Centuries ago, a Chinese King was sitting in his cabinet meeting discussing the poor economy of his country. One economist said, “Sir, we can’t do anything about it. It’s the Law of Supply and Demand.”
The King said, “I’m the King. I will repeal that Law!” The Cabinet kept quiet, but one brave soul said, “Sir, you cannot repeal the Law of Supply and Demand. It’s like the Law of Gravity.”
And the King said, “I’m the King. I will also repeal the Law of Gravity!”
Obviously, this story is purely fictional. But the message that comes out is clear – You cannot repeal some laws that govern this universe.
Like the Law of Gravity, and maybe…
The Laws of Holes
The First Law of Holes (this is the only stated law of holes) – If you find yourself in a hole, stop digging.
If you realize you have made a mistake, accept it and cut it short as soon as possible. Like in investing, if you realize you made a mistake in selecting your investment, sell it off even if at a loss. Don’t wait to get your money back, if you find out it’s a bad business. People who lose 90% of the money in bad businesses and think how much more can they lose, often lose another 90%.
The Second Law of Holes – If you find yourself in a hole, stop digging, come out of it, and then fill it in to keep it from becoming a hazard.
If you realize you made a mistake, getting over it fast is important before the mistake can cost you heavier than it is now. Then, it is important to learn the lesson that led you into that hole. Like in investing, making some mistakes is fine. But repeating the same mistakes can cost you your retirement. Albert Einstein (supposedly) defined ‘insanity’ as “doing the same thing over and over again and expecting different results.” Yet that’s exactly what most people (investors) do. They dig a hole for themselves, sometimes come out of it, and then fall back again because they failed to fill it in the last time.
The Third Law of Holes – If you don’t know that you are in a hole, ask someone who isn’t covered with mud and standing in the shade.
This is tough because when we are in a hole, we often don’t know that we are in a hole. But in case you find out that you are really in a hole i.e., you have made a mistake, seek help from others who you think aren’t making the same mistake. Like in investing, seek a devil’s advocate when you realize you’ve made a bad investment. Better, seek a devil’s advocate before you commit your money to any investment. That will help you avoid a lot of deep holes.
The Fourth Law of Holes – If someone else, and especially when that someone appears smart and has been successful in the recent past, seems to be digging a hole, don’t try to jump in to give him company.
This may turn out to be the most dangerous of all laws of holes if you don’t remember it well enough. Like in investing, we often do stuff that looks exciting and also because everyone else – especially the smarter lot – is doing it. So we will act on tips without blinking an eyelid. We will clone other successful investors mindlessly and without knowing what we may be getting into. And we will chase hot sectors and stocks because, well, they are hot. Here remember what Charlie Munger so often says – “All I want to know is where I am going to die, so I will never go there.” Success in the game of investing requires you to avoid slipping into deep holes. And there are a lot of them out there dug up by others. So beware!
The Fifth Law Of Holes – Trust your logic – “I must get out of the hole before I fall deeper” – more than your ego – “How could I be so blind to have gotten into this hole?”
You see, holes (mistakes) can be good (ask the golfer!) because they dilute our overconfidence and lead us to be alert all the time. But if you still get into one, drop your ego right there. A lot of people find that hard to do and would continue to curse themselves and others for getting into deep trouble. This often leads them to nowhere, but deeper inside the hole. It’s only good sense and logic that can help you get out of the hole fast. Like in investing, instead of blaming your unintelligence and that of others for your investment mistake, it’s better to accept it, take complete responsibility, and come out of it.
Any More Laws of Holes?
Are there any more Laws of Holes that you can think of or create? It would be a fun, yet thought provoking, exercise. Get famous, and share your law in the Comments section of this post.
