Decisions, Decisions, Decisions (Part 1)

How can we make better choices?

Photo: Colin. Source: Wikipedia

Let’s face it: the world is constantly changing, and we face important decisions every day – where to live, what to do, how to show our friends and family that we care. We’ve never been so interconnected, and yet people have never felt so isolated. It’s never been easier to find out who organized the Seneca Falls Convention on women’s rights in 1848 or why the British keep ravens in the Tower of London. But it’s never been harder to order our lives so that the most important things stay on the top of the pile.

But most of us slip into a comfort zone when it comes to making decisions. We fall into familiar patterns and jump to simple conclusions. This is especially important when it comes to investing. We think: “This is a good company. I should buy the stock,” when we ought to consider other factors, and perhaps think, “This is a good company, but everyone else thinks so, too. I don’t think it will be as profitable or grow as quickly as everyone else does, so I should sell the stock.” When we invest, we need to consider both fundamentals and prices.

One critical way to make better decisions is to look at the longer-term effects of what we do and say. At the extremes, a hopeless drug addict will only try to figure out where they can get their next hit. But folks who are second or third-generation wealthy are often intensely future-oriented. They have a perspective that looks decades or even generations forward. There are layers of second and third-order effects that flow from our choices. We can never really do just one thing.

We can’t envision every bounce of the billiard ball across the table, but we need to try. Obviously, some decisions are more important than others. But – like the lion who spared a mouse who later freed him from a snare – sometimes a small kindness can have can have big consequences down the road.

Photo: Charles Hutchins. Source: Wikimedia

This isn’t easy. But as Charlie Munger once said, it’s not supposed to be easy. Anyone who thinks it’s easy … isn’t thinking.

Douglas R. Tengdin, CFA

Leave a Reply

Your email address will not be published. Required fields are marked *