I had the pleasure of watching the US women’s national team win the world cup today. It was an entertaining, if somewhat inevitable, match with the Dutch rarely looking threatening. The score was tied 0 - 0 at half-time before Team USA scored twice in the second half to defend their crown and walk away the victors.
Newspapers around the globe tomorrow will sing the team’s praises and tease out the insights and lessons from their performances over the past few weeks. For my part, the game reminded me of a recent quote and the powerful lesson it represents.
Petr Cech played goalkeeper for Arsenal for the past few years before retiring at the end of last season. A couple of months ago he did an AMA on the Arsenal subreddit and one of his responses has really stuck with me ever since.
When asked how he mentally resets after conceding a goal, Cech responded “In my head, every single second of the game the score is 0-0. I literally do the same process for 90 minutes all over again regardless of if we are winning or losing. I just concentrate on my job. That’s all I Do. Every. Single. Day.”
I love this attitude and think there is a lot to learn from it. People (myself included) too often let the cloud of recency bias hang over their actions. If the last time they tried something it was successful, they will think that this time they are invincible. If they were recently defeated, they will believe they’ll never even have a chance.
The much better approach is to think of the score as 0-0. No matter what has happened before. Play as if it’s all tied up.
The USWNT was the most talented team at this year’s world cup. By a mile. Their greatest challenge was not defeating their opponents. It was playing like the score was 0-0 despite the fact that they were defending world champions.
Adopting this mindset is harder than it sounds. Unconscious biases are just that, unconscious. The greatest tool in your toolkit to fight against the power of recency bias is process. Develop the right process and you will be able to train your sights on that process, no matter what the score is.
Every. Single. Day.
This lesson is especially important in the world of investing. Investors are humans too, and just like all other humans are susceptible to recency bias. A recent successful trade can breed feelings of invincibility on all future trades. A startup with a young founder that flamed out can lead you to believe that all startups led by young entrepreneurs are doomed to fail.
Investors need to practice the mindset of thinking and acting as if the score is 0-0. Try to maintain your mind’s neutrality during both the highs and the lows.
In venture capital, this can often be especially tricky. Given the nature of technology startups, companies often require multiple rounds of funding in order to be successful. This means that recency bias rears its ugly head, not with some uncorrelated trade, but with prior funding rounds of the very same company you are currently considering for investment.
It is almost impossible to avoid letting a company’s past performance, actions, and outlook color the way you think about another investment. Some investors even claim that this inside access gives them superior signals by which they are able to make their decisions. And there is likely some truth to that. But there is also the danger of allowing past occurrences to obfuscate current decisions.
When evaluating an investment in a company, it is absolutely essential that you act as if the score is 0-0. Do everything you can to determine whether the company’s current attributes and trajectory warrant an investment based upon their own merits, irrespective of past funding rounds in which you may or may not have participated.
As in life, the best way to do this is to develop a process. And then stick to it.
Every. Single. Day.