Investing Lessons From a Midnight Car Wash

I was enjoying the best nap of my life on the couch when a slap on my leg jolted me awake.  

“Someone egged....and cheesed Claire’s car!”  the voice sounded familiar.  “You need to do something before it freezes!”  

I opened my eyes just enough to see my wife, Christine, standing over me in a concerned state.  “I’m not kidding!” she added, marching out of the room.

In a dreamlike haze, my first instinct was to fall back asleep and deal with this new problem in the morning.  But instead, I decided to pull myself together and head downstairs.  There, I found our teenage daughter Claire and her friend Brenda laughing hysterically.  

Christine had already gathered some information in between the girls’ laughing fits.  The girls said they had left the house in Brenda’s car around 9:30 pm.  When they returned an hour later, they spotted an egg and cheese disaster on Claire’s car door.  They immediately heard loud music being blasted from a car across the street.  In the car were three suspicious-looking males in their late teens.  Claire marched over, yanked open the driver’s door, and accused them of the crime.  The male driver denied any involvement but offered this sage advice: “You got Big-Mac’ed girl.  Personally, I wouldn’t let that sh$t slide on my whip.”  

I was now up to speed on the situation so I threw on my parka and toque and stepped outside into the cold night to survey the damage to Claire’s car.

I made my way around to the driver’s side and spotted the egg mess splattered on the door.  As I got closer, I noticed a square shaped piece of cheese.  It appeared to be a Kraft Single, strategically placed in the middle of the egg splatter. “Egged…and cheesed!” I muttered to myself.  

With the winter temperature dropping, I had to figure out a plan to deal with the egg and cheese mess before it bonded permanently with the paint.  I had a decision to make:  scrub it by hand in our garage or drive the car to the neighbourhood car wash.  I decided the easier option would be the car wash.  It was only five blocks away, so I hopped in the car and raced over.

As I pulled up to the car wash, I was relieved to see that it was still open. I parked the car and headed inside to purchase a wash.  Behind the counter was a sign displaying the different tiers of car wash packages.  

My first instinct was to go with the basic tier.  But after explaining my predicament to the attendant, he suggested that an upgrade to the ultimate package with the rainbow soap bubbles would be more likely to solve my problem.  I thought about it for a few seconds then decided to go with the more expensive rainbow bubble upgrade.  He handed me the receipt with the five-digit code and I returned to the car.  

When I got back in the car, I noticed the low gas warning light was on so I drove over to the gas pump.  I wasn’t familiar with Claire’s car so I pulled on a few levers before I heard the gas tank door pop open.  I filled up the tank then drove up to the car wash bay and entered the code.  

When the bay door opened, I inched the car forward until the stop sign alerted me to put the car in park.  I triple-checked the windows to ensure the car was completely sealed and I settled in for the wash. 

After the initial rinse finished, the rainbow soap bubbles started to cover the car.  I looked at all the window seals and was relieved to see there were no leaks.  But that’s when the red warning light on the dashboard caught my eye: “trunk open.”

In my rush at the gas pump, I must have hit the trunk lever while searching for the gas tank door.   I instantly felt a surge of adrenaline. 

I had seconds to decide: jump out, attempt to close the trunk door and risk getting clotheslined by the whipping car wash arm, or sit tight and turn the trunk into a rainbow bubble bath. I decided to go for it and attempt to close the trunk. 

The windows were now completely covered in rainbow bubbles, leaving me blind and navigating by sound.  I was pretty sure the soap bubble unit was near the front of the car so I cracked the driver’s door open and made a mad dash to the back of the car where the trunk was wide open.  There, I glanced down to see a thick layer of rainbow bubbles coating the inside of the trunk as I slammed the trunk door shut.  

From the back of the car, I surveyed the scene.  The high-pressure rinse had started to splatter the hood.  Could I make it safely back into the car without getting soaked?  I wasn’t sure, but decided to finish what I started.  I sprinted back to the driver’s side, pried the door open, and dove inside as water started to pelt the windshield.  I yanked the door closed and as I sat there with my heart pounding, I felt relieved that the damage had been contained.

After all the excitement, I was feeling pretty tense.  But the rhythmic pelting of the car with water quickly put me back into a relaxed state and my mind began to wander.  I replayed the chaotic events of the night and ran through the decisions I had made in the last half hour.  Then those thoughts connected to something I’d heard on a recent Lex Fridman podcast episode.

In the episode, Fridman had interviewed founder Jeff Bezos and Bezos described how Amazon management approached decision-making using a door analogy.  They divided choices into two types: two-way door decisions and one-way door decisions.

Bezos explained that two-way door decisions are reversible. You can step through the door and if it doesn’t work out, you can simply return back through the door with minimal cost or damage. 

On the other hand, one-way door decisions are largely irreversible. Once you pass through the door, there’s no easy way back. Bezos made it clear that for these, you should slow down your decision- making process. He often described himself as the “Chief Slow Down Officer” on these types of decisions, insisting on careful deliberation and thorough analysis.  Getting a one-way door decision wrong can be painful and difficult to undo.

As the car wash’s spot free rinse trickled water onto the vehicle, my mind continued to wander.  I thought about every decision I faced that night:  whether to deal with the egg and cheese mess immediately or wait until morning, scrub by hand or drive to the car wash, basic package or ultimate with rainbow bubbles, and what to do about the open trunk.  These were all classic two-way door decisions. The consequences were minor, the options reversible, and the downside limited.

As the wash cycle wrapped up, the green light signaled for me to pull forward to the dryer. I slowly pulled out of the car wash and it was nearing midnight as I headed home in the freshly detailed ride.  

Over the next few weeks, I couldn’t stop thinking about Bezos’ decision framework and how it might apply to investing.  

Most investing decisions we make are two-way door decisions. For example, public stocks with lots of trading volume allow you to buy shares, realize you were wrong, and sell the next day or even the next minute with little friction. The door swings both ways easily.

But every now and then, investors face more consequential one-way door situations.  These are decisions that are difficult or costly to reverse.  These are the moments when slowing down, gathering more information and deeper analysis can make a big difference.  Bezos’ decision framework is a powerful reminder that when the door only swings one way, don’t rush.

Borrowing heavily from Bezos framework, and incorporating some of my past investment blunders, I developed a mental model for the types of one-way door investment decisions that should be treated with extra caution.  They are: illiquidity, behavioural biases, and catastrophic risks.  Keeping an eye out for these one-way doors might help you to slow down and perform deeper analysis when making these investment decisions because they can be difficult or costly to reverse.

1. Illiquidity

Illiquid assets are those where it’s difficult to sell the asset quickly without a substantial loss in value.  Illiquidity is common in private assets without a daily market quote and a small pool of buyers.  It’s also common with thinly traded public microcap stocks, where there’s very little trading volume.  Illiquidity can even appear in larger public companies with concentrated ownership and a limited free float of shares.  

A good rule of thumb is to slow down when your position size grows beyond a week’s worth of average daily trading volume.  That may not seem like much but before increasing your position further, you want to be highly confident that this is a business you’re happy to own for the long haul.  Because, if things go sideways, you might be locked in for awhile and unable to free up your capital if a more attractive opportunity comes along.

2. Behavioural Biases

Certain psychological traps can make it difficult to reverse course even when the facts change.  Two common biases that act like one-way doors and can emotionally lock you into a position are:

• Commitment bias.  Publicly recommending a stock, defending it on social media, or filing as a major shareholder can commit you to your opinion and lock you into a position.  Once you’ve gone on record in support of a company, admitting you were wrong can become far more painful and difficult to reverse course.
• Loss aversion with concentrated positions: When a sizable position moves against you, it can be extremely difficult to admit that you’re wrong and lock in a loss.  You’ll likely feel frozen and the bigger the unrealized loss, the harder it is to reverse the buy/hold decision, even when selling is clearly the right move.

3. Catastrophic Risk

These situations can occur when there are severe risks that can be anticipated ahead of time but are unlikely to occur.  However, if these low probability risks turn into reality, it can lead to a sudden, sharp decline in share price.  When this happens, it’s nearly impossible to reverse course without a massive capital impairment.  

These large drops rarely come from gradual operating disappointments; they tend to happen when investors suddenly lose faith in a company or with the release of an adverse regulatory decision.  When this happens, the rapid loss of value can feel like being on an elevator car that suddenly drops from the 100th floor to the 20th floor with no opportunity to get off in between.  These tend to hit hardest in two situations:

• Weak finances.  This most often involves companies that are unprofitable or carry a high debt load.  If lenders or investors lose confidence in a company’s ability to manage its finances, sentiment can turn on a dime and losses can be swift as everyone rushes for the exits at once.  This often forces a company to issue shares or take on more debt at the worst possible time which erodes value even more.   
• Regulatory or “stroke of the pen” risk.  Companies in heavily regulated industries can see their economics change overnight.  A single government policy shift, denial of a drug approval or reimbursement rate cut can trigger a rapid recalculation by investors, sending the stock plunging resulting in an impairment that can’t be reversed. 

In each of these one-way door situations, the goal isn’t to avoid investing entirely.  It’s to recognize that if things go wrong, you may be stuck in the position for a lot longer, and at worse prices, than you’d like. When you recognize these one-way doors, slow down, dig deeper, and apply more scrutiny before walking through the door.

So the next time you’re tempted to publicly commit to an investment thesis or size up in an illiquid stock, leveraged business or a highly regulated business model, pause and ask yourself: Is this a two-way door, or a one-way door?  If it’s the latter, channel your inner Jeff Bezos and become the “Chief Slow Down Officer” for that decision.  You’ll make fewer mistakes, and be more prepared when the cheese hits your portfolio. 

P.S. The cheese crime remained unsolved at time of publication

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