Back in the 80s, the beloved children’s game Guess Who took America by storm. Families all across the fruited plain gathered around the kitchen table every night to enjoy hours of fun, thanks to the manufacturing prowess of Milton Bradley.
Maybe that’s a slightly exaggerated description of the game’s influence, but I sure liked playing it.
Every day when I got home from kindergarten, I’d sit down with Mom for a rousing round of questions like “Does your person wear a hat?” or “Is your person a man?” or “Does your person have a haircut that looks like they’re the type of gal who asks ‘Can I speak to your manager?’”
Until one day I did something bad. I don’t remember what it was (Mom probably doesn’t either), but she handed down a devastating punishment—no Guess Who for a week.
After suffering through the initial shock and despair of this consequence, I came to terms with my fate and just…moved on. By the time my week in Guess Who exile was complete, I no longer cared about the game.
Now it was Mom who was devastated. While successfully administering a short-term punishment for me, she’d inadvertently created a long-term punishment for herself. She’d loved our daily tradition of playing the game after school and her soul was crushed when I no longer had any interest in it.
To put this in military terms, this could be called a tactical victory and a strategic loss. The tactical (short-term, small picture) victory was successfully getting my attention with a behavior-correcting consequence. The strategic (long-term, big picture) loss was the end of a daily tradition that she loved.
You can probably come up with dozens of tactical victory/strategic loss examples from your own life. Something that seemed like a win initially, but with the benefit of hindsight, you realize that victory was actually a defeat in the grand scheme of things.
It’s also possible to suffer a tactical loss en route to a strategic victory. To illustrate this, let’s use an example from the Supreme Court.
Cases don’t just magically show up on the Supreme Court’s docket. The justices vote on which cases they want to hear, and an overwhelming majority of potential cases are never heard by the Court because there aren’t enough votes to hear the case in the first place.
Now, let’s suppose that you’re a liberal justice on a Court with a conservative majority. And let’s suppose there’s a decision from a lower court that you really want the Supreme Court to overturn. Your initial inclination would be to vote for the case to be heard by the Court. But then you realize that your ideological view doesn’t hold a majority, so if this case makes it to the Court, it would likely mean creating a long-lasting and far-reaching interpretation of the law that you don’t like.
This leads you to vote not to hear a case that you really want to hear and decide (a tactical loss) to prevent your ideological opponents from having the opportunity to create precedent that you won’t like (a strategic victory).
And, of course, the financial world is full of opportunities for tactical victory but strategic loss (or vice versa). A few examples…
- Your 401K has been doing great for the last few years (tactical victory)! However, this has caused you to lose sight of the fact that this is simply because the market has been doing great for the last few years. You now fancy yourself an investing genius and you’ve completely lost sight of how much risk you might be carrying in your current investments (strategic loss).
- Your IRA was only up 8% last year, but the market was up 15% and it appears your financial advisor doesn’t know what he’s doing (tactical loss). But when the market crash comes, that same account is only down 10% while the market is down 25% (strategic victory).
- You grew up poor but bent over backwards to make sure that your kids always had the fancy clothes, big vacations, and the expensive first car that you didn’t have when you were coming along (tactical victory). But now your kids are spoiled, don’t have any appreciation for wealth, and never developed a work ethic (strategic loss).
- You contribute to a Roth IRA instead of a Traditional IRA, which doesn’t give you any tax benefit this year (tactical loss). But by the time you retire, those Roth contributions grow ten-fold, and all of that money can be withdrawn tax-free (strategic victory).
So don’t get so distracted by the short-term tactical win that you miss out on your opportunity for a big-picture strategic victory instead. Playing Guess Who by yourself isn’t nearly as fun.