Overview – Should You Keep Pushing or Try a Different Approach?
In your own life, whether it is personal or professional, chances are you’ve previously pursued a certain course of action to try and achieve a certain goal. Maybe you wanted to try a new workout routine to gain more muscle mass, or you’ve started taking online classes to learn how to code.
After a while, you likely stopped and asked yourself: “Is what I’m doing currently working and I simply need to keep pushing, or do I need to change course and see if I can get better results?”
In other words, you’ve likely asked yourself before whether it’s time to persevere or pivot.
Investors come up with all sorts of strategies and contingencies, but how do they know if they need a bit more time before they start to see results or if it’s time to try a new approach?
There are no easy answers when it comes to knowing when it’s time to persevere or pivot, but the sooner an investor comes up with an answer to this critical question, the better.
Where Did Persevere or Pivot Originate, and What Exactly Does It Mean?
“Persevere or Pivot” is a business concept that’s central to the Lean Startup philosophy. This topic is talked about in great detail in the book The Lean Startup by Eric Ries.
The idea behind it is that every business, whether it’s a startup or an industry titan, has certain hypotheses in mind regarding the product/service they sell or their business model. Perhaps they believe that a certain product is going to sell very well, a certain customer demographic will account for the most revenue, or expanding operations to a certain country will help bolster their brand image.
How do you know if a hypothesis is valid or not? By putting it to the test and observing the results.
However, after running some tests you may find that you aren’t getting the results you were hoping for. This leaves you with two choices: should you persevere or pivot?
When you pivot, you come up with an entirely new hypothesis and run tests to see if this new hypothesis is true. If you instead choose to persevere, you maintain your original hypothesis but this time you design new experiments or improve old ones and see if those will produce the results you seek.
Persevere or pivot is all about quickly determining if what you’re doing makes sense to keep doing, and if not, change things up right away. Regardless of how big a business is, the last thing it wants is to spend time, money, and resources on something that won’t produce any meaningful results.
One of the nice things about persevere or pivot is that it can be applied to pretty much any endeavour – investing happens to be one of them.
Every investor wants to know if what they’re doing is producing meaningful results, and if not, make changes right away to minimize the amount of time, energy, and money that’s lost to unproductive endeavours.
While persevere or pivot sounds quite straightforward in theory, things can get a bit trickier in practice.
How Can You Make the Persevere or Pivot Decision a Bit Easier? Set Performance Milestones
One of the challenges associated with deciding whether to persevere or pivot is that several variables contribute to this decision. Ultimately, knowing which choice to go with boils down to an investor’s judgment, experience, and intuition.
However, there are some ways to make this decision a bit easier to make. One method is to establish certain performance milestones you wish to achieve, and by when.
Because investing is so quantitative, this isn’t very difficult to implement. The challenge, however, lies in setting the right numbers for the right contexts.
Imagine that for the last 5 years, your portfolio’s annual rate of return averaged around 8%. You want to bump that up to at least 12% (quite ambitious in reality, but this is just an example), so you decide to implement a new strategy: you will concentrate your portfolio such that 25% of its book value is attributable to your best-performing industry.
How do you know if your strategy is working as intended? By far the easiest way would be to check your annual rate of return every year for a set period, such as for the next 3 years.
If your annual returns have steadily increased during this time, but still fall short of your desired 12% by just a couple of percentage points, then perhaps it’s best to stay the course. If your annual returns have dropped below 8%, which was your previous performance before you implemented the strategy, then maybe it’d be best to take a different approach.
Establishing certain performance milestones sounds easy enough, but things start to get tricky when dealing with very long time horizons because of all the external forces that can affect your desired level of performance.
How can an investor tell whether it’s time to persevere or pivot when it comes to an investment strategy or plan that spans 10 years? After all, some initiatives take years to unfold before any sort of noticeable results are detected.
Fortunately, you don’t need to wait 10 years to see if what you’re doing is effective or not. Perhaps after the first 5 years of data collection, you can judge whether the investment initiatives you have in motion are working as intended or not. Again, this all boils down to your judgment – no magic number dictates whether it’s best to keep pushing or to change things up.
Sometimes, you may not even need lots of data to make a decision – the key to knowing when to persevere or pivot may sometimes be found by turning to your investment intuition.
When in Doubt, Learn to Trust Your Investment Intuition
While establishing certain performance milestones can certainly help in deciding whether it’s best to keep pushing or to change things up, sometimes quantitative measures alone don’t provide enough insight to help you decide which course of action is best.
Sometimes, your accumulated experience, knowledge, and past lessons are what will guide you in this decision.
If you’ve had the chance to drive different vehicles, then you’re probably well aware that every vehicle feels different to drive.
After having driven a given vehicle for a long enough time, you eventually develop a mental model of what “normal” operating conditions feel like. Chances are, you don’t need lots of quantitative data to determine if the car starts to operate abnormally – your intuitive feel of the car is what you reference when judging what feels normal and what doesn’t.
The same approach can also be taken in investing when deciding whether to persevere or pivot – sometimes, you don’t need to rely on established performance milestones to decide what to do next.
In some instances, going with what your intuition tells you may be the better option to take because you could potentially save more time, effort, and money by making your decision to persevere or pivot a lot sooner.
For example, if you know from your previous experiences and knowledge that a certain investment strategy has a low chance of succeeding under the current economic environment you face, then you can pivot a lot sooner as opposed to waiting a few years to gather sufficient data before deciding.
While turning to your investment intuition has its benefits, the problem with taking this approach is that it assumes the investor has a sufficiently well-developed intuition to turn to. You can’t expect to rely on your experience, knowledge, and past lessons to make decisions if you don’t have any (or very little) to begin with.
Persevere OR Pivot Leaves No Room for Flexibility, Right?
When hearing “persevere or pivot” for the first time, one of the first thoughts that may cross a person’s mind is that they’re mutually exclusive. Besides, the name itself makes it clear that you have two, distinct choices, right?
Although this appears to be the case, this isn’t entirely true. The argument can be made that just because you choose to go with one approach doesn’t mean there’s no space for the other.
For example, imagine you’ve decided to implement a new investment strategy, whereby you start to focus your investments in just one country. Three years later, you notice that your returns have improved, but not to a level you feel is desirable, therefore you decide to switch things up (i.e., you decide to pivot).
However, there’s a twist: although you decide to pivot, you don’t completely overhaul your investment strategy. Instead, you decide to make some minor revisions, such as having a few, small stakes in other countries, but your original strategy still has you focusing on one country.
So, in the end, you still decided to “pivot” but a dramatic change wasn’t necessary, and you could still choose to persist with certain elements of your original strategy that were working.
Knowing which choice to go with is important, yes, but that doesn’t mean you need to go all in every time.
It’s entirely possible to pivot, but for the changes to be minor while still keeping most of your original hypothesis, plan, or strategy largely intact. Similarly, just because you choose to persist doesn’t mean you aren’t allowed to make any small changes as you go.
Because of this, the corollary can be made that “persevere or pivot” aren’t two discrete choices, but rather two ends of a spectrum. You can commit 100% to one of them if you want, but understand that there’s still room to be flexible and to do a bit of both – the extent of how flexible you want to be is entirely up to you.
Wrapping Up
Investors come up with all sorts of strategies, plans, and contingencies to help them work toward their goals, but sometimes they may not be getting the results they want to see.
Sometimes, they may want to ask whether it’s time to persevere or pivot.
Unsurprisingly, this is not an easy decision to make as it ultimately boils down to being a judgment call. To make this decision a bit easier to make, you could set certain performance milestones you wish to achieve by a certain time.
You could also turn to your investment intuition to help with this decision, but this assumes that you have a sufficiently developed investment intuition in the first place to turn to.
Regardless of which decision you choose to go with, remember that there’s always room for flexibility. It’s entirely possible to persevere while making slight changes along the way or to pivot without having to completely overhaul what you were doing before. As long as you get the results you want, then the extent of how flexible you want to be is up to you.
