Making Better Investment and Life Decisions - Episode 203 Remastered
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This week on money for the rest of us. We don't have a regular podcast episode or A A new plus episode if you're a member of our premium community money for the rest of us. Plus we remember red an order episode of two or three that was released in may twenty eighteen and prove the audio quality took out a lot of the gaps, and I turned my favorite episodes.

It's about how to make Better investment decisions. We referred to work by any duke dan economy, Benjamin half on dawson m. And Edward slinger land, the book trying not to try in the episode, I mispronounce his name every single time.

It's lingerin not singerman. I was reminded of key learnings on how to make Better investment decisions, life decisions. In this episode. I hope that you enjoy this rerelease of episode two or three is investing more like poker or chess will be back next week with episode for ninety.

Walk on the money for the rest of us. This is a personal financial. It's on money, how IT works, how to invest in, how to live without worrying about IT. I'm your host David's time today he is episode two or three.

Its title is investing more like poker or chest, or is life more like poker or chest? I spend a lot of time playing both chess and poker as a teenager, particularly in the eighth grade, where had a very influential teacher name was bob hoti. He was the english teacher, but he also, I guess, was the drama teacher, but didn't even, I don't think he got paid to be a drama teacher, but he would put on a musical every year.

Go to france every summer. Many would organize desk into sort of groups. Uh, sixty eight desk pushed up together.

And I would play poker at the desk during class. I would secretly suffer the cards. Hand a mt.

To my classmates in our little island. A desk never got caught. And I thought I was pretty cool.

I was able to play. Teacher never called me out til many years later, I realized maybe I wasn't quite that smart. Maybe he just overlooked IT because he had called me out for other things.

Remember, being in the teacher lounge after school, we worked on A A news program few students and I that this teacher had organized. And I bought a quarter from him to buy a soda from the soda machine. And unbearable to me, at least to my rational mind.

Thirty minutes later, I pulled out four quarters of my pocket to do a magic trick. The next day, the teacher pull me inside and and sort of pointed out this and consistency, hey, he borrowed money from me, and yet you had the money I didn't even realize. IT released in my mind, is what I was as kind of that, I guess, an extreme form of mental counting.

I didn't connect the two events, borrowing the money and pulling out the quarters. I used for my magic trick and was one of the first times I realized that my mind can play tricks on me. And it's not always reliable.

Any duke as a former professional poker player, SHE holds a worlds series of poker gold bray slip from two thousand four. She's also an author, professional speaker and decision strategies. Her new book is thinking in bets, making smarter decisions when you don't have all the facts.

Because recommended to me to me by Andrew, who's listener a member of money for the restless plus and in the book and discusses john, the new man who is a renounce scientist and father of game theory, he collaborated with wan poundstone to publish the book theories of games and economics came out nineteen forty four, but no man was also a poker player. One of his friends was another scientist, jaco pronounce I, who was the chess enthusiasts. And they were in a taxi in london.

And bi asked john the newman to the clarify, you mean the theory of games like chess? That's what about roski says, here's what newmans respond to us. No, no.

Chess is not a game. Chess is a well defined form of computation. You may not be able to work out the answers, but in theory, there must be a solution, a right procedure in any position. Now, real games, he says, are not like that at all. Real life is not like that.

Real life consist of bluffing, of little tactics, of deception, of asking yourself, what is the other man going to think, I mean, to do? And that is what games are about, in my theory do, is on to describe in her book that trouble follows when we treat life decisions as if they were chest decisions. Chess contains no hidden information and very little luck.

That pieces are all there for both players to see. Pieces can randomly appear or disappear from the border, get move from one position to another by chance, no one rolls dies, after which, if the role goes against you, your bishop is taken off the board. If you lose at a game of chess, IT must be because they were Better moves that you didn't make or didn't see.

Poker, in contrast, is a game of incomplete information. IT is a game of decision making under conditions of uncertainty over time, which he points out is is a pretty close definition to game theory. Decision making under conditions of uncertainty over time, he goes on in poker, viable information remains hidden. There is also an element of luck in any outcome.

You could make the best possible decision at every point and still lose the hand, because you don't know what new card will be dealt and revealed once the game is finished, and you try to learn from the results, separating the quality of your decisions from the influence of luck is difficult. Investing and life are like poker, not chess, but that doesn't mean chess is an easy game. You have this, this board of sixty four square arrange and eight by eight pattern.

Each player gets sixteen pieces, each piece has a proscribed move and plastic turns. World chess champion gary CBA said the total number of possible moves in a given game of chess is more than the number of seconds that have lapsed since the big bang created universe. Billions upon billions of potential moves.

How would you be possible for anyone to predict what move would happen next? Let's let's see fifteen moves ahead. But grand masters can do IT. They can instantly recognized the pattern and how what game will play out.

You can, you can to sort of rearrange the board pieces or they can come in in the middle of a game they have even even been watching and see what's going to happen. If you move them around right ably, they immediately recognize grand methods that that's just not a pattern of a game. I recognized at fifty thousand game patterns because in chest there's a right answer.

There is no luck, any duke, right? To one of my favorite quotes on the book, the quality of our lives is the sum of decision quality, plus luck. He talks about how poker players have a word that I not heard of called resulting.

And resulting is when a player, the plane poker and they have a number of losing hands. And there's that temptation to change your strategy because they believe they are. The quality of the decision equals equality of the outcome. So if they're losing that, I must be doing something wrong as supposed to just having a string of bad luck, he writes.

But as I found out from my own experiences, and poker resulting is a routine thinking pattern that be devils, all of us drawing and overly tight relationship between results and decision quality affects our decisions every day, potentially with far reaching cats drift consequences. What makes a decision great is not that IT has a great outcome. A great decision to write is the result of a good process, and that process must include an attempt to accurate, present our own state of knowledge.

That state of knowledge, in turn, is some variation of, am not sure, about ninety seven. I talked about the great financial crisis to was really a defining moment in my investment careers. I suspect for many investment professionals, I really beat myself up after two thousand and eight.

Our clients for four a mans, we lost twenty five percent. The overall stock market was down thirty two percent terms of the msci all country role index. Yet my parents portfolio there was managing was at two point eight percent and two thousand eight.

My personal portfolio was down three point seven percent, far Better than what I had done for my institutional clients because of the quality of my decisions. I sense that something was going on. I can see IT, but my decision quality and my confidence in managing institutional portfolio was not enough to convince my partners to adjust these portfolios that we were managing.

Just wasn't quite sure what was going on. There was an elephant a bad luck involved in that. It's not just skill and sometimes it's hard to determine IT.

What I came out from that is the quality of my decision process needed to be Better and terminals that having a more systematic approach of looking at what was going on with the economy because we place way too much emphasis on valuations and not enough on economic trans do great when we work backward from results to figure out why those things happened. We are suspected to a variety of committed traps, like a summing causation. When there is only a correlation or Cherry picking data to confirm their narrative.

We prefer we will pound a lot of square pegs into round holes to maintain the illusion are a tight relationship between our outcomes and our decisions. We do that in investing a lot when we see a bad outcome. I did IT take the housing crisis, where many individuals lost money and houses, and consider IT their fault when a lot of this downturn, and maybe they just didn't have a lot of experience in doing that, do great.

If we buy a house and fix IT up a little and sell IT three years later for fifty percent more than we pay. Does that mean we are smart at buying and selling property, are fixing up houses? IT could.

But I could also mean there was a big up, retrain the market and buying almost any piece of property would have made just as much money. Or maybe buying that same house are not fixing IT up at all, might have resulted in the same or even Better profit. A lot of previously successful house flippers had to face the real possibility between two thousand and seven, two thousand and nine, when houses crashed, where they then unskilled.

So how do we improve the quality of our investment decisions, recognizing that we will never know for sure, we have to be aware what is going on, what are valuations, what are economic trends, what are crowds doing? What's the predominant narrative? Think about bitcoin last fall in november, december, where there was just so much hipe about IT, the investors that bought for speculators at fifteen thousand dollars per big on or twenty after such a huge run up.

We need to ask, is that investing, speculating or gambling is in an investment with a positive expecting return? Speculation where the the sign of the return, there's some differ opinions on that were not really sure is a gambling. Whether IT has unexpected negative return? Is that something that's an investment for most people because they has a positive return, but our lack of knowledge makes IT gambling for us because just how we implement IT stocks are investments.

But if we're trying to date trade with with little information that stocks could have a negative return for us, do great decisions, are bets on the future and they aren't right or long based on whether they turn out well on any particular iteration and unwanted result doesn't make our decisions wrong. If we thought about the alternatives and probabilities in advance and allocated our resources accordingly, when we move away from a world where there are only two opposing and discrete boxes, that decisions can be put in, right or wrong, we start living in the continuing between the extremes. Making Better decision stops being about wrong or right, but about calibrating among all the sheet of grey.

So we never really know for sure. We try to improve the information that we're getting to make the best decision under the circumstances, separate out the outcome from the quality of that decision process. But there's an additional risk of trying to overanalyze to force IT force the decision .

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a bank dan economy. Amid versy work for years to study how we make decisions. Conner's book is thinking fast and slow, and he describes really two systems of thought.

We have A A reflexive system when he calls system one is fast thinking. And we have a more deliberate approach, slow thinking, that system to system, too israeli. Our prefunding cortex, it's really thin layer.

Most of your brain is, is the system one is fast thinking. It's often subconscious. It's automatic. Sometimes we are making decisions. We put too much dependence on the slow, deliberate thinking. The person I listen to a book on on this while we've been travelling for, for weeks now, surprisingly, we don't haven't actually listened to that many books or pocket for that matter.

We ve spent a lot of time just talking in the car, but one of the books so we listened to was called the door of pool in terms of we need to put by Benjamin half, he describes a concept called, uh, I thought of the quote when reading any ducks quote where he said, we will pound a lot of square pegs into around holes to maintain the illusion of a tight relationship between our outcomes and our decisions. The dollar process, when you work with u way, you put the round pig in the round hole, in the square pig in the square hole. No stress, no struggle, egotistical desire tries to force the round pig into the square hole, and the square peg into the round hole.

Clever tries to devise, craft your ways to make pigs fit where they don't belong. Now let's tries to figure out why round pigs fit into round holes but not square holes. Who he doesn't try IT doesn't think about IT just does IT.

And when IT does, IT doesn't appear to do much of anything. But things get done when you work with, uh, you have no your accidents. Things may get a little od at times, but they work out and you don't have to try very hard to make them work out.

You just let them if you're in tune with the way things work, then they work the way they need to no matter what you may think about IT at the time. Later on, you can look back and say on, now I understand that had to happen. So those could happen, and those had happen in order for this to happen.

Then you realize that even if you try to make IT all turn out perfectly, you couldn't have done Better. And if you really tried, you would have made a mess of the whole thing. The book is title trying not to try by Edward singer and and he talks about this.

U A concept which is from ancient chinese IT was first addressed is part dowser that the janzen talks about in england, quote josey, where he writes, I look at what most people find happiness in, but the mass is all flock together to pursue racing after IT, as though they can't stop themselves. And I don't really know whether those who say they are happy or really happy. You're not.

In the end, this happiness really exist or not. I take a way to be the only kind of real happiness. What is right in the world and what is wrong? It's something that can never be determined for sure.

That being said, that determine right and wrong for you, when IT comes to retaining ultimate happiness and invigorating the self, only u way can get you close. What is this new way? Think describes IT this janzen uwe is a state of perfect economy flexibility and respondents ss, unlike the rigid conscious mind, IT can determine right and wrong because IT doesn't pretty terminate.

Being in a way he goes on is sometimes compared being like a pivot or a hinge. The still point at the center from which one can respond every change, every eventuality. When this is that are no longer set up an opposition, this is called the pivot of the way.

Once the pivot is centered in its socket, IT is able to respond inexhaustibly. Essentially, it's keeping baLance between the system on the fast thinking, relying on at the subconscious cannot force everything, can not be so dependent on the deliberate mind. I saw this on this trip.

Our son got an internship at capital reef national park. It's in the middle where and he couldn't find anywhere, live nothing rent. He and his wife, they found a camp ground. They were gonna a camper or trailer.

And in libris, been thinking about redoing a trailer and volunteer that instead of them spending most of their lives savings trying to find a trailer, it's going to live in for a few months that we would buy IT. But that traveling over the country, driving the next three, that can pull about three thousand pounds. And now we have a problem and were across the country, we need to buy a trailer.

We're analyzing the problem. Should we get IT a hitch installed on our x three so we can pull something? Should we buy IT back east and pull out all the way west to buy a pick up truck and at the drive two vehicles?

Because if we buy a real small, relevant, that might not be much fun for them to live in, buy something large, hard to pull, really taxing decision. And we listened the door or poo this concept u way and decided just to let IT be or wait and see how that will. We kept our optionality.

We didn't commit to anything. We just let IT be and try not to worry about IT. We schedule appointment with bmw to get a hitch installed in phoenix and gave ourselves a week to find a trailer in phoenix where you're not going to have the old issues because it's is so dry here.

And the first day we were in phoenix, the pro had struck up a relationship with the camp owner in toyota, is to see if there was anything there available, ideal, nothing, no one to or deals but SHE chuck one more time. And camp site owner SHE said, oh, I got a friend that just decided they're going to sell trailer. So we bought IT unseen two thousand dollars thirty for trailer.

The problem was solved. Just kind of let IT be in out. It's hard to do. I am not, and who are specialist, but the concept intrigues me.

This element of doister, that flexibility, the response not being so dependent on the the analytical mind to solve everything, to sometimes to let things be and let time take its course, and upset one twenty four. I told the story from the zani, that of the cook who watched an asks for a king. It's each joke.

The knife was perfect, never hitting a bone or getting caught in a tangle. The wise sound the knife made was as music, and the smoothness of each cut left the knife as sharp as a day was made. Even though IT had never been sharpen, king noticed the Grace with the cook to prepare the ox is a great skill.

What is I D do this? And the cook says, well, when I first started cutting up axon, all I looked at for three years was axon. I was unable to see otherwise. To see in an ox, he analyzed that he looked at IT.

But later he says, I encountered with the spirit, rather than scrutinising IT with the eyes, my understanding, consciousness, beholding to its specific purposes, comes to a halt, and that the prompting of the sphere began to flow. I depend on on heavens s una perforations, and strike the larger gaps following along the broader hollows. I go by how they already are playing them as they lay.

And my nie never has to cut through the native nodes where the warp hits the wave, much less the arb joins a bond single, and kind of describes this as a famous story. And he likes IT to three levels of listening or perceiving the world. The first is how the budding did at first.

He just play his eyes on the ox in front of them. He just takes in century information, but has no idea what to do with IT. The second is what he describes as listening with the mind involves regions like the prefrontal cortex system to the delivery of mind, consciously analyzing information in relating at the prior knowledge.

And then there's the third level, which is has this U I element to IT? It's listening with the g refers to IT a shutting down the cogniac control regions of the brain, but we think of as the conscious mind and letting the adaptive unconscious take over. He goes on in the context of the early chinese world view, this unconscious is going to lead us in the right direction because he possesses a sacred quality like the spiritual desires.

In the butcher deg. Story, the chi is a force connected directly to heaven. Indeed, the janci for jane, the spirit and the g seem to be more less anonymous. Both provide one with a pipeline to heavily guidance.

So to keep that baLance between our conscious, deliberate mind, our subconscious and and that sort of this g this is our way the as using u way you go by circumstances and listen to your own intuition. This isn't the best time to do this. I'd Better go that way like that when you do.

That's what the thing people may say you have a sixth sense or something all IT really is though is being sensitive to circumstances that's just natural. It's only strange when you don't listen hard to do. But the takeaway from the episode is one separate outcomes from our decisions, from the process. Don't beat ourselves up over outcomes because there is an element of luck in life, and element is just uncertainty that we can control.

What we can control is our decision process, and to do that, we need to baLance our analytical mind or deliberate mind with our reflection of mind and something just wait, keep our options open the optionality and often times things will just take care of themselves as they did and found a trailer. Now we're leave in phoenix x and heading home. So that upset two o three you can get shown notes and links.

That money for the rest of us that com are there. Sign up for my free insiders guy. I'll send you those links each week in the emails along with and and I say article I do week another viable content you can sign up for that on my website money for the best 点 com everything i've share with you in this website fit for general education of not provided investment advice general education on investing money economy eeta have a great week。