Good decision making is a precursor to excellence…Great investors have this skill and we can see it in the many books about Warren Buffett…but it’s not only investors that investors can learn from.
Written by Mike Dariano (TheWaitersPad.com)
In a 2015 interview, General Jim Mattis talked about his experiences in the military, where he expressed…[four] questions that can help us make better decisions.
1. Are you learning?
In the interview Mattis says he always carries a copy of Meditations by Marcus Aurelius, (“among other books”). Mattis said he did this because “It was good for me to be reminded that I faced nothing new under the sun.” Sure, technology “throws in a few odd wrinkles,” but many solutions are “pretty timeless.”
Along these same lines, Ben Carlson [awealthofcommonsense.com] said that he likes to study financial history and noted that “things are always and never different.” This is so important to Carlson that in his book [he presents it as]…one of the four basic abilities that investors need to be successful.
Good decision making means understanding the history of a situation, from the battlefield to the 10-Ks. Always be learning.
2. Do you have an objective?
Before beginning a fight, says Mattis, you need to decide what you want. If there aren’t clearly defined objectives then as things change — which they always do — the air goes out of the balloon. Whether it’s nations or individuals, a constant objective keeps you from wandering.
Mike Tyson is attributed with saying, “everybody has a plan until they get punched in the mouth.” Of course, Tyson got punched in the mouth but he kept on fighting. Why? He had the “clearly defined objectives.”
Investors are closer to Tyson than Mattis. In the military, senior officers communicate with civilian leaders to generate the objectives. For investors this separation is internal. Does the current version of yourself believe the future version? If the you of twenty years hasn’t created a clear goal with good reasons for pursuing it, the you of today won’t follow along.
3. Can you handle turbulence?
Mattis says that the United States is ready to fight wars all over the world, but points out that it won’t be pretty and it won’t be easy. “War is a fundamentally unpredictable phenomenon,” says Mattis. Or to put it another way, “In my line of work the enemy gets a vote. You may want a war over but the enemy may not agree and you have to deal with that reality.”
Day to day market volatility is like the battles within a war. Sometimes forward, sometimes not. Good decision makers prepare for what history has taught them (see #1) and understand that there won’t be smooth seas ahead. Multiplying your annual expenses by twenty five to get a financial goal is smooth and easy math. Getting there is another thing entirely.
4. Are you fighting a battle you can’t win?
Investors tend to believe they are right and the stock tape is wrong when a position goes against them. Currently, the short side of the market is where the most damage is being done to those who are betting the markets are too expensive and will go lower.
They may eventually be proved right, but the idea they will be able to stand the pain from the battle over the course of time and seeing their bets move more and more against them will prove lethal, as they succumb to uncertainty and ultimately surrender.
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