The “Soldier Mindset” in Investing: Explained Using Chipotle and My Investing Mistakes
What is the “Soldier Mindset”?
Julia Galef, host of the Rationally Speaking podcast, named it the “soldier mindset” because of a soldier’s innate instinct: to make their side win and the enemy lose. She defines the concept as “trying to make some ideas win and others lose” in her Ted Talk, incorporating the idea of confirmation bias, the psychological tactic where we construe pieces of evidence to fit our “correct” viewpoint. In other words, we force facts to fit into our viewpoint, discrediting any other perspectives, to make one idea win (the one we believe in) and the other one lose (the idea or viewpoint we oppose).
The “Soldier Mindset” in Investing
Imagine you went to Chipotle yesterday for the first time and had the best meal of your entire life. You think to yourself that investing in Chipotle would be a great idea because everyone else must have enjoyed the product as much as you did, and it’s only a matter of time before everyone else notices and buys the stock too.
As soon as you get home, you log into your account and make some quick Google searches about the company and current news regarding the company’s stock. The first article that pops up describes the social media rage about the company’s decreased portion sizes, and how over 10 million people on TikTok and Reddit pledge not to go back since they feel like Chipotle is terrible value for the price. You dismiss the article since ‘they must’ve gone to a bad location’ and since ’10 million customers are insignificant’. You then read the next article about 3 impending lawsuits Chipotle faces due to Chipotle’s chicken being undercooked and giving customers food poisoning. You also dismiss this article because ‘lawsuits don’t mean anything’ and the ‘company’s lawyers will get them dismissed anyway’. Although there seems to be loads of negative attention on Chipotle, you still proceed to buy $1000 of Chipotle stock, thinking that Chipotle is the best company in the world and nothing could ever go wrong.
And that’s the “soldier mindset” in action. The negative media attention and lawsuits were irrelevant because of your one amazing experience that solely influenced your investing decision. Instead of acknowledging and understanding the full picture with Chipotle, you disregarded opposing viewpoints to make your viewpoint win. Although this situation may be slightly exaggerated, its influences remain the same in more realistic examples.
My Biggest Investing Mistake
After working for a summer, I decided to invest around 800 hard-earned dollars into the Albemarle Corporation (a lithium ion producer responsible for supplying lithium to high-power battery producers) at the price of $200 per share in September 2023. I saw this as a bargain at the time: the EV market was feeling a strong surge and so was the lithium market. While researching, I came across one article that suggested the lithium market may not be as safe of an investment as I thought. The article discussed the intense geopolitical competition lithium was subject to and that during a wave of climate consciousness, companies and governments were trying to get their hands on the commodity so much that it heavily overvalued the commodity. The article said that an imminent lithium market crash was definitely possible, similar to the “dot com” crash in the late ’90s. I read the article, and I dismissed it, thinking ‘EV’s are the future and lithium is important… there’s no way the market could crash’. Because the article didn’t fit into my viewpoint, I discredited and ignored valid risks to my investment. I fell into the “soldiers mindset”, gave in to confirmation bias, and I paid the price for it. I entered at $200, and set my take profit at $270 as well as my stop loss at $150, hoping that the stock would hit my price target of $270 in about two years. By November 2023, the stock hit my stop loss of $150.
I researched again to see if I should sell. Every article online said to sell while the stock still had some value. Again, I believed in my gut, my “correct” viewpoint, keeping me in my position as the stock fell even further, because the pain of losing money was less than the pain of me being wrong. Instead of acknowledging I made a bad investment, I held onto a lingering hope, expecting a magical recovery in the long run to make me right. I consistently discredited much more knowledgeable people than me online with evidence to back up their claims because I was too self-righteous to listen and understand their point of view. As the stock now sits around $110 per share, I now realize I was investing using the “soldier mindset” and how destructive that mindset can really be.
Why the “Soldier Mindset” is so Prevalent in Investing
The answer is intense self-pride. Especially when it comes to money and high-pressure decision making, we believe in ourselves more than anyone else. That’s why we tend to “stick to our gut” rather than take the opposing advice of a more experienced investor. Our self pride pigeonholes us into believing in our viewpoint and the validity of our initial investment, discrediting others and making facts mold into our preconceived convictions. We try to make ourselves win because we believe in ourselves so much and everyone else lose because we hold a false sense of superiority.
How to not Fall into the “Soldier Mindset”
After learning my lesson the hard way, I changed my investment philosophy to not fall into the same traps. Admittedly, I still believe in my own judgment more than I should most of the time, but I now make sure I hit all three of these steps before I pull the trigger on my new investments.
- Go Into Every Investment With an Open Mindset: never single out a valid risk to your investment simply because it antagonizes your preconceived point of view
- Make a Pro’s and Con’s List Before Deciding on Whether to Invest: understand if the potential benefits of your investment outweigh the drawbacks, assessing the risk-to-reward ratio of the investment
- Feel Good About Your Investment Before Pulling the Trigger: after acknowledging and internalizing different viewpoints as well as making the pro’s and con’s list, see how you feel about the investment: if you feel good and confident, pull the trigger.
Conclusion
When making big investing decisions, it’s important we don’t fall into the “soldier mindset”, taking in every viewpoint and detail before pulling the trigger and making sure we don’t misconstrue or disregard important facts. Investing requires due diligence, and there’s no way around it. The best way to invest is by making evidence-based decisions with a low risk-to-reward ratio to stay consistently in the green. Hopefully, you can be better than me and better recognize when you fall into the “soldier mindset” before things go too far.
