Outside of reading (which we discussed last week), decision making is the other important activity that an investor undertakes. Since the quality of our decisions has a direct bearing on our investment outcomes, it is important that we create systems to refine our decision making process. One of the biggest challenges when it comes to improving our decisions is learning from our past decisions - we cannot effectively recollect the environment under which we took the decision, while on the other hand, our mind is very good at rationalising past actions.
Given this, here’s my question to you: what systems are you depending upon to improve your decision making ability? Do you review your past decisions, and if so, how? Can you share your process with this community?
I read Thinking Fast, Slow & I think it is a good reference & everyone should practice making decision based on the System 1 vs. 2 mentioned in the book. Try to make System 2 more practically into important decisions regards Career, Family, Personal Development, Community Activities, Health, Friendship, Money (Investing) etc. which I think most decisions we make will make impacts on those domains. Try to move unconscious decisions by System 1 into System 2 by periodical review & personal writing (you could have a diary, Google Keep, Evernote synced with all devices to accumulate your thoughts & for personal feedback loop).
I also love the idea of Antifragile by Nassim Nicholas Taleb. We tend to become more efficient, more productive, more organized, but we must consider the costs/ tradeoffs with creativity & tinkering to become a more antifragile person.
I also think of Optionality + Margin of Safety + Compounding. Most important decisions we make should have a margin of safety to protect us in case we could go wrong (for example we buy at a very low stock price to help us avoid capital loss, we don’t burn health for drugs, we don't spend all the money if emergencies come). Every good decision we practice through time have great returns on us also, like reading, exercising, investing, good relationships (the magic of compounding). When considering making decision, I also think of optionality – the chances my decision could open up more benefits & opportunities like working abroad.
I also love the process of Inversion suggested by Charlie Munger & Jeff Bezos. Thinking both forward and backward, the power of saying No, the 5Ws (What, when, where, why, who, How) combination with Not (for example How to have a good job vs. How Not to have a good job aka How to have a bad job). Thinking about them, write down all pros and cons and solutions. I practice it and it helps me a lot because I think better then I make better decisions.
Overall, I also apply the Vision + Mission from Company to myself. Thinking of what I want to become, my core values. Every time I make an important decision, I review it with my core values. If it fits, I go ahead. If not, I need to consider and make another one.
Since this topic is so vast, I suggest you could also read a good book - The Decision Book: Fifty models for strategic thinking. I sometimes read it for fun, but it also helps me a lot when I stuck with decisions to make.
Wow! Those are a lot of frameworks. Not sure if you can use so many simultaneously, but nevertheless, they are still frameworks. What I was pointing at was systems - processes that one can design in order to follow one or more of the above frameworks. Something on the lines of a decision journal.
Thank you Tejas. I have a clearer understanding. For the systematic thinking & decision making, I just practice something similar decision journal like you mentioned. But I guess it's not as systematic & scientific as the journal. I just type/write down every day (it likes more than a personal diary) for some note-taking lessons regard key domains such as reading, health practice, investing, pet projects etc. It comes out naturally since the new resurging Covid-19 pandemics in Vietnam, I have more free time and work from home and try to make a new habit of taking notes what I am feeling, thinking, doing etc. It just more than one month (coincidentally it occurs with the time knowing your Weekend Bulletin). It has been developing very unconstructively, but it gets better every time I use (almost everyday) and I try to improve it a little bit each time. I hope we will get more ideas/practice from other people so we could share more. Thanks Sir!
I use Google Keep to note anywhere anytime on any device if I can. My notebook is likely for jotting down my ideas, thoughts or daily task list monitoring.
Here's a relevant excerpt from one of the articles in #84:
Because of narrative fallacy, hindsight bias, and imperfect memory, it’s almost impossible to recall (with 100 percent accuracy) the reasons why we made a decision in the past.
Our brain fools us and presents a distorted picture of the circumstances under which we made the decision which leads to the wrong conclusion about why a stock turned out to be a mistake or success.
So how do you deal with this problem? Here’s a suggestion from Danny Kahneman –
"…go down to a local drugstore and buy a very cheap notebook and start keeping track of your decisions. And the specific idea is whenever you’re making a consequential decision, something going in or out of the portfolio, just take a moment to think, write down what you expect to happen, why you expect it to happen and then actually, and this is optional, but probably a great idea, is write down how you feel about the situation, both physically and even emotionally. Just, how do you feel? I feel tired. I feel good, or this stock is really draining me. Whatever you think.
When you’ve got a decision-making journal, it gives you accurate and honest feedback of what you were thinking at that time. And so there can be situations, by the way, you buy a stock and it goes up, but it goes up for reasons very different than what you thought was going to happen. And having that feedback in a way to almost check yourself periodically is extremely valuable. So that’s, I think, a very inexpensive; it’s actually not super time consuming, but a very, very valuable way of giving yourself essential feedback because our minds won’t do it normally."
I read Thinking Fast, Slow & I think it is a good reference & everyone should practice making decision based on the System 1 vs. 2 mentioned in the book. Try to make System 2 more practically into important decisions regards Career, Family, Personal Development, Community Activities, Health, Friendship, Money (Investing) etc. which I think most decisions we make will make impacts on those domains. Try to move unconscious decisions by System 1 into System 2 by periodical review & personal writing (you could have a diary, Google Keep, Evernote synced with all devices to accumulate your thoughts & for personal feedback loop).
I also love the idea of Antifragile by Nassim Nicholas Taleb. We tend to become more efficient, more productive, more organized, but we must consider the costs/ tradeoffs with creativity & tinkering to become a more antifragile person.
I also think of Optionality + Margin of Safety + Compounding. Most important decisions we make should have a margin of safety to protect us in case we could go wrong (for example we buy at a very low stock price to help us avoid capital loss, we don’t burn health for drugs, we don't spend all the money if emergencies come). Every good decision we practice through time have great returns on us also, like reading, exercising, investing, good relationships (the magic of compounding). When considering making decision, I also think of optionality – the chances my decision could open up more benefits & opportunities like working abroad.
I also love the process of Inversion suggested by Charlie Munger & Jeff Bezos. Thinking both forward and backward, the power of saying No, the 5Ws (What, when, where, why, who, How) combination with Not (for example How to have a good job vs. How Not to have a good job aka How to have a bad job). Thinking about them, write down all pros and cons and solutions. I practice it and it helps me a lot because I think better then I make better decisions.
Overall, I also apply the Vision + Mission from Company to myself. Thinking of what I want to become, my core values. Every time I make an important decision, I review it with my core values. If it fits, I go ahead. If not, I need to consider and make another one.
Since this topic is so vast, I suggest you could also read a good book - The Decision Book: Fifty models for strategic thinking. I sometimes read it for fun, but it also helps me a lot when I stuck with decisions to make.
Wow! Those are a lot of frameworks. Not sure if you can use so many simultaneously, but nevertheless, they are still frameworks. What I was pointing at was systems - processes that one can design in order to follow one or more of the above frameworks. Something on the lines of a decision journal.
Thank you Tejas. I have a clearer understanding. For the systematic thinking & decision making, I just practice something similar decision journal like you mentioned. But I guess it's not as systematic & scientific as the journal. I just type/write down every day (it likes more than a personal diary) for some note-taking lessons regard key domains such as reading, health practice, investing, pet projects etc. It comes out naturally since the new resurging Covid-19 pandemics in Vietnam, I have more free time and work from home and try to make a new habit of taking notes what I am feeling, thinking, doing etc. It just more than one month (coincidentally it occurs with the time knowing your Weekend Bulletin). It has been developing very unconstructively, but it gets better every time I use (almost everyday) and I try to improve it a little bit each time. I hope we will get more ideas/practice from other people so we could share more. Thanks Sir!
That's awesome. Do you use any app or write in a physical book?
I use Google Keep to note anywhere anytime on any device if I can. My notebook is likely for jotting down my ideas, thoughts or daily task list monitoring.
Great. I have been trying to settle with Notion, and quite liking it.
Here's a relevant excerpt from one of the articles in #84:
Because of narrative fallacy, hindsight bias, and imperfect memory, it’s almost impossible to recall (with 100 percent accuracy) the reasons why we made a decision in the past.
Our brain fools us and presents a distorted picture of the circumstances under which we made the decision which leads to the wrong conclusion about why a stock turned out to be a mistake or success.
So how do you deal with this problem? Here’s a suggestion from Danny Kahneman –
"…go down to a local drugstore and buy a very cheap notebook and start keeping track of your decisions. And the specific idea is whenever you’re making a consequential decision, something going in or out of the portfolio, just take a moment to think, write down what you expect to happen, why you expect it to happen and then actually, and this is optional, but probably a great idea, is write down how you feel about the situation, both physically and even emotionally. Just, how do you feel? I feel tired. I feel good, or this stock is really draining me. Whatever you think.
When you’ve got a decision-making journal, it gives you accurate and honest feedback of what you were thinking at that time. And so there can be situations, by the way, you buy a stock and it goes up, but it goes up for reasons very different than what you thought was going to happen. And having that feedback in a way to almost check yourself periodically is extremely valuable. So that’s, I think, a very inexpensive; it’s actually not super time consuming, but a very, very valuable way of giving yourself essential feedback because our minds won’t do it normally."