And Win at the Only Game that Really Matters
You say you don’t think of yourself as a gambler? Well think again. This journal entry by Richard Singer, of SB Capital Management, reveals that we place “bets” on our future every day. Richard tells us how we can learn to make sure these bets pay off.
— Matthew Burke, Editor
Most of us probably don’t consider ourselves to be gamblers in our daily lives. But think about this for a moment; aren’t almost all of the actions you take “bets?” Don’t you actually place bets on yourself, your career, or your company every day? Aren’t the decisions you make all day long, like bets, simply choices with the potential for different outcomes?
There are always elements of uncertainty and things that are out of our control, making a variety of good or bad results possible. Think about that quick lane change you made on the freeway this morning on the way to work. How big a gamble did you take on that chicken you ate at that new restaurant last night? The truth is you bet or gamble all the time. We gamble not just to simplify our day-to-day lives but also to realize positive results. What if we were able to figure out a way to place better bets, and in so doing get even closer to realizing our dreams?
We all know that there are no guarantees in life. There are too many variables that will determine whether we achieve all of our goals. But there are some important steps we can take to improve our odds of getting what we want. Here are two:
Step 1—Embrace your “true intent”
This means engaging in the personal discovery work needed to understand and then accept what you really want out of life. And yes, it is a much deeper task than simply stating: “I want a house on the ocean.” Now that you have achieved a level of income that would inspire envy in most people, “how much is enough?” becomes a defining question that can only be answered by you.
Those of you who have taken the time to do estate planning (a.k.a. “soul searching”) with Matthew Burke or Sandy Singer understand that this process can be illuminating as well as liberating. The process starts with being honest with yourself about what will make you truly happy and wholly satisfied. Only after you fully understand and can proudly articulate your true intent can you move on to Step Two—taking action to bring your dreams into reach.
Step 2—Harness the power of “high certainty” and “high impact” actions
In their book, Make Your Own Luck, Eileen C. Shapiro of McKinsey and Company, and Howard Stevenson, professor at the Harvard Business School argue that when faced with uncertainty people often take actions (a.k.a bets) that actually decrease – rather than increase – their odds of success. Shapiro and Stevenson claim, however, that we can learn to bet better by developing our “Predictive Intelligence”. In order to bet more effectively, they suggest that we segment all the information relevant to a decision according to two characteristics—certainty and importance. When we make a decision we should favor the action characterized by both high certainty AND high impact. At the same time, we must learn to disregard all the noise—the information swirling around us that is of negligible certainty or negligible importance.
For example, imagine that your dream is to retire while you are still strong enough to ski as well as you do now. Using predictive intelligence, you can rule out those actions that have a low probability of helping you to realize your dream:
- Actions of high impact but also very low certainty. For example, playing the lotto to hasten retirement or waiting for a ski that allows even the bed-ridden to carve turns like Bode Miller;
- Actions of low impact and high uncertainty. For example, engaging in day trading in an effort to realize extraordinary investment returns and accelerate your retirement;
- Actions of low impact and low uncertainty—such as sitting around reading ski magazines and “get rich quick” ads in the newspaper.
If your true intent is to ski hard upon retirement, you will have to maintain a disciplined commitment to those things which will have high impact with relatively low uncertainty. In other words, start by eating right and exercising regularly to stay fit, and contribute regularly to your investment portfolio. A focus on high-impact and low-uncertainty actions will likely help you to retire healthy at a reasonable age with ample assets to pursue your passion, whatever it might be.
As tax planners, financial planners, investment advisors, and friends, our primary interest is to help you achieve financial freedom—so that you are free to pursue your passions in life. We want to encourage you to follow the Two Steps:
- Anchor yourself firmly and consistently in your true intent amidst a constantly changing world. De-clutter and prioritize your life in order to understand and clearly articulate your true intent and your key goals; and then,
- Develop the “Predictive Intelligence” you will need to create the future you desire. Be ruthlessly realistic about your ability to predict which actions will yield which results, and which results will be consistent with your true intent.