On Markets & Investing

How to make better decisions in life

A man playing chess along on the board
In the last month of this summer, I had a chance to catch up with a few of my former colleagues, classmates, ex-colleagues and relatives. Even though we discussed various things, they all made me think about one particular question – What is the best way of making big decisions?

I do not mean investment decisions, rather decisions that we do not make often but which have a big impact on our future lives. For example, how do you decide which university to go to and which degree to pursue, your first job, moving to a new city or country, launching a business or carrying on being employed and so on. Even decision on whether you should live closer to a city centre and your office, have more free time for yourself as you travel less or rather live outside in a big house with a garden spending 3 hours a day on travel?

Decisions on whether to marry, have children and so on are also very important and can sometimes be more relevant for professional success, but I leave them outside for now. I focus mainly on questions that are relevant for your professional development.

What I have been finding surprising is that decision making is almost never taught at school, instead we learn mostly facts and concepts. It may explain why so many successful entrepreneurs have not been top performers at school, and a few of them were university drop-outs.

Until recently, my solution has been to study people who are successful (according to my definition at least) and to try to follow them to a reasonable degree. In other words, if you don’t know how to do things, just look at those who can do them well. The problem, of course, is that everyone is unique, and there is no universal recipe.

Moreover, there is a huge amount of chance (luck) and risk in our lives, meaning that decisions and outcomes do not always correlate. You can make a good decision, but get a bad outcome and vice versa. Judging the quality of your decisions by their outcomes may often be misleading. For example, in investing, there will always be someone doing better in a particular year or a few years. In a bull market, the most leveraged person wins. In a bear market, cash or bonds will outperform. But running a highly levered portfolio permanently is a route to financial ruin, while if you are sitting on a pile of cash, you will eventually lose your purchasing power and deliver sub-optimal results.

So now that I am 40, I feel that I have developed a simple, just two-question framework for making important decisions which I would like to share. It will probably change over time as I get older and more experienced. Another important caveat is that it may not work for everyone (just like with usual investments and disclaimers). Use your own judgement before applying this framework!

So here are these 2 key questions:

1. If I make this decision, will I become more financially independent?

2. If I am 80 years old with not so much time left and nothing I can do about my past life, will I regret not making this decision?

The first question may seem quite narrow, but let me explain what I mean exactly. To me, the biggest virtue in life is freedom. By this, I, first of all, mean control over my own time.

If you need to work to pay the bills, you have little time to spend on yourself. If you are an artist working on your next painting all day long with basic expenses covered (by your past work, for example), then you are happier and richer than if you are a well-paid banker, spending all your time between business flights, dinners, office routine chasing another client’s business. A senior banker will be earning a seven-figure annual compensation (and probably more) quite consistently, but I think he is poorer than an artist.

By freedom, I also mean having a permit to fail. Many professionals with seemingly successful career paths cannot afford to fail. Either they have high commitments (a multi-million mortgage, expensive holidays, private schools etc.), or they are just not ready mentally. Being rich, to me, means being able to dare to do often ‘crazy’ things and not being afraid of failure.

There is nothing better than a quote from Steve Jobs’ Stanford commencement speech:

“Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life.
Almost everything--all external expectations, all pride, all fear of embarrassment or failure--these things just fall away in the face of death, leaving only what is truly important.
Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.
No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet, death is the destination we all share. No one has ever escaped it, and that is how it should be because death is very likely the single best invention of life. It's life's change agent. It clears out the old to make way for the new.”

Another form of freedom that I value is the freedom to be yourself. A well-paid professional who hides his true beliefs to keep his client happy is not really free and, thus, not as rich as someone who can be honest with himself, his family and society. Living your own life instead of someone else’s is a big virtue.

In more practical terms, freedom to me means the ability to decide how you spend your time, who you spend it with and where. Do you have to meet people who you would rather not meet (or pick up their phone calls)? Truly rich people can just say No to such meetings, calls and other activities. Do you need to become a billionaire to start saying No, a millionaire?

Since I quoted Jobs, I have to quote Jeff Bezos. It has now become a well-known story how he decided to launch an online bookstore when he was 30, working for one of the most successful New York hedge funds, DE Shaw. This is what Bezos said during an Amazon India Event in January 2020.

“I pictured myself 80 years old, thinking back on my life in a quiet moment of reflection. Would I regret leaving this company in the middle of the year? And walking away from my annual bonus? All of those things that at the moment can be very confusing. I thought, ‘You know, when I’m 80, I’m not going to think about that. I’m not even going to remember it.’”
Bezos said he was “trying to figure out how to make this decision, because at the moment, personal life decisions, those choices, can be very challenging…I wanted not to have regrets. I knew for a fact, I have this idea, and if I don’t try, I’m going to regret having never tried. And I know also, if I try and fail, I’ll never regret having tried and failed. As soon as I thought about it that way, I knew I had to try.”

These are the two most important questions to make strategic decisions, in my view: Does this choice help you to move towards more freedom and Will you regret not trying something when you are 80 years old?

Decisions that help you win time can be priceless. Just imagine for a second that you are over 80 years old, you do not feel as healthy, and your mind is not as sharp as before. Then you learn that a new medical treatment could add 10 years to your life. How much money would you be willing to pay at the very end of your life to be able to live longer? $100,000, $1,000,000? 50% of your savings, 90% of your savings? Would you actually take a loan to pay for that magic pill?

Now imagine that you can get this ‘life extension’ for free by following healthy habits (drinking less, exercising and sleeping more etc.).

By pursuing a career that takes most of your free time and pushes you to develop bad habits, you may have to pay a high financial price at the end. Besides, certain things are just impossible to buy (e.g. time).

Another way of maximising time and energy is making less decisions, especially unimportant ones. Imagine a glass of water, and each time you make any decision, you sip a little water out of it. If you make too many decisions very fast, you soon end up with an empty glass, mentally drained and unable to focus on key questions.

Of course, life is very complicated and is never black or white. There are many nuances that can influence the final decision. So, I have put together a few other shortcuts.

  • Balancing between investments and consumption (Deferred gratification). Success in business and life comes to those who can think and act long-term. If you avoid new investments to keep reporting strong quarterly results, you will not be in the business in the long term. Saving money and investing it wisely will eventually lead you to financial independence. On the other hand, you do not want to keep deferring great things forever. For example, working for a large investment bank and then going for an MBA because this would look ‘good on your CV’ may not be the best option, especially if you have the opportunity to start working in a small investment management company with great managers and prospects to learn and practice. Provided, of course, that investing is what you want to do eventually. But more often than not, you should be willing to sacrifice today, to get more rewards tomorrow. This could mean less time watching Netflix, playing video games and even healthier eating habits.

  • Favour decisions that leave you with more options. It is important to avoid making forced decisions, you lose leverage and become more vulnerable. Being forced to liquidate your portfolio during the 2008 financial crisis because of margin trading or selling your house because you lost your job and cannot afford to pay for a mortgage – are prime examples of having no options. Moving to a big city with more job prospects, especially when you are young, looks like a more reasonable choice to me than staying in a small town with a high salary and better living standards but only a handful of employers.

  • Maximise experiments per unit of time. Success also comes to people who can innovate successfully. If you are doing what 90% of people can do, you can hardly expect to earn an above-average income. But if you have a unique service, solution or product, you can enjoy extraordinary profits. To find such a product, you need to experiment and test new ideas as often as possible. This requires patience, courage to fail, determination and financial flexibility. A person with a large family, big mortgage and high recurring expenses (e.g. private schools, lavish holidays) cannot afford to simply quit his job and spend a few years trying to find a new solution to a problem.

  • Favour options that can increase your intelligence, expertise. Rewards from work are not just monetary. Developing great skills can pay off more in the future than having a well-paid job now without the steep learning curve.

  • Whenever possible, try to be more unique. Pricing power comes from unique skills. If many people can drive cars, it is hard to earn exceptional money as an Uber driver. You narrow your options when you go for unique skills and knowledge, but as long as you are reasonable and do it gradually, you should be rewarded eventually.

  • Chose great people. If one job pays a little more, but the other provides you with exposure to great people (someone you admire and can learn from) – choose the second option. Having great mentors in life matters a lot! To have more mentors, you should be looking for them and willing to learn. But also you simply should be nice to other people as in famous Dale Carnegie’s advice.

  • You cannot make everyone happy, so just stop trying to please all people at once. There will always be someone not quite happy. There is always something that could have been done better. Being a perfectionist (a trait that puts you at the top of your class at school) can prevent you from big success. Please read the next point.

  • Focus on what you can control, don’t judge every decision by its outcome. The ultimate result of your actions depends on many factors, including other people, the environment, state of the economy, regulations, etc. For example, the iPhone invention could have failed if it happened 20 years before without well-developed mobile networks, microprocessors and social media (you do not need a mini-computer to make phone calls). But, nevertheless, it is important to maintain focus on what you can actually control. In investing, it is not trying to predict what happens to interest rates or commodity prices, but it is what you spend your time on that ultimately determines success. Are you learning about great investors, new business models, valuation techniques or are you reading about trade wars, elections and opinion polls to try to find your next investment?

  • Does a particular decision move me closer to my goal? In my case, it is financial freedom and independence. What is your goal, what do you value the most? If you have billions but don’t have time to spend it, or financial conditions force you to do other things?

  • Keep a diary. Knowing your track record in decisions, how particular decisions were made and what was the actual outcome helps a lot at improving your assessment skills. This is one of the reason I launched this website. Unlike at school, real-life situations do not have a ready solution, correct answer. We deal with incomplete information and chance, taking them into account is crucial for making better decisions, and a diary should help to become better at this. 

  • Make less decisions. They say that we drain our intellectual power by making daily decisions, even really small ones (e.g. 'Should I have cappuccino or latte?'). Developing habits, having schedules and following strict discipline allows you to save your mental energy on more important questions. Exercising 7 days a week is easier than 5 days a week, you just exercise each day without thinking when to have those 2 rest days. If you have a rule of not eating dessert, rather than just a principle of consuming less sugar (or following a healthy diet), you would not waste energy deciding if you can afford to make an exception on a particular day, time of the day, size or type of dessert.

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