This may start out looking like a post about investing, but actually it's about free will.
As readers know, I stuck to my buy-and-hold investing strategy too long. Ideally I would have sold in 2007 when the market was at or near its top. I didn't. As a result, I lost a lot of money that I had made (or thought I'd made) over the last fifteen years.
Since then, I've started asking myself why I didn't sell sooner. Several people advised me to do so. There is even a fairly simple timing system that would have gotten me out of the market at about the right time. But I ignored the advice and didn't look at timing systems. I stuck with buy-and-hold until the market was down more than 50%.
It's easy to say I should have done this or that, but in thinking about it, I'm not so sure I could have done anything much different from what I did. After all, my investment decisions were not made in a vacuum. They were the result of at least three factors:
a. My history and experiences as an investor, which told me that I had done very well with buy-and-hold for a decade and a half.
b. My theoretical knowledge and belief system, which assured me that buy-and-hold beats all timing strategies over a long enough time period.
c. My temperament, which was (and is) averse to aggressive trading and sudden changes in my game plan.
Given a, b, and c, I probably could not have departed from my buy-and-hold strategy in 2007 or even in 2008. It was too deeply ingrained in me. It took a severe shock – the utter collapse of the market in the last six weeks – to knock me out of my complacency. In the absence of such a shock, I don't think I would have – or could have – changed.
Which of course raises the question: How free am I? How much free will do I really exercise, if my choices are so severely constrained by prior experience, theoretical belief, and personal temperament?
I don't doubt that I have some degree of free will. It's a logical contradiction to say we have no free will at all, inasmuch as all of our beliefs would then be predetermined, including our belief that we have no free will. And if our beliefs are predetermined (and therefore arbitrary), we have no reason to take them seriously. So by the very act of asserting that we have no free will, we are implicitly assuming that we do have at least enough free will to make up our own minds about it.
But there's a difference between having some free will and having unlimited free will. It seems to me that the constraints on our will are pretty onerous, and that many of the actions we take are dictated more by habit and routine, or by circumstances, than by conscious choice.
Tolstoy comes to the same conclusion in War and Peace. In the occasional historical essays that interrupt the novel, he argues that Napoleon and the other "great men" of that age were not puppet masters but puppets themselves – men moved by the tide of events, rather than controlling the tide. Tolstoy sees the Napoleonic Wars as the inevitable result of a confluence of an almost infinite number of factors, not least of which was the willingness of Napoleon's men to fight; had they refused to fight, the "great man" could have done nothing. Though Napoleon flattered himself by believing that he was in charge, he actually was at the mercy of blind historical forces beyond his – or anyone's – control.
To take a more recent example, let's look at the Iraq War. Rather than seeing the invasion of Iraq as a personal decision taken by a president and imposed almost singlehandedly, we might be wiser to see it as an inevitable outgrowth of the emotions ignited on 9/11. Given the fear of another terrorist attack, the widespread belief that Iraq was developing weapons of mass destruction, and the desire to lash out against the Arab world, it may have been inevitable that Iraq would find itself in our crosshairs, no matter who was serving as U.S. president. We like to imagine that different leadership would have had different consequences, but perhaps we are overestimating the role of free will and underestimating the power of circumstances and events, which take on a life of their own.
Or to give a personal example: As a teenager I became enamored of the philosophy of Ayn Rand. When I look back, I see Rand's philosophy as shallow and mostly false, and I've sometimes wondered how I could have fallen for it. Yet given my limited experience of life up to that point, my intellectual leanings at the time, and my psychology at that age, I may have had little, if any, choice in coming under Rand's spell. Free will may not have been much of a factor. I was strongly predisposed to like what I saw in Rand, just as, more recently, I was strongly predisposed to follow my buy-and-hold strategy. Volition had precious little to do with it in either case.
How many of the things we do in our lives, either as individuals or as a society, are shaped and molded by outside forces and prior events, allowing us little or no control over our own behavior? Hamlet said there's a divinity that shapes our ends, rough-hew them how we will. Maybe it's divinity … or maybe it's just circumstances.
Whatever it is, we may not be as free as we like to think. And this possibility has both positive and negative implications. The negative implication is that we are not nearly as much in control of our lives as we try to believe. The positive implication is that we need not beat ourselves up for our past mistakes, under the illusion that we could have done things differently. If we had no choice in the matter, then there is nothing to feel sorry about.
Paradoxically, then, our relative lack of freedom gives us a different kind of freedom – the freedom to let bygones be bygones … to turn our backs on the past and let it go.