Making Decisions Can Be Straightforward

Why are decisions difficult? Some should be fairly easy, like whether to keep or sell a security. Others like starting a business, choosing who to marry, and what job to seek are harder, but still rely on a single idea.

“It’s not hard to make decisions when you know what your values are.”

Roy Disney

This obviously applies to investments on either the buy or sell side. The security meets your known parameters for income, growth opportunity and safety. It has continuing sound management.  There is not a hint of accounting or regulatory problems.

There can be factors involved that relate to more than the security itself.  Sometimes income taxes will complicate a sell decision. Suppose, a holding is marginal at $30,000, but after taxes it will be only $25,000 and at $25,000 committed it meets my requirements. Keep but review again soon.

Capital allocation is always a challenge.

When there is a loss, it is easier. Knowing what you know now, would you buy more at the current price. If no, you should sell. If yes, you should buy more. A decision to keep is analytically identical to a decision to buy. How it came to be that you have a loss does not matter except for instruction about similar situations in the future. You will live the entirety of the rest of your life in the future. Factors there should influence decisions. The past is gone.

Life decisions follow the same idea but with different standards. Again if you have values you know and understand, the decisions will be easier. Learn who you are and who you want to be.

A second issue arises. Make fewer decisions.

Not many people make good decisions every time. If you are right half the time, a stretch goal for most of us, then the chances of making 10 good decisions in a row is less than 1 in 1000. Fewer decisions means better odds.

Or does it?

If we concede the decision to do nothing is a real decision, then we all make many decisions every day.  Most don’t matter and we get in the habit of not paying attention to them. How much money to put in the postage meter, what color coffee mugs to order, how many business cards to order now, what business hours, pay scales, advertising budget, right up to what business should we be in. Not paying attention is weak and making all the decisions is habit forming. Delegate trivia. 

The key to good long term results is two part. Delegate and stop weak decisions. That requires a certain humility that many do not have. They nurse weak decisions until they are forced to do otherwise. It is like poker.  Notice you cannot win every hand.  The next best choice is to win big and lose small. Difficult but not quite impossible. The lose small part is always available and people should not undervalue it. To fold when you are unsure is, at worst, a small mistake.

Risk is an issue and few people understand it. Start with easy decisions.  Ones where risk doesn’t matter. If you can afford the loss, there is little risk except ego and that is priced low. If the decision is easy to reverse, it is riskless. Your attitude may be the key variable.

Relationship decisions are difficult to reverse at low cost and affect far more than money. Be very sure they match your values.

Some life decisions have variable impact. The decision to have your first child is important. You cannot reverse it, it has high cost, and profoundly affects lifestyle for a long time. The decision to have a second child is near riskless except for cost. Your lifestyle is already changed and pretty much the same with two children as with one.

Spend some time on the must do, would like to do, will not do value set. Make decisions that have meaning for you.  Having a value template makes them simpler. You will know the reasoning for both why you did or did not do something. 

Knowing why motivates you to continue through the ones that don’t work out exactly as you thought they would. Knowing why not helps focus. 

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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