Decision Making

We’re going back to the wonderful well of Weekly Thoughts from Chenmark this week. They have just started a multi-week series on managing uncertainty that is fantastic. Part one is particularly good in its discussion of decision making when it comes to investing.

It’s easy (and perhaps wise) to argue that collecting is not investing, but I’d like to flip that on its head and say that, in some way, everything in life is investing. The reason I’d make this argument is that everything we do – from jumping out of bed first thing in the morning vs lazing the morning away with a snooze, to choosing an index fund over a rental property for our portfolio, to going with conventional vs grass-fed beef at the grocery – involves a choice. A decision with real consequences. Making these decisions involves risk.

From the Chenmark Newsletter: …the world is an inherently complex and uncertain place, and attempting to fully eliminate risk or to drive for “certainty” is unrealistic. Instead, we must do our best to understand the full range of potential outcomes and use that information to think probabilistically about expected value. We must try to understand what happens if we are right, what happens if we are wrong, and the probabilities associated with those outcomes.

Chenmark: Managing Probability

Sounds a lot like collecting. What if this part isn’t authentic? What if this rug is a really good fake? This price seems to good to be true – how can I be certain I’m not getting scammed?

The piece goes on to describe the mathematics of a bet that looks so good on paper, you’d be crazy not to take it. The problem we have as humans is that real-life outcomes don’t happen like models. I think we sense that, inherently, and it’s one of the reasons we become stymied when facing what feel like big decisions. When we feel like we can’t be wrong, we can’t move forward.

As life works out, another piece on just this thing came across our eardrums this week in the form of Shane Parish’s excellent podcast, The Knowledge Project. Episode 119 features Susquehanna International Group Associate Director Todd Simkin talking about this same subject – specifically, how we fool ourselves in thinking we made good decisions when we have good outcomes and bad decisions when we have bad outcomes.

How does this all relate to collecting? One of the things we’ve said in our books and in articles here is that to be a collector, you have to start collecting. One reason we don’t start – collecting or anything – is that we are afraid of making a mistake. If we take these ideas from Chenmark and Simkin to heart, and we start to think about our decision-making process when we evaluate our choices (in this case, to purchase something for our collection or not), we’ll ultimately end up with more valuable, and far more satisfying, collections.

Have a great week!

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