I have engraved in my mind the adagio of my mentor and friend Roberto Magallanes Ramos: “Too much analysis produces paralysis”. Overthinking is the art to create problems, that weren’t even there. The poem of the Centipede brilliantly explore this “bias”, inspiring over the years several stories.
A frog was sunning himself on a lily pad, when a centipede came walking by. The frog was immediately entranced by the centipede’s flowing and graceful movement across the pad. He marveled at what an amazing ability the insect had to both time and coordinate all of those legs so that the end result was so smooth and precise. While he was a great leaper and strong swimmer, the frog couldn’t help but feel a little jealous of the centipede’s skills. After all, his job was so easy, having to coordinate only two legs and two arms, while the centipede’s was so much more complicated, having to balance one hundred. Hoping to be enlightened by the insect’s tremendous skill, the frog said to the centipede: “Kind sir. I am most impressed by your flowing athleticism and your ability to closely synchronize all those legs of yours. How in the world do you do that?”. Hearing the compliment from the frog, the centipede stopped his movement and began to beam with pride. He had never bothered to think about how he moved because it was just something that he did naturally. He replied: “Mr. Frog, I do appreciate your kind feedback. However, I need to spend a moment thinking about how I move before I can share with you my secrets“
The centipede then began to think very hard about his hundred legs. The more he thought about it, the more he marveled at his own ability. However, the more he thought about it, the more complicated the whole process seemed and he couldn’t quite figure out exactly how he was able to do it. However, no sooner had he taken one or two steps that his legs became entangled in each other and he tripped. Slightly embarrassed, he pulled himself back up and once again set out to try and figure out exactly how he was able to coordinate his movements. Once again his legs became entangled and he again fell to the pad.
Now the centipede’s embarrassment merged with a growing sense of frustration. He had never once tripped in his life and here he had just tripped twice in a row! He quickly righted himself and tried to figure out how best to regain his balance and coordination. He thought about the order of his movement and whether he should start off with the feet on the left side of his body or the right side. However, the more he thought, the more confused he got. This time, after just one step, he went down hard on his face.
His embarrassment and frustration turned to panic. The poor centipede was now an uncoordinated mess, falling all around the lily pad. Meanwhile the frog looked on in curious amusement. Soon the centipede couldn’t even stand up!
He quickly thought about what had gotten him into this mess in the first place and inwardly cursed the frog and his stupid question. He suddenly realized that his own self-consciousness about walking was the one thing that was preventing him from walking. His anger boiled over and he yelled at the frog, “With all due respect Mr. Frog. Don’t ever ask me how I walk again. I do NOT know how I do it and I don’t WANT TO KNOW!” Whereupon he got up without thinking and quickly and smoothly ran off the pad headed for home.
We have thousands of books about the engineering of gait, the biomechanics in sports, the neurophysiology of movements. Yet reading all these books, we’ll never been able to learn how to walk or to do any sport. Tinkering and trials and errors are yet the best way to learn something.
Overthinking in investment can be paralyzing: investors sometimes freeze, trying to gather endless and contrasting informations before taking a decision. “Given the inherent uncertainty about the future, investors have to make decisions without having complete information”. Waiting for the complete exhaustive informations about the market can just create a brain overload with two possible outcomes:
- inability to act – the paradox of endless and contrasting choices
- overconfidence: at some point the investor may begin to think he knows more than he really knows