Rational Decision Making
In Chapter 1, there is a section that reads:
Among the maxims on Lord Naoshige’s wall there was this one: “Matters of great concern should be treated lightly.” Master Ittei commented, “Matters of small concern should be treated seriously.” Among one’s affairs there should not be more than two or three matters of what one could call great concern. If these are deliberated upon during ordinary times, they can be understood. Thinking about things previously and then handling them lightly when the time comes is what this is all about. To face an event and solve it lightly is difficult if you are not resolved beforehand, and there will always be uncertainty in hitting your mark. However, if the foundation is laid previously, you can think of the saying, “Matters of great concern should be treated lightly,” as your own basis for action.
While this excerpt might seem a bit obtuse, I like to relate this to all aspects of life including portfolio management. By thinking in general terms about a model portfolio, you can have a plan already mapped out before you even come across the challenge. For example, let’s assume that your portfolio suffers from a supply chain problem from part distributors. What are you going to do? If you spend time beforehand just pondering the nature of supply chains in general, understanding their strengths and weaknesses and how you would overcome them generically you’re in a much better place. I like to think of this as “Level One Analysis”. Furthermore, let’s say you’re in the automotive industry. Parts suppliers have a lot in common with one another regardless of their industry but some industries present subtle differences. If you then take your generalizations and drill into them specific to an industry you serve, you’re even better off – now you’ve completed “Level Two Analysis”. And finally, if you are looking at taking a new position, thinking about the portfolio you’re about to assume responsibility for is paramount. Take the pre-work you did at the first and second levels and then apply the “Level Three” specifics of the actual portfolio and you’re there. In my experience, pre-planning at levels one and two saves me almost 90% of the time I used to spend starting from a stand still.
So how does this relate to rational decision making?
Rational decision making is based on un-emotional evaluation. By separating much of the analysis, planning and decision making from the actual event, you have almost no choice but to do so un-emotionally because there’s no actual event involved. The remaining work that is done “…in the heat of the moment…” can be further managed by using a few simple tools.
When you’re looking at a situation and trying to make a decision it is very important to be present in the decision and see what the situation is. Keep these things in mind:
- You have to be able to observe the problem requiring your attention from all sides.
- Remember to avoid the word should in your deliberations.
- Keep a journal when you start this method. A journal helps ground you. The simple act of writing things out by hand in a paper journal has a calming effect on most people and sets the stage for introspection and introspection is the key component to being present.