Good Outcomes Don’t Prove Good Decisions
There is a saying that decisions are just bets on the future. When a decision is made, there is a wide range of possible outcomes, and each one of those outcomes has its own probability of happening. Your decision can influence the outcome, but they cannot determine it. There are so many variables that cannot be controlled or accounted for.
You could make good decisions and have a bad outcome or alternatively you could make what most people would say are bad decisions and end up with a great outcome.
I knew a person who sold his house, put the entire proceeds into a single marijuana stock around 2016/17, which he sold in 2018, and then put the entire amount into ETH and sold that in 2021.
These two decisions massively changed the outcome of his financial situation. However, no one who looked at this objectively would say yoloing your entire net worth into a high-risk asset and then doing it again would be a good decision.
The outcome ended up being great for him, but the probability of getting that kind of result again from the same decision-making process of going all in on risky assets back to back would be quite low.
If we look back at that marijuana stock now, it is down 95%, and ETH volatility over the past 10 years has seen people cash out with massive losses. I mean, had he waited just a bit, he would have lost money on the ETH, and sure, if he held on to it for years, he could have made back that money, but there would be no way of knowing that at the time.
You could go to the casino and put your life savings on a single bet like Ashley Revell, 32, did back in 2004. Again, putting your life savings on a single spin of a roulette wheel and hoping it hits red, most people would consider to be at best a bad decision, but for him it ended up working out.
The result doesn't make the decision a good one, and more people would lose than win in that exact same scenario. When you think about things probabilistically, you can make the best decision based on the information and understanding you have, but the outcome may not work out the way you intended. It doesn’t mean you made a bad decision, and just because you have a good or even great result also doesn’t mean you made a good decision.
And when it comes to investing, this is a common theme. People look at their results to determine if they are making sound decisions and discount luck and the probabilities.
You can judge the outcome by what actually happened, separately from the decisions that led to it. The decision itself should be judged based on the information available at the time, the probabilities, the known risks, and the alternatives that existed when the decision was made.
