October 2023

ONE MORE THING...

  • Which is worse?  

  • Swimming with sharks.


Was it a good decision? 

Life is full of decisions.  And many folks are terrible at determining whether they made good decisions.  Consider:

  • The drunk driver who makes it home safely.  Bad decision, good outcome.

  • The gambler who hits on 20 (bad decision) and gets an Ace to make 21 (good outcome).

  • The student who plagiarizes but does not get caught.

  • The promiscuous teenager whose behavior does not result in a pregnancy.  

  • The day trader who gets rich (clearly a bad decision IMHO, though I concede this view is not universally shared).  

Bad decision but good outcome.  I call these "resulting fails", using Annie Duke’s term “Resulting” which means judging the quality of a decision based on the outcome rather than the process.  Although one particular instance of each of these decisions may not result in a fail (bad outcome), the decision making process will eventually produce that bad outcome.  

If investment managers can objectively evaluate their decision making processes separately from their investments’ outcomes, then they are far more Likely to find success in this business than those who cannot. 

And yet, financial news headlines regularly assign credibility to investors based on the results of a small number of prior investments.  It is very common to see headlines like: A Wall Street titan who called the 2008 recession shares 7 top trades to make before the US economy enters into another downturn with stocks 'priced for perfection' and Michael Burry, of Big Short fame, just bet $1.6 billion on a stock market crash | CNN Business.  

To be clear, this is a performance business and performance absolutely matters.  My point is that not all performance is created equal - performance that follows from a solid decision making process is superior to the same performance that follows from a poor decision making process.  Investors should dig deeply into their manager’s decision making processes to determine whether repeating those processes over the long run is Likely result in positive returns - or ruin.  

For further reading:


ONE MORE THING…

The information and opinions contained in this newsletter are for background and informational/educational purposes only.  The information herein is not personalized investment advice nor an investment recommendation on the part of Likely Capital Management, LLC (“Likely Capital”).  No portion of the commentary included herein is to be construed as an offer or a solicitation to effect any transaction in securities.  No representation, warranty, or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein, and no liability is accepted as to the accuracy or completeness of any such information or opinions.  

Past performance is not indicative of future performance.  There can be no assurance that any investment described herein will replicate its past performance or achieve its current objectives.

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