‘“Come this way, honored Odysseus, great glory of the Achaians, and stay your ship, so that you can listen here to our singing; for no one else has ever sailed past this place in his black ship until he has listened to the honey-sweet voice that issues from our lips; then goes on, well-pleased, knowing more than ever he did; for we know everything that the Argives and Trojans did and suffered in wide Troy through the gods’ despite. Over all the generous earth we know everything that happens.” – The Sirens, Homer’s Odyssey
Odysseus, Greek king of Ithaca, is best remembered for his arduous ten year journey home after the Trojan War as well as the Trojan Horse he used to gain surreptitious access to enemy fortifications. As the protagonist in Homer's epic poem "The Odyssey" who also features prominently in "The Iliad", Odysseus is painted as a fierce warrior whose strength was matched only by his cunning. And while Odysseus may be best remembered as a warrior, perhaps his most important action on his decade-long sojourn was an act of restraint rather than brute force.
In Greek legend, Sirens were dangerous creatures that enticed sailors to come close with their beauty and enchanting music, only to lead them to shipwreck along a craggy shore. In addition to their beauty, these femmes fatale were also thought to be wellsprings of knowledge that could be harnessed for personal gain, if not for the unfortunate footnote that hearing their words led to certain death. Odysseus and his men, aware that they would soon be sailing through the Strait of the Sirens, sought to capture this knowledge without succumbing to the Sirens' fatal wiles.
After consulting with Circes, Odysseus arrived at a solution; he would have his crew fill their ears with beeswax while he would have himself lashed to the mast of the ship. Thus, he would be provided access to the wisdom of the Sirens' song but not be able to act in a way that would endanger his life. As expected, as Odysseus heard the song of the Sirens, he flailed and begged his men to be unfettered. But true to the original game plan, they ignored their leader's protestations until they were safely out of harm's way.
It is easy to paint ancient narratives like this as dusty and irrelevant to the hustle and bustle of modern life. However, Homer's story of Odysseus and the Sirens is remarkably prescient when considering the Siren Song of irrational behavior that shipwrecks so many investors. Like the epic hero, we are drawn to the promise of great returns and want to charge headlong into battle. Just as Odysseus was a man of strength and action, many investors have been successful based on lives of boldness and proactivity. But in Odysseus we find an exemplar of the ways in which sometimes the most prudent action is restraint.
Even the most educated professional investor suffers from what is commonly known as "restraint bias", or the tendency to overestimate our ability to control impulsive behavior in the moment. If everyone in the world received comprehensive nutritional counseling, it would do nothing to change the fact that eating a donut in a period of stress is more satisfying than eating asparagus. Likewise, giving in to panic selling or buying glamour stocks of poor quality are done, not because of lack of knowledge, but rather due to lack of restraint. At Nocturne, we follow a rules-based approach that is the beeswax in our ears during times of temptation. Because just like you, we'd eat the donut too.
Portions of this piece are taken from Personal Benchmark, co-authored by Nocturne Capital founder Dr. Daniel Crosby and Brinker Capital founder Chuck Widger. You can learn much more about behavioral asset management in Dr. Crosby's new book, The Laws of Wealth, available HERE.