Hodling & Strategy
On sticking to a plan no matter what
Friends,
I hope that all is well with you and yours, and that this e-mail finds you on a boat with shoddy connection, in the tropics, three months after I sent it.
A couple of updates before we go-go
The Cannes schedule is now completely full with the exception of breakfast on Thursday, June 22. Although James and I are more than happy to update on our whereabouts, should you wish to say hi, all other meeting slots have now been booked.
Starting next week, we will begin to feature this summer’s guest writers. In order for there to be a premium for the premium, so to speak, I have requested that each writer provide a number of practitioners’ takeaways - these will be exclusive to paying subscribers.
Further, I will deliver a series of Strategy in Praxis online presentations in H2, beginning in August with a reprise of my Techsylvania keynote Delusions of Determinism: Why Planning for Success so Often Leads to Failure. Attendance spots will be limited; premium subscribers will step to the front of the line.
In the news
Eurozone inflation declined to a 15-month low in May, which may allow the European Central Bank to pause interest rate hikes over the summer. While that is good news, Germany has officially entered into a recession. Given that the country owns the largest economy in Europe, the Eurozone may soon suffer a similar fate.
Unilever has launched a campaign to drive inclusivity and disability representation in production, as part of its embarrassingly named “Act 2 Unstereotype” initiative. Although inclusivity work should be lauded, I cannot help but feel it is a display of tokenism; Unilever is pledging to ensure all productions over 100k include at least one person with a disability in production. “At least one”. We both know what that is likely to translate to.
Twitter has begun selling its ad inventory via a third party, opting to take the ad tech route because, well, the company kind of has to. Until now, for those unaware, Twitter has sold its ad space via a wholly-owned programmatic marketplace called MoPub. Although the move makes sense, I would not be surprised by perceptions (whether justified or not) of lower quality inventory. Then again, it is not exactly prime location real estate as is.
AI item of the week #1
Po-Shen Loh is a mathematics superstar who recently has begun teaching students how to deal with the threat that ChatGPT and similar solutions present. He argues that the key to survival is knowing how to solve problems, but also knowing which problems to solve. LLMs and their ilk are great at dealing with some challenges, but nearly useless in dealing with others - particularly those that might appear elementary to a human. In order to future-proof oneself (as if that were ever possible, but for the sake of the argument), he emphasizes that one should focus on creativity, emotion and the human traits that distinguish man from machine and are unlikely to go obsolete.
The role of the GPT is to always say the most obvious next word. But what is invention? What is creativity and innovation? Is it to say the most obvious thing? No. It might be to say a non-obvious thing.
AI item of the week #2
For those looking for a significantly more heavyweight text on the topic, Stephen Wolfram (a complexity scientific pioneer with a CV that will make your jaw drop; it includes an academic paper published at 15 and a PhD in theoretical physics from Caltech at 20) recently published an extensive explanation of what ChatGPT is doing and why it works. If you want to get a detailed understanding of LLMs and neural nets, this is the text for you. Just make sure to bring coffee.
In a crawl of the web there might be a few hundred billion words; in books that have been digitized there might be another hundred billion words. But with 40,000 common words, even the number of possible 2-grams is already 1.6 billion—and the number of possible 3-grams is 60 trillion. So there’s no way we can estimate the probabilities even for all of these from text that’s out there. And by the time we get to “essay fragments” of 20 words, the number of possibilities is larger than the number of particles in the universe, so in a sense they could never all be written down.
So what can we do? The big idea is to make a model that lets us estimate the probabilities with which sequences should occur—even though we’ve never explicitly seen those sequences in the corpus of text we’ve looked at. And at the core of ChatGPT is precisely a so-called “large language model” (LLM) that’s been built to do a good job of estimating those probabilities.
Moving on.
The Hodl Problem
Why companies so often stick with failing plans
In a recent newsletter, WSJ columnist Jason Zweig wrote about the investment term hodling. Originally a misspelling of holding, it has come to mean an undying belief in a stock – investors that hodl refuse to sell regardless of the loss they might take. Hodling is thus fundamentally different from taking a long-term view; it is sticking with your stock no matter what.
Although one might only speculate as to the underlying reasons (my wife immediately brought up sunk cost biases; it is indeed closely related), it stands to reason that at least one of the contributing factors is the comfort that hodling provides. After all, an unrealized loss does not feel like an actual loss.
Strategic plans often suffer from a similar problem.
By nature, plans are based on historical data (there is obviously no other kind) and thus rely on the assumption that the future will bear a strong resemblance to the past. This, of course, may be more or less true.
As we haver discussed before, the consistently most accurate prediction of GDP growth has proven to be the naïve model that says that the next quarter will probably resemble the previous one, but it only holds until it does not - and what is true for the aggregate may be (indeed, typically is) entirely false for the individual. Entrenched industries are also significantly slower to change than exposed sectors are, for example.
Either way, it stands to reason that the farther we get from the current present, the less likely the new present is to resemble its predecessor. Certainly, the pace of change is rarely constant, but change itself is. As long as we keep doing the same thing, in the same way, strategic drift (the gradual deterioration of relative competitiveness) is all but guaranteed; the speed at which our plan becomes a hindrance to success may vary, but sooner or later, it will.
At the same time, the longer we stick with a plan, the more we are likely to invest in it. Once it inevitably starts to fail, hodling becomes a factor. The more money we lose, the less capable we become of making peace with our losses. Gradually, and then suddenly, we no longer own our strategy - the strategy owns us.
Just as history is littered with investors that stuck with their purchases no matter what and lost everything as a result, there is no lack of companies that stuck with their original strategic plans despite market changes and consequently went under. The question is how to know when to change.
Unfortunately, there is no calendar date that one might pencil in, nor a single key metric to track. The best way to deal with change is through adaptive strategy, which partly is about continuous adaptation through small and coherent moves (thereby limiting the need to make big moves and pivots) and partly about developing the ability to change more and faster should one still have to. It is not about mastering uncertainty, for it cannot be mastered, but making the best of it.
Taking a page from Zweig’s article, though, anyone who suspects they may be hodling can begin by asking themselves the following questions:
Do you get upset with anyone who casts doubt on the company's future? If you have done your homework, you should be comfortable - not touchy - when you face criticism, regardless of whether you agree with it or not.
Do you think that anybody who disagrees with your strategy lacks insight, competence, or has an agenda? You should be trying to learn from people who disagree, not seeking to discredit them.
Have you retroactively restated your original reasons for deciding on a particular plan? You should have made a note of them at the time to limit false narrative construction later. Go back and re-read it to make sure your memory is not playing tricks on you. Is your original rationale still valid?
Can you describe the types of facts or data that would disprove your current thesis? What evidence would it take for you to admit you were wrong? "That is impossible! I know I am right!" is not evidence. More likely, it is evidence that you are wrong.
It is never easy to admit that the work one has done no longer remains relevant. As strategists, we get paid the big bucks to know the best path into the future, and revision of our work implies that we should have taken a left when we took a right (or vice versa).
But to paraphrase Adam Grant, changing one’s mind does not equate to an abandonment of one’s principles; it may simply mean that we have learned something. Far better is it to contradict oneself and be accused of hypocrisy than to hodle and sacrifice one’s integrity.
After all, the hallmark of integrity is honesty, not consistency, and the same holds true for strategy.
Next week, Will Humphrey will kick off the summer guest posts. Until then, have the loveliest of weekends.
Onwards and upwards,
JP
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