strategy That Is Not Working
Investors persist with failing approaches because sunk costs and identity make exit feel like defeat, and distinguishing a slow plan from a broken one requires stated criteria set in advance.
Every strategy encounters a period where results lag expectations. Distinguishing normal lag from genuine failure is difficult precisely because the two look identical for a while.
Why persistence outlasts evidence
Money and effort already spent cannot be recovered, and economically they should not influence the next decision. In practice they dominate it.
Identity compounds the effect. An investor who has described themselves as pursuing a particular approach is abandoning a self-description as well as a plan.
Public commitment strengthens this further. Having explained the strategy to partners, lenders or family makes reversal feel like an admission rather than a decision.
Setting criteria before you need them
The workable defence is to write down, at the outset, what results would indicate the approach is not functioning, and by when they would be visible.
Criteria written in advance are set by someone with no stake in the current outcome, which is why they are more honest than criteria invented later.
They should be specific enough to be checked. A criterion that can be reinterpreted after the fact provides no discipline at all.
Separating execution from the approach
Poor results can come from a flawed strategy or from poor execution of a sound one, and the two require opposite responses.
The diagnostic question is whether other people are succeeding with the same approach under similar conditions. If they are, the problem is execution.
If the approach is failing broadly, the cause is more likely structural, and improving execution will not change an outcome determined by conditions.
Conditions change underneath a strategy
Some approaches depend on conditions that were present when the strategy was formed and are no longer. Financing availability and regulatory rules are common examples.
A strategy that worked previously can stop working without anyone doing anything wrong, and its historical record then becomes actively misleading.
Reviewing what the approach requires to function, rather than reviewing results alone, surfaces this earlier than watching outcomes does.
Exiting without destroying value
Deciding to stop is separate from deciding how. A forced immediate exit usually realises the worst available price, which is why the decision should not wait until it is urgent.
Partial exits are often available: stopping new acquisitions while holding existing assets, or changing the operating approach without selling anything.
Framing the choice as changing course rather than accepting defeat is not merely psychological comfort. It is a more accurate description of what a portfolio adjustment is.
