Decisions & Choices

I am currently chilling in the waiting area at Los Angeles International. Not a bad place to kill eight hours. Monica wanted me to get a “day rate” at an airport hotel but $100 bucks for a shower seemed a bit extreme. Especially because I only left the condo a few hours ago – took the red-eye to get here.

Man-o-man I have a lot of stuff rattling around in my head. This seems to happen when I have an extended period of note writing. I seems like I have fifteen pages of stuff to get out. Well, a long layover is a good time to get it all down.

I’ve been working my way through a buddy’s business school book list. At least I think that is where the list came from as it seems like the sorts of books that I would want to be reading and discussing if I was at business school. My reading goes in phases with certain themes running through it. If I like a certain book then, typically, I read as much of the references/recommended reading that looks interesting to me. A few years back, I become interested in philosophy, history of the great religions and spirituality. Read a stack of classical texts and that was quite a bit of fun. Learned a lot about myself.

At the start of April, I felt so lucky to have the opportunity to read a lot. As the month progressed, I realised that it wasn’t so much the opportunity to read; rather it was the opportunity to think that I was enjoying so much. That’s probably why reading appeals so much. The book needs to be interpreted through me and by me. My own biases, filters and experience indicating how I perceive the text.

My theme has been (very broadly) behavioral psychology and decision patterns. It serves two purposes for me – in finance, I’ve become increasingly interested in how people make decisions – both how we make lousy decisions and how certain people/groups are able to make good decisions. Similarly, in sport, I’ve been wondering exactly the same thing. What are the factors that lead to people losing their heads? Why do certain people consistently make better decisions than others?

As well, I’ve been thinking about decisions versus choices. Decisions being key junctions/transitions/points that will have a material impact on our lives.

Things like:
***University choice
***Business school attendance
***Major investment purchase (house probably the largest for most of us)
***City we live in (many don’t consider)
***Marriage
***Kids
***Career

I didn’t approach these thoughts primarily from a personal viewpoint. Rather, I’ve been thinking about it from an investment perspective. Why do some teams and individuals make better decisions than others? I’ve been fortunate to work with one individual that has made consistently good investment decisions over 20+ years. What can we learn from studying people that, on average, tend to get it right?

As for my own investing, I’ve probably been more lucky than smart. Just like having a couple of great deals early in a fund’s life, the biggest stroke of luck in my life was starting my career working for the best investor that I’ve ever known (call him Bob). That wasn’t a “decision” of mine as I needed a job. However, I did make the “choice” to work as hard as I could so that he’d keep me around.

Bob hired more outsiders than any person that I’ve ever come across. If you happened to see the movie, The Usual Suspects, then that is a good metaphor of what my first investment team looked like – I wish I had a photo because it is telling. We were six partners (three female), four nationalities and 75% of the team had worked internationally. Polar opposites of our main competitors.

Why did Bob hire such diversity? One of my recent books might argue that he had seen that better decisions would result from diversity. However, I think it was simply good commercial sense in that you often get “more” from hiring a good outsider. The biggest advantage being far better value and he loved getting a deal (people under market value, deals under market value, playing the game). So in seeking bargains on very bright people – he ended up with a powerfully diverse decision making team.

That interests me because most of the leaders and senior executives of the financial services industry are quite homogeneous in their background, outlook and training. As a group, that leaves the industry prone to making some big errors at times.

My personal portfolio is heavily in cash right now. I’ve been considering what to do with it. Pricing errors can lead to great entry prices – if you get your timing reasonably correct. In my view, if you wait to get it “right” then you wait too long – in VC we tended to sell a bit early and buy a bit late – shame we had to sell some of the best businesses at all, really.

So there is the search for return. There’s also the flip side… so long as you preserve capital in the down periods, you’ll do pretty well over the long term. How best to reduce my chances of a major error?

Great line from a recent read is that the best thing about investing our own capital is that we don’t _have_ to make any decision. We can simply keep looking at the pitches until we see one that we really like. With a brain, and society, that are hardwired for “action” I need constant reminding of that point.

There is a saying in the buy-out business that often the best decision is the deal that you didn’t do.

Bob’s currently raising a distressed debt fund. That brings me to my second major theme of my Hawaiian technology retreat…