A few things about investing decisions …
And a few I’ve learnt along the way 👇
1. Frameworks ground investment decisioning in a complex noisy world. VaR is a framework, returns are a framework. Loads of other possibilities, but you need something.
2. One of the most useful things you can do in investment is articulate a small number of principles and beliefs that can drive your decisions. The problem is more sets of principles are just obvious truisms and statements of the obvious. Sadly, the Statement of Investment Principles (SIP) of UK DB schemes is a classic example of this which could be great but has morphed into a compliance document packed with pointless boilerplate wording.
3. Is investing hard, easy or somehow both? The case for hard: even the best investors are right only a little more than 50% of the time. The case for easy: anyone with £100 to invest can invest in a global index fund which has been a fantastic investment and great value for money. The fact that both of these things are true is a crucial duality in investing,
4. Your environment matters when you make decisions – it’s what you put on page 1 , item 1 of your agenda , it’s the size of your committee and a hundred other things. The friction that you have in your decision making process is one key thing here. We should actually often make decisions a little harder to execute
5. Takeaway pizza & Italian cappuccinos can help understand a glitch in decision making (no really! It’s all about our inability to judge well in the moment what will make us feel good in the future and misperceive some of the big contributing factors to previous experiences)
6. For an idea to take hold you need the evidence AND the story. I spent a lot of my career thinking that if you had the former the latter didn’t matter and this is a bad mistake. If the data and evidence are on your side that is even MORE reason to ensure you have the story straight so that you can do justice to your idea.
7. Models are great, but can and do get taken too far, and this is a real challenge.
8. Complexity is so alluring, we always need to do more to resist it. There is not usually a penalty to complexity built into the way we operate (if anything it gets rewarded), maybe there should be.
9. Certainty sells. we are drawn to it. So much of the investment industry is built up around trying to offer it. In reality you just can’t, you have to accept it (and you will generally get better investment outcomes over the long term if you accept it rather than go to great lengths to manage it).
I had the chance to talk through all of this with Juan and Andrew on the Value Perspective podcast – you can listen to the conversation here: