“You can either pay the price of discipline… or the price of regret. Discipline weighs ounces, regret weighs tonnes.” – Jim Rohn
Here’s the problem, it sounds easy to make a decision – but when you own the decision, you become responsible for it and suddenly the weight of the decision increases. So will your stress levels…
As an investor, you’re continuously required to make decisions, be they good or bad. You’re paid for that. In fact, I don’t believe there is such thing as a good or bad decisions – but only your actions make it so.
At the time you take a decision, you are not taking a good or bad decision – you’re taking a neutral one. As events unfold, some of which are not even in your control – such decisions look bad or good in hindsight, depending on the outcome for you.
Think about that for a moment… you take the decision with limited information, you can’t see the future, you have no crystal ball – you assimilate as much information as possible about the outcome, and any factors that could affect the outcome – but you ultimately have no control over it.
Every decision, is a sequence of smaller decisions. If you get as many smaller decisions right, your chance of success increases exponentially. Unfortunately, one wrong decision could also take away everything you worked for so far… how does that feel?
To get good at decision making, you have to practice it – this is where discipline comes in. Deliberate decision making sharpens your proverbial knife. So that when the time comes to make that major decision, your brain has already adapted and formed the neural paths for you to make decisions faster and more efficiently.
As with any habit, if you make decision making a habit – you soon learn to become a better decision maker. With the help of a proper feedback loop, you’ll know sooner rather than later whether your decision was a good or bad. If there’s any need for a course correction – you can always take some other smaller decision to rectify it.
Traders have an inkling about this. They know they can trade any stock, and make money so long as they have their decision making cut out from the start. It’s habitual for them. For example, if the stock falls by 7% after they enter a position – they cut their losses and move on (aka Trailing Stops).
So if we know that decision making can give you any random result – good or bad. Why waste too much time on it?
That’s precisely what science tells us, that you need no more than two minutes to mull over a decision.
So ask yourself, does it really matter how much time you spend on making the decision – the outcome will be something that you do not control 100%. So you might as well make the decision as fast as possible, move and on and just observe.
Eliminate as many decision making points as you can. Ask Obama, and he’ll tell you he only has two color suits – blue and grey. He doesn’t wish to waste his brain power on those insignificant decisions – especially when he’s running a country! Mark Zuckerberg… has taken it a step further, by eliminating the choice altogether – with just grey t-shirts.
In a world overwhelmed by information, insight is in short supply. The paradox of choice is killing us. Which is why you need to simplify things. Reduce the friction. And perhaps go with the flow, instead of against it.
By the end of your day, you’re tired… which is why smart investors like Carl Icahn take a good day’s rest before entering a negotiation with lawyers just at about 6pm – knowing all too well that those lawyers are exhausted by the end of their day and have a higher tendency to make mistakes! That’s decision making for you!
Automating decision making can also help you. Thanks to technology, so many of those decisions can be made faster. They’re called ‘policies’. The answer is already pre-determined, so there’s no wasting precious time for repetitive decisions. High Frequency Traders know this… they call them algos.
The time has come where technology is now replacing board directors. Yes, there is a Hong Kong based company where one of the directors is a robot. “Hallelujah!” – so said the AI bot.
Like I said… you’re paid to make decisions. Make them faster, or don’t make them at all. But don’t tell me that making no decision is also a decision!