Investment Recalculation Test

A framework for making better decisions by recognizing cognitive biases, particularly around investments and difficult choices.

Easy Choices Hard Life, Hard Choices Easy Life

• Making difficult decisions immediately leads to better long-term outcomes
• The brain naturally discounts harder choices, making them appear equal to easier ones
• When weighing two options that seem equal:
  • Identify which choice is harder
  • Choose the harder option as it's likely being unfairly discounted by your brain
  • Your brain adds a "tax" to difficult choices that isn't real
  • This "tax" is just your brain trying to avoid short-term pain

Investment Recalculation Framework

• Regularly ask: "If I didn't have this investment today, would I invest the same amount?"
• Common pitfalls:
  • Letting inertia keep you in positions you wouldn't choose today
  • Holding concentrated positions (like company stock) you wouldn't actively choose
  • Not recognizing when circumstances have changed

Cognitive Bias Recognition

• People won't understand things their paycheck depends on them not understanding
• Examples of blind spots:
  • Business models that might be outdated but currently profitable
  • Industry disruption potential (like newspapers in 1998)
  • Technology changes that could affect current business models

How to Combat These Biases

• Proactively fight against natural cognitive biases
• Study psychology and decision-making frameworks
• Recommended resources:
  • "Influence" by Robert Cialdini
  • "Psychology of Human Misjudgment" by Charlie Munger (Harvard speech)
• Regularly reassess positions and decisions from scratch