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How many of us suffer from the innumerable decisions we need to make in a day. We all have experimented with dieting. But in most cases, it never seems to work. Studying the psychology behind this, led researchers to the aspect of the innumerable number of decisions involved to make the dieting process work – what do you eat in the morning, afternoon, evening, and how do you sustain this over days and weeks. Innately, the number of decisions involved to sustain the act results in a low chance of success. An alternate to look at the same decision tree is to switch the act into a rule, which says – Do not eat desserts. This rule forces the individual to follow through on the rule and make oneself accountable to the rule (as the decision is pre-made). More importantly, it ensures one reduces the number of decisions the individual needs to make.

Investing has a very similar path towards long-term success. Constructing a portfolio without a process ensures the decision-making tree becomes complex. Instead, if an investor prepares oneself with a pre-defined process, it will ensure consistency towards portfolio construction. Having studied the Indian markets, over the last 25 years, we maintain that buying growth in cash flows is the truly sustainable way to compound wealth. Having this one rule ensures that we cull out many of the errors that the investment process brings about, thus eliminating hard decisions. The benefit of having rules is that an individual can spend a lot of time, effort and study data before coming up with the preliminary rule around which life and decisions are operated.

Author: Shane Parrish

Source: Quit Making Hard Decisions. Do This Instead



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