For this newsletter, I will give a signed copy of my book The Psychology of Leadership to the first 20 readers who email their mailing address to info@psychologyofleadership.net. Act fast!
Suppose you decide to drive drunk, but make it home safely. That was a bad decision with a good outcome.
One week later, after a good night of drinking Zinfandel, you ask a designated driver to drive you home. The driver gets into an accident. That was a good decision with a bad outcome. (Setting aside that you drank Zinfandel, which clearly, is a horrible decision.)
Because of randomness, outcomes are often silent on the quality of decisions. Worse, they can mislead. In a world in which we can’t predict much of the future (in my business, money management, we say there’s “randomness”), good decisions can lead to bad outcomes, and bad decisions can lead to good outcomes.
To manage this, you must be clinical about your wins and losses.
Confusing luck and skill in the investment world
This problem is acute in the investment world. You can make money, at least for a while, by making bad decisions, like holding a concentrated portfolio or investing in fads. If you don’t examine your process and the quality of your decisions, in other words, if you only focus on outcomes, you may think you’re an absolute genius. But you’re unlikely to be a successful investor in the long run.
Annie Duke’s excellent book Thinking in Bets, has become required reading in the investment world. Duke is a business consultant and ex-professional poker player. She explains that we instinctively associate good results with good decisions and bad results with bad decisions. She calls this instinct “resulting.” But in poker and many aspects of life, “winning and losing are only loose signals of decision quality,” she says.
Differentiating between the two
To help differentiate between the two, cultivate self-awareness. Focus on your decision-making process rather than outcomes. When you’re winning, remember that luck may be involved. This is hard. We all have this reflex of wanting to take credit for our wins.
And if you miss your target, don’t beat yourself up. Is it possible you made the right decisions but got unlucky? That’s easier to tell yourself!
Quoting one of my mentors:
“There are only two types of investors: those who are talented and those who are unlucky.”
I hope you enjoyed this. Please leave me any thoughts or comments.
Seb
The Psychology of Leadership offers a fresh take on leadership through the lens of groundbreaking research in positive, sports, and personality psychology.
Witty, conversational, and personal, The Psychology of Leadership blends research, fascinating true stories, humor, and self-improvement advice to deliver simple yet powerful principles to master the mental game of leadership.
Leaders will develop what feels like mind-reading abilities for interpreting workplace personalities, hidden motivations, and group dynamics. They will learn how to inspire their organization to move mountains, improve their ability to listen, communicate and, when necessary, persuade. Along the way they will dramatically improve their own mindset and resilience.
Sébastien has more than two decades of leadership experience. As an author, he believes breakthroughs often happen when experts venture outside their field. That is why, in "The Psychology of Leadership," he went beyond finance and economics to study research in psychology.
He is currently Head of Global Multi-Asset and Chief Investment Officer at T. Rowe Price.
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