Learning Out Loud #1: Synthesis of Ideas on Decision Making, Life and Investing

As part of my learning journey, I regularly consume content from various sources including podcasts, books, and articles. This post synthesizes key insights I’ve gathered around three main themes: thinking probabilistically, living authentically, and investing wisely. These notes reflect both direct insights from experts and my own reflections on applying their wisdom. I will continue to post these reflections as “Learning Out Loud”.

Thinking in Probabilities

Making good decisions requires understanding probability better than our intuition suggests. Consider a common scenario: an accomplished home cook deciding to open a restaurant. While their cooking skills might suggest an 80% chance of success, industry statistics show that most restaurants fail in their first year. This base rate should adjust our confidence downward to perhaps 60% – still optimistic, but tempered by reality.

Destination analysis helps refine these probabilities further. For any future expectation, we should ask: What specific events need to occur? What must not happen? For example, in our restaurant scenario, success might require:

  • Maintaining consistent food quality at 5x the volume
  • Finding and retaining reliable staff
  • Managing costs while maintaining margins
  • Building a loyal customer base within 6 months

These become trigger points for feedback loops – clear signals that can validate or challenge our thesis along the way. Rather than waiting years to judge success, we can monitor these specific indicators monthly or quarterly. This can apply to investments that are usually considered to need a long time horizon to determine success, e.g. VC investing. Instead of assuming one has to wait the [7-10] years to realize whether the investment was a success, one should use as trigger points the elements they were going to assess the investment in the meantime. It isn’t as though the VC invests and goes to bed for a decade, they will monitor sales, cash burn, management decisions, etc. Those should be used then !

This probabilistic thinking extends beyond business decisions. Whether investing, career planning, or making life choices, we can improve outcomes by:

  1. Starting with base rates from similar situations
  2. Identifying our specific edge or advantage
  3. Setting up clear feedback loops
  4. Maintaining a margin of safety to account for uncertainty

The key is making these components explicit and trackable, preventing after-the-fact rationalization of outcomes.

Living a Full Life: Principles for Authentic Living

On Personal Authenticity

The fundamental challenge of living well starts with being true to oneself. This means not just understanding who you are, but actively embracing it. We must sometimes give up what we want our destiny to be to find out what it is. This requires both courage and humility – courage to be authentic, and humility to let go of preconceptions about our path.

On Professional Conduct

There’s wisdom in considering how institutions like the royal family approach their roles. They demonstrate the power of ceremony, routine, and decorum. Yet this formality needn’t conflict with authenticity – indeed, many successful professionals find ways to be the same person both personally and professionally. This consistency builds trust and reduces the emotional burden of maintaining different personas.

On Relationships and Boundaries

Meaningful relationships require both generosity and boundaries. The pattern is clear: help someone once, and they should reciprocate. If they continue asking without giving back, it’s time to reassess the relationship. This applies equally to our own behavior – we must be mindful of not becoming the person who constantly takes without giving, as illustrated by the anecdote of investors being careful not to always ask Warren Buffett for coffee while in Omaha.

On Purpose and Presence

Your most important job isn’t your career – it’s living a meaningful life. This requires being present in each moment rather than always seeking the next opportunity. At a conference, this means engaging with the content rather than chasing celebrity sightings. It means putting on your own “life jacket” first – ensuring your own well-being so you can better serve others. It is also important to know where you are going: “If a man knows not to which port he sails no wind is faovourable” – Seneca.

The Art and Science of Investing

Understanding Growth Drivers

At its core, investment returns come from three fundamental drivers: earnings growth, multiple expansion/contraction, and shareholder returns (dividends or buybacks). This framework helps cut through market noise to focus on what truly creates value over time.

This thought experiment illustrates the point. These two investments will net the same returns (all else being equal):

  • A company growing earnings 20% annually, and
  • A company with no growth and a 5x P/E multiple using 100% of cash flow to buy back its stock

The latter isn’t exciting, and likely easily overlooked, but is no less a compounder generating returns for one’s capital.

A Process-Driven Approach

Rather than trying to predict short-term market movements, successful investing requires a systematic approach focused on longer time horizons. The “invest, then investigate” method offers an interesting balance: take a small initial position when you spot a promising trend, then do deeper research to either build the position or exit. This approach recognizes both the speed of modern markets and the importance of thorough analysis.

Consider the case of investing in cyclical industries: conventional wisdom often warns against them, yet companies that can survive industry downturns while capacity decreases may emerge stronger during the inevitable upswing. This illustrates how thinking probabilistically about future scenarios, rather than just current conditions, can reveal opportunities.

The Power of Patience and Concentration

The most successful investors often make fewer, more concentrated decisions rather than constant trades. As Warren Buffett’s famous “20-hole punchcard” metaphor suggests, quality matters more than quantity. This patience shows in real-world results: Norway’s pension fund’s seemingly modest 6% CAGR has built nearly 60% of the fund’s $1.5 trillion in wealth, while Aquamarine fund’s 9% CAGR has created significant family wealth. These examples demonstrate how steady compounding through patient, focused investing often outperforms more active approaches.

Making Better Decisions

The Role of Conviction and Flexibility

Good decision-making requires a seemingly paradoxical combination: strong conviction with willingness to change. As one investor notes, “A very good investor is a contrarian with conviction, and being able to not listen to what others think, and yet being able to change one’s mind.” This applies equally to life decisions and investment choices.

Practical Decision-Making Tools

Several practical tools can improve decision quality:

  • Simple, clear documentation (1-2 page write-ups for investment decisions)
  • Regular journaling to track your thinking and establish personal base rates
  • Structured discussion with others, including designated devil’s advocates
  • Recognition that risk often manifests in counterintuitive ways

The Discipline of Inaction

Perhaps the hardest yet most important aspect of decision-making is knowing when not to act. We often feel compelled to take action – making trades, changing strategies, or making decisions – simply to feel productive. Yet some of the best decisions are choices to wait, observe, and let time work in our favor.

Integrating These Principles: A Framework for Better Decisions

Whether in investing, career choices, or personal life, these themes interconnect in powerful ways:

1. Probabilistic Thinking Applied Broadly

  • In Investing: Use base rates for industry success/failure, adjust for company-specific factors
  • In Life Choices: Consider historical patterns in career changes, relationships, and personal growth
  • In Decision-Making: Recognize that certainty is rare; work with probabilities rather than absolutes

2. Feedback Loops and Learning

  • Investment Thesis: Set clear markers for success/failure
  • Personal Growth: Regular reflection through journaling and discussion
  • Career Development: Regular check-ins against defined goals and market realities

3. Patience and Compounding

  • Investment Returns: Let time amplify good decisions
  • Personal Development: Build habits and skills systematically
  • Relationships: Invest in long-term connections rather than transactional interactions

4. Authenticity and Conviction

  • Investment Style: Develop and stick to your approach while remaining flexible
  • Personal Brand: Maintain consistency across professional and personal spheres
  • Decision-Making: Trust your analysis while remaining open to new information

Conclusion

Success in any domain – investing, career, relationships – comes from applying these principles consistently over time. The key is recognizing that while the specific applications might differ, the fundamental approaches to decision-making, risk assessment, and long-term thinking remain remarkably consistent.

By understanding base rates, establishing clear feedback loops, maintaining patience, and balancing conviction with flexibility, we can make better decisions across all aspects of life. The goal isn’t to make perfect decisions, but to create a framework that leads to better outcomes over time.

Sources:

Podcasts

Writing

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