Decision Making Process Example: Investments

In the last 2 emails, I made the case that making Hard Decisions required a focus on process instead of facts. I gave the example of driving to illustrate a point. But I felt it would be best to go more in-depth about the decision-making process that plagues a large majority of High Performers: What should I do about my investments?

Professional traders and investors refine their investment process to the point where it provides consistently profitable results. When they get good, they figure out a way to scale up that process so they can take on more capital. Ray Dalio did this with an automated system for predicting commodity prices. Warren Buffet is a big proponent of his extreme valuation style of investing.

What’s strange is that non-professional traders and investors don’t seem to focus on process with the same diligence as professional traders. Why not? Are non-professional traders and investors too good for that? If so, how are their results?

We have a tendency to believe that more facts will keep us safe because it eliminates uncertainty unless taught otherwise. This is instinctual. Therefore, facts sell better than process when it comes to educational material on trading and investing. Bitcoin is going up! Facts. Buy Real Estate now! Facts. The Bubble is going to Burst! Facts. Would you want to learn more about those statements? Certainly. How about Understand your reality by testing your theories through a structured process. Interested in reading that article? How about implementing it?

Even if you read that article, it would probably be the only article you need. It’s easier to sell 10 articles on the price movement of Bitcoin, Stocks, Commodities, Real Estate than it is to sell one article on how to create an appropriate investment process. But here it is:

1. Understand Yourself: Understand what you want out of life, understand your personal financial goals. Understand what makes you happy. Understand your strengths and weaknesses.
2. Understand Reality: Understand what resources are available to you (Excel, broker platform, Financial news services?) Understand where you are getting your information. (Wall street journal? Wallstreet bets? CNN? Your broker?) Understand the quality of the information you are getting. (SEC Filings? Gossip?)
3. Make High-Quality Decisions: If you understand yourself and you understand reality, you can now make a decision on what you want to do. Do you want to trade? Do you want to hold long term? Do you want to do options? Futures? Real Estate? What works best for you in your reality.
4. Choose your Price/Sacrifice: Now that you know what you want, you need to pay the price. How many hours do you want to spend a week learning about investments? How much money do you want to risk? How much time do you want to devote?
5. Choosing God (Optional): All the money in the world won’t make you fulfilled and happy. But if you are fighting for a goal greater than yourself, money makes it easier to get there.

As you can imagine, this process can be applied to things outside of just Investment. But it’s the basic outline necessary for you to understand who you are, what you want to do, and how to get there. It applies whether you want to do long-term buy and hold investing to short-term day-trading to real estate flipping to leveraged buyouts. These are fundamental criteria to ensure a successful outcome.

“But Dr. Eric…I thought you were going to give me an investment process to make insane gains!!! You suck.”

Yes. I suck.