Christmas came early for me this year when I got a hold of Professor Geir Jordet’s new book Pressure: Lessons from the psychology of the penalty shootout. Because if there was ever a book written uniquely for me (soccer, cognition, risk, reward), this was it! And I offer no apologies in advance to the inevitably irate parent on the opposing sideline this season whose daughter is about to take a penalty kick against the u13 girls soccer team when our goalie inexplicably needs to stop the proceeds to tie her shoe (“The overall trend is that the longer penalty takers have to wait for the referee – typically because of goalkeeper delays – the worse these players perform from the penalty spot.”) 

Jordet, a psychology PhD, has analyzed every major penalty kick shootout of the past 50 years and offers some ideas about how (and how not) to conduct oneself in this high stakes situation. A number of these tactics are specific to soccer, but others are relevant not only to soccer players, but to practitioners of almost anything where anxiety can influence performance. As for what those are, it boiled down to three things:

1. Have a repeatable process.

2. Don’t be a forced actor.

3. Prepare for stress.

The idea behind having a repeatable process is that it ensures consistent inputs no matter the situation, turning a thinking exercise where doubt can creep in into a reflex. For the penalty taker this might mean always setting the ball down, taking three steps back and two to the side, and two deep breaths before kicking. But it doesn’t matter what the process is, as long as it can be consistently deployed. This won’t ensure optimal results every time because outputs will be outputs, but rigorous quality control of inputs should mean better outcomes more often than not. 

In our businesses, one way we think about this is as easy earnings versus hard earnings (with the acknowledgment that all earnings are hard). Easy earnings are what you get from doing the same thing over and over, like putting up fences. The process is predictable, reliable, and each time one does it, one becomes less likely to screw it up. Hard earnings are what you get when you have to reinvent the wheel every month. For example, if you have no repeat customers or every project you take on is new and custom. You can have a good business with those characteristics, but your results are likely to be more volatile if your process is not repeatable.

Not being a forced actor is all about moving on your terms rather than someone else’s. For example, one of the more interesting observations in Jordet’s work is that the length of time that elapses between when the referee blows the whistle signaling that the penalty taker may take the kick and when the penalty taker takes the kick has gotten longer over time. In other words, it used to be that when the referee blew the whistle, the penalty taker immediately took the kick. Now, the penalty taker tends to take a few moments to breathe before proceeding. As long as this delay is on the kick taker’s terms (and not because the goalie inexplicably has to tie her shoe), success goes up. Indeed, I’ve talked a lot about not being a forced actor in this space, and our entire firm and fund structure at Permanent Equity is designed with that concept in mind. The reason is simple. If you do something when you think you have to, it may not be the case that you should.

Finally, Jordet calls out France coach (and World Cup winner) Didier Deschamps a number of times for not believing that one can practice penalties simply because you can’t replicate the stress of having to take a penalty on the biggest stage until one is actually taking a penalty on the biggest stage. Jordet disagrees and recommends practicing penalties a lot (just like you would practice any high stakes situation a lot even if you can’t replicate the stress) and in situations where you introduce mild levels of stress i.e., have the entire rest of the team stand and watch as their teammate practices a penalty. The reason is that if you learn to deal with a small amount of stress, it makes you a lot better at dealing with a lot of it.

While we famously don’t use deal debt at Permanent Equity, that’s not because we don’t expect our investments to be able to perform under pressure. Instead, we don’t want them to be forced actors, but we still think they need to operate ruthlessly and efficiently in order to generate acceptable returns. One way we do this is by distributing excess cash regularly out of our businesses, leaving them only with what they need and/or can profitably reinvest. 

Of course. that practice can lead to some uncomfortable conversations with our operators who might sleep better at night knowing their business has a so-called “green blanket” in place, but it stands to reason, and Jordet cites myriad studies that say the same, that if you’re used to some pressure, you’ll better handle pressure. Not always, of course, but more often than not.

-Tim

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