Thinking About Thinking: My Business & Investing Principles

Entrepreneurs and Investors approach decision making differently. Entrepreneurs make 100 micro decisions a day as they execute on their business. Investors make a hand full of macro decisions a year (to invest or not), which require deep analysis and slow rational thought.

I found in my last project after making 100 decisions a day the Executive Function of my brain was exhausted. I was cognitively exhausted to the point I didn’t have the mental energy to read for pleasure or play my guitar at the end of a long day, this was no fun for me. However, I did make a series of good macro decisions at the start of the project (such as vendors I hired, the team I built, systems I put in place, and roles I delegated) that meant less execution work for me and saved me mental energy.

Here’s my hypothesis: Learning to make better macro decisions early on will mean more efficient energy spent on making micro decisions later, meaning less energy spent on execution, or better payoff for energy spent.

I compiled this list of business and investing principles as a framework for better macro decision making. I did not invent these ideas, I just curated them into a decision framework:

1. You need to be non-consensus and right to capture above average returns or profit. Obviously good ideas are fully priced or have sufficient competition already. (Howard Marks, Mike Maples Jr., & Chris Dixon on this.)
2. Choose opportunities that have exponential possibilities rather than linear possibilities. Another way to say this is choose opportunities with an asymmetrical risk vs return payoff. This means your upside is multiples of your downside. For example, I can lose 1X my money, but I want the potential to make 10X or 20X.
3. Run cheap experiments, and there is information in both success and failure are connected ideas. If I run cheap experiments and I’m wrong, I get information for a small cost. If I’m right, I want a large payoff for being right. Nassim Taleb and Jeff Bezos understand this very well.
4. Documentation, reflection and feedback. Document expected outcomes prior to and reflection after the decision. Use a feedback loop to refine the decision making process, which should improve future outcomes.
5. Look for situations with information inefficiencies or asymmetrical information. What do I know that others don’t.
6. Try to see 360 degrees of a situation. Find people who disagree with you and understand how they came to their conclusions. Ray Dalio is the best at this.
7. Anchor decision making in rational thought and process. It seems simple, but a lot of people get emotional when making decisions, or let cognitive biases corrupt their decision making. Processes and frameworks for decision making can help mitigate this problem.
8. Focus on opportunities that contribute to building a cumulative advantage.
9. Build systems to manage and limit micro decisions (use delegation, process or automation) to free up mental energy for macro level thinking.
10. Be cautious of in-action or procrastination. No decision is a decision. If you don’t consciously make a decision (for action or to defer), eventually the decision will be made for you by a lack of time, money or resources.

This list isn’t exhaustive nor is it complete. I’ll be working at implementing these ideas into my own entrepreneurial and investing projects to validate or invalidate my hypothesis. As well, over time I assume I’ll expand on these principles above.

Thinking about thinking,

Chris