I’ve been thinking a lot this week about being a better decision maker and investor after reading two great books. The first is The Biggest Bluff
by Maria Konnikova and the second is The Psychology of Money
by Morgan Housel.
Both books helped me navigate how I can make better decisions when I have limited information. Often, as much as I do my due diligence, market comparables, county research, etc. I still have to buy properties with limited information. How can I navigate this uncertainty and still tilt the odds in my favor when making land investments or bets?
Being completely aware of my biases helps and both books showed me in pain staking detail how flawed my emotions can be when I try to make investments and decisions in life.
One of the biases I notice I fall prey to ALL the time is Loss Aversion. I’m more willing to avoid a loss than to take risks and gain. Simply put, it’s better not to lose $20, than to find $20.
Nevertheless, I have to make investments each day and as much as I like to think I’m buying at a 300% margin of safety maybe I’m only buying at a 50% margin of safety if there is some “black swan” event that I can’t anticipate which tanks the overall economy.
After living through the Great Recession in 2008 I find myself psychologically playing smaller than I probably should be if I hadn’t gone through that experience. Nevertheless, as Scott Todd likes to say, “Don’t be chicken restaurant without any chicken.” So, I persist in making investments with limited information and doing other things in my life to make sure I can survive any market down turn.
The one big takeaway I gleaned from the Biggest Bluff and the Psychology of Money is the value of “staying in the game” and “patience.”
So, now after going through my due diligence checklist, checking the market comparables, verifying the county has a strong market and that I’m buying with my perceived 300% margin of safety I can go to bed with a clear conscience that I did everything I could within my control to make the best decision win or lose.
Luckily, after over 6000 land transactions I’ve yet to lose money on a piece of raw land, but I now know that things constantly change and I can NEVER relax and get complacent in business and in life.
Here is a quote from the Biggest Bluff I think about often:
“People failed to see what the world was telling them when that message wasn’t one they wanted to hear. They liked being the rulers of their environment. When the environment knew more than they did—well, that was no good at all. Here was the cruel truth: we humans too often think ourselves in firm control when we are really playing by the rules of chance.”