Why we fail

It was Halloween night in San Francisco. A man was rushed into the emergency room at a hospital.

Based on reports from the Emergency team that brought him in, he had been at a costume party and got into a fight. Apart from being drunk and babbling, he seemed fine as the trauma team used shears to cut off his clothes to examine him from head to toe, front and back.

The Calm Investor | Checklist Investing
Source: propublica.org

They found a two inch stab wound in his belly. The mustard yellow strip of fat hanging out of the wound indicated it was from the abdomen and not the superficial layer of fat under the skin. As a precaution, the team decided to take him to the operating theater to ensure there weren’t internal injuries before sending him home. They readied the OR as the patient lay waiting in a stretcher.

The nurse’s attention was drawn when he went quiet. She looked closer and found his pulse had spiked and his eyes were rolling back in his head and his blood pressure was barely detectable. The trauma team rushed back into the room.

When pushing air down his lungs didn’t help, they went into crisis mode, splashing a bottle of antiseptic on his belly before slicing through the man’s abdomen from rib cage to groin. Slicing through the fat beneath the skin and the sheath between the abdominal muscles, the surgeon got to the abdominal cavity. A big spray of blood spurted out.

The Calm Investor | Emergency Room
Source: huffingtonpost.com

The knife wound, initially thought to have been superficial, had gone through more than a foot through the abdomen, through the fat and muscle, past the intestine, along the left of his spinal column, and into the aorta, the main artery from the heart. It took two surgeons clamping down on the ruptured aorta to bring the bleeding under control. After a touch-and-go couple of days, the patient pulled through and went home.

On reviewing what happened that night, it was found that the team got almost every step right for treating a stab wound. The head-to-toe examination, carefully tracking blood pressure and pulse, monitoring his consciousness, fluids by IV, call to the blood bank, placement of a urinary catheter to make sure the urine was running clear.

Except, no one remembered to ask the patient or the emergency team what the weapon was. The man had been in a fight with someone dressed as a Union soldier from the American civil war in the 1860’s, carrying a bayonet. Yes, the thing in the picture below.The Calm Investor | Checklist Manifesto

Had this detail been known to the trauma team, they would have rushed him to the OR immediately looking for signs of internal bleeding. Fortunately, aside from the momentary panic, there were no untoward after-effects of the missed information.

– paraphrased excerpt from ‘The Checklist Manifesto‘ by Dr. Atul Gawande

This book highlights near and actual misses that are part of the medical profession. Mistakes that happen in an incredibly complex environment with little time to recover. In spite of decades of formidable experience and demonstrated skill, surgical teams often are far less in control than they like to think. The author felt failures happen more than they should, and looked to understand them better.

What’s more, the lessons he learnt about the reasons for failure and ways to minimize them have applications way beyond just the world of medical care, even failure in investing.

Why we fail

In a 1970s paper, Samuel Gorovitz and Alasdair MacIntyre published a short essay on the nature of human fallibility. They boiled down the cause of all failures into three distinct buckets:The Calm Investor | Why we fail

  1. Necessary fallibility
    • where something is beyond our capacity
    • like trying to move faster than the speed of light, teleportation etc.
  2. Ignorance
    • where we don’t understand something completely, though that knowledge exists
    • Real world: not being able to construct certain kinds of skyscrapers, or not being able to stop all heart attacks
    • Investing: not being able to factor in all available information about a potential investment at the right time 
  3. Ineptitude
    • where we fail to apply the knowledge we have correctly
    • Real world: making the wrong treatment choice, the pilot who doesn’t react in time to the “cargo door unlocked” warning
    • Investing: missing out on spotting the drop in cash-flow from operations even as accounting profits kept growing

Getting things right, partly

We start by recognizing that we can work on minimizing the impact of #2 and #3 but not #1 or what is beyond our capacity. Most fields have responded to the challenge of ignorance by increasing the breadth and depth of knowledge required while adding specialization. This means breaking down the entire field into smaller and smaller slices of knowledge and having experts in each of them. So, from having anesthesiologists, there are now pediatric anesthesiologists, cardiac anesthesiologists, obstetric anesthesiologists, neurosurgical anesthesiologists and so on.

In the investing world, this is akin to an investor

  • choosing her area of interest, referred to as ‘circle of competence’
  • once identified, read and learn as much as you can about that subject, not overnight, but gradually
  • think through the concepts to understand and internalize them and see how well they sit with you. e.g. Investing in small-cap stocks might appeal to you as being intuitive while it is panned by many, but decide yourself on whether it works for you
  • apply and hone those skills over time.

They say little knowledge is a dangerous thing, but its not one half as bad as a lot of ignorance – Terry Pratchett

However, learning more and more applied skills has its limits. More than 150,000 deaths follow surgery each year worldwide, research suggests that 50% are avoidable. This has to do with addressing ineptitude, mistakes that get made even with the most skilled practitioners in the room with their in-depth knowledge of their respective fields.

The surprising and insightful method of minimizing errors of ineptitude, and how it can be applied to investing is the topic of the next post – The checklist approach to investing.

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