One of my favorite things to do in Manhattan is to walk the streets and take in the daily bustle of New Yorkers. We're an anxious and rambunctious folk relative to other city-dwellers, so it is an interesting thing for me to do and stop to watch the commotion in slow motion.
The Subway Echo Chamber
Every day, I take the subway to work from the Upper East Side to the office or client site. As I walk into the subway station every day, I see people rush down to the train tracks when they hear the sound of an incoming train, only to be disappointed that the train is on the opposite side of the tracks. I thought about why this happens, and came up with a few reasons. Firstly, people can hear the train coming but they cannot see it; their field of vision is restricted, but their hearing isn't. Thus, they decide to take a gamble and rush down the stairs with limited knowledge of the situation. Another reason people run down the stairs to an empty track is contagion. They see other people running down, who see other people who see others yet; this contagion escalates all the way up to people just entering the subway since they think those down below saw the train coming. Every day, I see the same thing happen. In fact, I used to be one of the suckers entering the subway station, noticing the contagion, and joining in the rush only to be disappointed the train is on the other side of the tracks. This banal daily occurrence reminds me of the things you see in the world of investing, such as a hot IPO that initially attracts lots of money (FOMO, contagion, call it whatever you like) only to deliver disappointing results down the line.
The Pedestrian Light
We've all been taught to cross the street when we see the pedestrian light turn green. What we should have been taught, however, is to cross the street as soon as the car traffic light turns red. That is, after all, a leading indicator of the pedestrian traffic light turning green. I think a lot of leading indicators in the world of behavioral economics and investing. I had to introduce a startup panel the other week, and I thought the traffic light analogy was a very appropriate one. By spending your time learning about what startups in a certain sector are doing, you are looking at a leading indicator on some of the technology, products, and business models that will trickle down into enterprise five to ten years down the line.
The Whole Foods Checkout Counter
There is a Whole Foods near my office, and once or twice a week I pick up a lunch there. For the unacquainted, Whole Foods is packed during all but a few hours of the day, at least in Manhattan. It's a supermarket, but it also has a great selection of salad bar food choices, sandwiches, and pizza. The salad bar is by far the most popular to-go option, so the checkout line is always packed. The sandwich and pizza checkout lines, while still busy, tend to move more quickly. What I started doing is getting hot food in the salad bar and instead of waiting in the long salad bar checkout line, I started paying for the hot food in the much faster pizza or sandwich checkout counters. There are a lot of people using this shortcut, but they are still the minority. I'm not sure what this means about human behavior, but I think we assign rules to our daily lives just because we assume they should exist. Whole Foods has no rule that you have to pay for salad bar food in the salad bar checkout counter or for pizza in the pizza counter, but we just assume it does. How many other rules do we follow just because we assume they exist?