Decisions are made with imperfect information and by definition are made without the benefit of hindsight. You know what you know at the time, and you try to make the best decision possible.
But you can’t know everything, and your worldview is constantly being updated when you learn new things!
Annie Duke’s concept of “resulting” is the best way to look at this: It’s so easy to look at the result, after the fact, and try to determine if it was a good or bad decision merely from the nature of the outcome.
That is a fundamentally incorrect way of approaching life. You need to look at the quality of your decision and seek out sources of information that will help with that process for all future decisions.
Poker is a great illustration of this: You can have the best hand, play it perfectly and still lose. Does that mean you made a bad decision(s)? Or was it just a bad outcome due to chance, but the decision-making process was one you’d repeat?
The worst-case scenario of all is making up your mind and refusing to change regardless of what new information comes in. “Flip flopper” is one of those terms that makes my blood boil, because it’s viewed as a negative, whereas we should all aspire to change our minds when we evaluate new information and understand the world a little better.
I’m reading the book “Think Again” by Professor Adam Grant, and an interaction he had with Nobel Prize-winning Psychologist Daniel Kahneman was particularly illustrative:
“Later, I sat down with Danny for lunch and asked him about his reaction. It looked a lot to me like the joy of being wrong – his eyes twinkled as if he was having fun. He said that in his eighty-five years, no one had pointed that out before, but yes, he genuinely enjoys discovering that he was wrong, because it means he is now less wrong than before.”
Kahneman went on to say, “being wrong is the only way I feel sure I’ve learned anything. I change my mind at a speed that drives my collaborators crazy. My attachment to my ideas is provisional. There’s no unconditional love for them.”
Another way I’ve heard this put is “strong convictions, loosely held.”
Be open-minded, try to learn new things and continue updating your understanding of the world.
Recommended Reading from ChooseFI
Our team put out two great resources for you recently:
Dani Mendonsa and the Foundation team put together this article on Teaching Kids about Money. Tip #4 about letting them see money in action jumped out to me in particular as that’s what we try to do with our girls. We normalize the conversations around money, we talk to them about how and why we’re making decisions around money, how we think through purchases when in theory we can “afford” most things.
If this topic interests you, don’t forget Doug and Carol Nordman’s incredible book Raising Your Money-Savvy Family for Next Generation Financial Independence.
Hot on the heels of our last two podcast episodes on “life hacks”, here’s a great list of 100 Ways to Get 1% Better with Your Finances
Watching Paint Dry
This quote from value investor Mohnish Pabrai on episode TIP347 of the “We Study Billionaires” podcast was of particular note:
“The number one skill to be a great investor is extreme patience. If you can derive tremendous pleasure from watching paint dry, you will be a very wealthy man (speaking to podcast host). Just be in this meditative state watching that white wall. And once you can do that, then you’re ready to hold for 20 years.”
The takeaway is that we all overthink our investing strategy. Find a high-conviction investment (I personally lean towards low-cost, broad based index funds like a total stock market or S&P 500 fund) and don’t trade in and out, thinking you can time the market. You can’t. Just sit and watch the paint dry. And keep adding money every month. You’ll wake up someday very, very wealthy.
ChooseFI Community Taking Action This Week
- Katie said, “This week I tried my first travel rewards use for an upcoming week-long trip to Maui, I have been able to save $1,000s! My hotel normally costs $3,500 I was able to get it for $311 through a membership my mom has. With Marla’s help in Episode 77 I was able to get the British Airways deal so my $800 flight turned into $220 (still had to buy a round trip to LAX). And AutoSlash, which I just learned about in Episode 311, plus a promo code from my employer brought a $1,500 rental for the week down to $252. I’m splitting hotel and car with some friends, so right now my portion is $450! I was excited for my trip before, but now am ecstatic about the cost too! Thanks for inspiring me and giving me the confidence and tools to try.”
- Carter said, “Lease was coming up and our building is currently offering two months free to new residents, so I asked why that was not being offered to current residents and managed to get a free month if we did a 13-month lease instead of 12. I’ll take a 7.69% discount on rent!”
- Elizabeth said, “I recently started learning about and maxing out our HSA after not utilizing it for many years. Until I heard it on the podcast, I had never thought about tracking all of our eligible expenses for reimbursement AFTER letting our contributions sit invested for many years. By doing this, we will grow a $35,000 pot into a six-figure plus account for future medical expenses. One small change with great benefits!”
- Kurt said, “I reluctantly sold my dream car (a Cadillac) to Carvana. I eliminated $13.2K in car payments. I had enough money left over from the sale price to buy a 2015 Kia Optima. It has a salvaged title, but my father repaired it so I know it was fixed well. $600 in car payments per month will now be in my savings.”
- Gavin said, “My 1% improvement is FINISHING the six-month Google Project Management Certificate this morning! (I signed up when you sent the initial email less than 6 weeks ago) I’m seriously considering changing career positions and this training will hopefully help me with this transition.”
- Kerri said, “I started with a new company last month and set the goal of maxing out my 401k for 2021. HR contracted me and stated they capped contributions at 25% after seeing I set mine to 40%. I replied asking why they did not allow for the federal maximum contributions. Within 24 hours HR reached back out, apologizing, and letting me know the CEO had been contacted. Clarification was provided on the updated policy that reaching the federal maximum IS in fact allowed. Before discovering ChooseFI, I didn’t have this specific of retirement/tax planning goals and I wouldn’t have had the confidence and knowledge to ask the follow up questions. I’ve learned so much in the 2 months of deep diving into this podcast and enjoy being part of this community.”