How to Make Better Decisions (My $750,000 Lesson)

It’s January 23rd, 2020. We just finished a year with high revenue, but terrible profit.

Our cash is low. The situation isn’t looking good.

I just agreed to take back over as CEO of Amazing.com, Inc.

I write to myself, “I expect we will have one of the best years we’ve ever had. I estimate a 40% probability for this outcome.”

This record was captured in my decision log. I’ve used it for 37 big life decisions since 2018.

Why You Don’t Get Better

We think we learn from our mistakes. Often we don’t.

Instead, we repeat the same mistakes until we finally learn (or give up).

There’s a better way.

How to Get Wiser

One way to get wiser is to learn from others.

Read books. Talk with people who have done what you want to do. Go to conferences. Get a mentor.

However, no matter how much you read, much of our learning comes from personal experience.

You come up with an idea, try, fail, and repeat the process.

The problem is most of us don’t have a way to look back at what we were thinking before we decided to go down certain paths.

We don’t fully learn from our past decisions.

Have you ever had something go wrong, yet seemed easy to avoid later, and wondered, “What the heck was I thinking?!”

I have many times.

We once spent a million dollars on a marketing campaign to return $250,000 in sales.

$750,000 wasted.

The worst part is we could have tested the same campaign strategy for about $20,000.

Another Big Lesson

I almost never buy individual stocks.

On October 28th, 2019, I broke that rule.

Five months before, I bought 2,757 shares of AAPL at $181 per share (before the 4-for-1 stock split).

The stock increased to $248 per share (also pre-stock split). My pre-tax gain was $185,000.

I thought the stock would retreat and I would have the opportunity to repurchase later at a lower price.

So I sold it. The tax cost was $32,000.

Then the stock kept going up.

Today, if I would have done nothing, not selling any shares, my gain would have been an additional $600,000.

Lesson learned: If you buy a great company’s stock, don’t sell it and don’t try to time the market.

As Warren Buffet once said, “Our favorite holding period is forever.”

If I didn’t have a system to document and review decisions like these, the lesson would have been lost (and likely repeated).

Introducing: The Decision Log

Years ago, I read Ray Dalio’s book Principles.

He’s one of the wealthiest people in the world with an amazing, multi-decade track record of success.

One tool stuck with me: the decision journal.

I had made so many catastrophic decisions with no ability to review my original thoughts. This was the solution!

On December 17th, 2018, I created a Google Doc titled “Decision Journal”.

My first entry covered the decision to sell our $20,000 per month 10,000 square foot mansion.

Every time I had a big decision to make, I wrote my thoughts in the decision log.

For each decision, I’d schedule a few reminders in Google Calendar (I now use the Reminders app on my iPhone) to come back and review how I made it. I’d compare my original thoughts to the real world outcome after enough time had passed.

The results have been life changing.

The Decision Log Format

Here’s a simple version you can use today:

Write today’s date and a paragraph about the decision. Then, schedule a reminder to review what you just wrote after enough time has passed for the outcome of the decision to be known.

That’s it.

If you do only this, you will get wiser.

My format is a bit different.

I’ve been doing this for a while now and honestly can’t remember if I grabbed this format from someone else. If you know the resource, please leave a comment below and I’ll give them the credit.

Decision Entry Template:

Decision #:
Date:
Time:
Decision description:
Mental/Physical State (bold applicable): Energized, Focused, Relaxed, Confident , Tired, Accepting, Accommodating, Anxious, Resigned, Frustrated, Angry
The situation/context:
The problem or frame:
Alternatives that were seriously considered and not chosen were:
Explain the range of outcomes:
What I expect to happen:
What probability I estimate for this expected outcome:
Why I expect this to happen:
Review date (when I will know outcome):
Review reminder added to calendar: Yes / No
The outcome:
1. What happened:
2. What I learned:

Click here for a PDF template of my decision journal.

Here’s an example covering the decision to sell Apple stock:

Decision #: 21
Date: 10/28/2019
Time: 2:37PM
Decision: Regarding selling our AAPL stock.
Mental/Physical State (bold applicable): Energized, Focused, Relaxed, Confident, Tired, Accepting, Accommodating, Anxious, Resigned, Frustrated, Angry
The situation/context: Bought 2757 shares of AAPL on 5/20/2019 at about $181. Stock currently at $248. Gain is about $185K.
The problem or frame: Stock is up 37% since acquiring shares. It makes up ⅓ of my stock holdings and I believe there is limited near-term additional upside. I have decided to sell all shares of this stock.
Alternatives that were seriously considered and not chosen were: Not sell any. Only sell part.
Explain the range of outcomes: Stock continues to rise and I miss out on significant potential upside and dividends – I also incur about $32K in taxes unnecessarily. Stock retreats dramatically and I’m able to repurchase at a much lower price.
What I expect to happen: I expect that the stock will decrease in price, at least 20% below the $248.95 current price (or, below $200) in the next 1-2 years. At that point, I can decide if I would like to repurchase shares.
What probability I estimate for this expected outcome: 70%
Why I expect this to happen: Stock price is always moving up and down. Has advanced significantly over past 6 months. Not likely to continue.
Review date (when I will know outcome): 5/25/2019 (original purchase date) / 10/28/2020 (1 year) / 10/28/2021 (2 years)
Review reminder added to calendar: Yes / No
The outcome:
1. What happened:
  5/22/2020 – AAPL is currently at $318.89. This is 1 year after buying and about 7 months after selling. I would have made an extra $192K (more than doubling my earnings and incurring no tax) had I held on to the stock. It’s currently trading at or near it’s all-time high (even after COVID-19). The lowest AAPL dropped to was about $230 (slightly less than what I sold it for).
  10/28/2020 – AAPL is DOUBLE what it was when I sold it. I incurred taxes unnecessarily and missed out on additional upside.
2. What I learned:
  If you own a great company’s stock, don’t sell it. Don’t try to time the market and expect to be able to re-buy cheaper. There’s no guarantee a stock will ever be that cheap again.
  Buy great assets at good prices and hold on for the long-term.

Give it a Try

Have an important decision to make?

Give this process a try.

Write down your thoughts in your own decision log.

Then, set at least one reminder to come back and review your original thinking.

You’ll be surprised what you discover.