We make decisions every day throughout the course of our lives, many of which we ask ourselves after-the-fact:

“was that the right decision?”

If this were Bedford Falls, NY and we were characters in one of my all-time favorite films, It’s a Wonderful Life, we would have answers to those questions. Sadly, it’s not possible (at least in this lifetime) and we are not privy to the possibilities of alternative timelines and these questions remain as such: unanswered questions.

Investing is unique in the sense that we know whether a decision was right or wrong. In fact, not only do we know, but we can quantify to the exact dollar amount the impact of that decision (whether it was an active decision, or a decision by omission).

But let me try to change your perspective, if I may.

I had a colleague who used the analogy of traffic to describe the investment decision process. Let’s say, for example, you were an out-of-town guest staying in Alexandria and had to get to Bethesda, MD for a meeting (Pre-pandemic example here). If you asked me the best route to take, as a long-time resident of DMV, I’d probably say something along the lines of

“Oh, I’ve taken that trip more times than I can count at various times of the day - the best way to get there is to hop on the GW parkway, until you get to 495. Once there, take exit 34”

Like investing, we are limited in our foresight. There are exogenous events like accidents, weather, and traffic jams that are simply random and unpredictable. If you had asked me that same question every day for 100 days, and I gave you that same answer each time, I’d probably only be correct 50-60 times. I gave you that answer because I have observable experience that proves that it is the best answer…

So that begs the question - was it the wrong answer on days when you would have gotten there faster via Wisconsin Ave?

Now put yourself in the shoes of an investment analyst who is making decisions based on observable, empirical evidence. If you gave a recommendation that underperforms, does that make your answer “wrong”? Or was it the right answer with the suboptimal outcome?