Tag: Decision Making

How Do You Make Decisions?

July 7, 2020 / David Alade

The art of exposing yourself to potentially unlimited upside bets in life

I want to share a thing with you in this piece that may guide your next couple years. It has guided mine so far as well. So please enjoy the read.

Decision making

A few years ago when I was preparing for my ICAN Professional Exam, I took a course called Strategic Financial Management (SFM).

In SFM there was this topic called Derivatives. A derivative is one nuanced topic in SFM. Because of this, a lot of people tend to shy away from it, but I took a particular interest in it.

One, because knowing it means I will get the opportunity to teach those who don’t know it (never mind me, I like to teach). Two, because intelligence in it matters to me for self-esteem sake.

I took interest in it and became the go-to-person to consult on it. Mission accomplished 🙂

But that’s not where I’m going. A segment inside Derivative is called “Option.”

In a simple term, an option is a financial instrument that gives you the right, not the obligation to buy a given asset at a given price on a future date.

The implication of an option as a financial instrument is that it allows you to buy an asset for say $100 on a future date even if the asset’s market price is $164.

Invariably, you have an upside of $64 immediately if you exercise the option.

And if the asset’s market price on that future date is $45, you will choose not to exercise an option that allows you to buy the same asset for $100.

No harm! Just do what’s best for you.

What I’ve not told you yet about an option is that it has a price. Basically, for you to have an option, you will pay quite a small (negligible) price say $5 for an option of say $100.

The implication of the option price is simple.

If on that future date, the asset is selling for less than your option gives you a right to buy it, you won’t exercise such right (to buy) and you will lose the $5 (option price).

On the other hand, if the asset is selling for an amount higher than your option gives you the right to buy, you exercise such right and make a massive gain.

Now, from what I’ve described so far, you will agree with me that in this scenario, your maximum loss is capped at $5 while your maximum gain is theoretically unlimited, unbounded.

That was the lesson I learnt from derivative as a result of my fascination with it.

Let’s talk about how that applies. Before that, let me show you a visual representation of what I just described.

I taught this topic passionately to my Professional Colleague and we all finally got qualified as a Chartered Accountant one time or the other (I think I was part of the last batch to qualify).

Much later in life, the subject of decision making and taking bets will become of high priority for me. And I needed to devise a framework for making decisions.

The need to make smart decisions that have potentially unlimited upside and a known and well-defined downside quickly brought to my remembrance lessons from Derivatives.

Ever since I realized that anytime it’s time to make a decision (a bet), I start by accessing the worst-case scenario.

I am usually very objective and particular about my assessment of the worst-case scenario. That’s important because it’s critical for my decision.

If the worst-case scenario of such bet is acceptable, I move on to estimating the potential upside and characteristics of the upside (limited or unlimited).

Knowing those two variables and their nuances, I make decisions.

https://twitter.com/DavidAlade__/status/1222513257203802113?s=20

Now, where has that gotten me?

There are times that I lose. But remember I’ve established that they are acceptable losses. Life is a risk and we must be ready to accept some losses in other to stand a chance for potential upside.

Times of loss doesn’t particularly move me. I just write off my loss.

No angst at all. Of course, there is the feeling of I wished it had worked out. But never a feeling of that was too much a loss to suffer.

But I must say, the few upsides that I’ve gotten over the period has far more compensated for any loss I might have suffered.

That’s the way the principle works remember: Potentially Unlimited Upside

The message I’m trying to get home should be apparent by now.

Decision making is nuance and until you get better at it, you may be stuck in life. In fact, if you make an unwise decision, it will cost you more than you could possibly take. Devastating is sometimes such failures.

I’ve given you a simple framework that can potentially make you a super decision-maker who always win in a big way. Leverage that framework.

If you want to take a bet (not NairaBet please, I don’t encourage that) on a course of action,

Determine the worst-case scenario under a very strict rule
Estimate the potential upside its characteristics
If the worst-case scenario is acceptable, and the upside is unlimited, go forward and take such bets. Otherwise, neglect it or gather more information.

Do that, and I can guarantee that you would be fine over time.

The Little Incremental Changes We Aren’t Wired For

July 1, 2020 / David Alade

We aren’t appreciative of little incremental changes but they are what define us in the end

Events in my life and how my life has turned out taught me something. And that is to value the little incremental changes in my life. Those little-incremental changes compound over time if you have staying power.

When I entered University, I did not have a dream, goal or any of sort. For me, it was the next thing to do after secondary school.

But I encountered books and that changed the narrative for me.

The thing is I did not know about the changed narrative until like 5-years later. That was when I started seeing the effects of all the late-night reading, the little money spent on books, the times of borrowing books to read.

All compounded to make who I am today. And since I’m seeing results now, I am even more ready to make those little incremental changes towards a better me.

The message of Jesus in the Bible is profound. Jesus operated under the assumption that ignorance is bondage which indeed it is. That was why he said: “you will know the truth and the truth will set you free.”

For Jesus as well, any kind of knowledge is not enough, it has to be the knowledge of the truth. That alone can set free from the bondage of ignorance.

As the Bible admonishes, the truth (knowledge) is something you have to constantly search for. Without it, you remain in bondage and blind.

I like the words of Daniel when he said: “And I Daniel understood by books.” That understanding led to the beginning of liberation for the Israelite in the then Babylon that enslaved them.

Paul admonished Timothy to study and show himself approved as a workman that is not ashamed of his duty.

Paul himself was a well-read one. Standing before King Agrippa for judgment, he got what I called the best compliment ever given by a man to Paul. “Paul, Paul, much learning has made you mad,” said King Agrippa after listening to Paul dissect history.

The task ahead of every human is simple but I will not claim it is easy. Evolutionary biologist claims not much has changed from our DNA in thousands of years. The implication of that is that we still much think and respond to a stimulus like our ancestors.

The task ahead of each individual is to simply be a better version of themselves every day long.

Yet, because once we are of age, changes that we make to ourselves are less physical and more mental they seem to be difficult to notice. Difficult to notice translates to less desirable. Our DNA is not wired for such a process.

But we must commit to it. But we must attempt it. But we must do it.

When I look back and see the many people whose lives have become better because of what I do, I marvel. I also imagined what would their life look like if I wasn’t who I am becoming.

Imagine many people whose lives will be better because you are better as well.

Each of our life is a movie and in that movie, we are individually the hero.

My goal is to be part of that movie of yours. And while I can’t be the hero in your movie, I look to be the one who helped you realize how heroic you are.

If you aim to be a better version of yourself and invariably play a role in other people’s movies, the place of knowledge can’t be emphasized enough.

You see, while we were growing a lot of changes that happened to us is a divide between physical and mental. You learned to walk and speak & you grew teeth and bigger body. But that’s about it that matters.

After all that, what’s left for you is mental development. Because as an adult your physical growth won’t count much any longer. The world need value to come out of you.

“My people perish for lack of knowledge” is another verse in the Bible that I like.

Developing mental capacity means you make better decisions, invariably, a better life. Bad decisions can lead to ruin.

Happiness comes from a lot of things, one of such is seeing that because of you someone didn’t give up. Because of you, someone won.

Again, the task ahead of you is simple, but I will never conclude nor assume it is easy. Your DNA wasn’t wired for such a task to be a free flow.

The task is to embrace little incremental changes in your life every day. Because such changes are mental, they are difficult to notice and may be discouraging. But understand that those changes compound. The beginning of compounding is always not interesting. Even so, the few who persevere and wait through will reap abundantly.

“The cowards never started, and the weak died along the way. That leaves us, ladies and gentlemen. Us.”
– Phil Knight

Us, my friend is all that’s left.

Let’s make a difference together while we still can.

I share my stories to help others.

I hope you have been helped?

How To Make Great Decisions

June 17, 2019 / David Alade

Life defining decisions always require a leap of action, we find it hard to take these actions as we move forward in life. The reason for this though not considered in this article, I will be taking time to take us through “how to ensure we are making a worthy decision in the light of three purviews.”

The purviews are not a guarantor nor would they be painted to serve as one, but they tend to reduce the probability of us making a harmful decision.

There is something we all know about making a decision: we all know it will either make or mar us depending on whether we make it, when we make it, and how we make it.

There is another thing about decision that is not always so obvious; it requires a LEAP, a leap of action. Life defining decisions always require a leap and many times the leap is demanding hence we fail to make it.

How do we ensure that we make the right decision at the right time and take the required leap per time? It remains a puzzling question and the answer I’ve come up with may surprise you.

The first thing I realized about this puzzle was that, while some decisions appear right on the go, some are contemplative, i.e. it’s a great decision to be educated no one will or should contend that (right on the go), on the other hand which avenue should I use in pursuing my education can be contemplative hence requiring a leap either of monetary investment or time investment.

The second is, the majority of our life-defining decisions are contemplative. Unlike should I sleep now or not, questions like should I marry, who should I marry, should I attend grad school and should I quit this job are highly contemplative questions.

Third, because the majority of our life-defining decisions are contemplative, we cannot always be sure whether we are right or wrong. To make all decisions on the altar of right or wrong will leave us in an undeserved perplexity, because it is neither right to attend to attend grad school nor wrong not to attend. It is much deeper.

If we cannot always be sure whether we are right or wrong on life-defining decisions, then I think it behooves us to conclude on another metrics beyond right or wrong upon which we can make contemplative decisions.

The new metrics I came up with are under three purviews.

Purviews because are not a yes or no decision metric but a metric that helps us reduce the confusion within our contemplative decisions.

The 3 purviews are:

Second-Party Purview
Self-Settlement Purview
Sliding-Time Purview

Second Party Purview

Law of large numbers in mathematics tells us that “with an increasing sample size that tends towards meeting up the population size, we tend to have a true and representative global mean of a distribution.”

It’s not a complicated way of thinking, the law is simply saying with more opinion that you get from different people regarding your contemplation, the more you are able to access the veracity of your decision based on different idiosyncrasies.

These are sample opinions you should get.

Opinion from those who seem to be always antagonistic
Opinion of those who seem to be supportive
Opinion of those above you and that of those of your peer and when needed those below.

As much as possible get all second party’s view on a decision that you can get. The beauty of this is that they will see things differently from you and help refine your thinking based on their own experience. You will benefit from the wealth of knowledge and judgment of those whose opinion you sorted.

Don’t be afraid to ask others opinion I must add, a friend that went through the first draft of this article has this to say, “I have found that whenever we are reluctant to subject our opinions and thoughts to others to judge, it is because somewhere in our heart we know we are wrong and we know others will point it out to us – and we don’t want to face the truth so we hide away” – you want make sure this is not the reason for your hesitant to get a second party opinion.

Don’t be fooled though by the folly of the multitude, sometimes multitude can be wrong and that is why you have the next point which will be discussed.

Self-Settlement Purview

A decision whose upside and downside you cannot accept should hardly be considered at all. This purview is really about you, your experiences, idiosyncrasies, and judgement metrics. Like I mentioned earlier, it’s not about right or wrong, it is about your readiness for what you are considering.

All what you are made of plus the opinions you’ve sampled from the first purview come together at this point so you can think your decisions through and make a call regarding your leap.

I put this in number 2 because you really may not be able to consider all views/angles yourself until number 1 is done. With number 1 done, you tend to think more clearly about your options.

The self-settlement is about you being ready to take and accept the decision.

Sliding Time Purview

“Don’t make a promise when you are happy and never make a decision when you are angry” is still a valid caution. The tendency is there that your life-defining decision requires that they be made when you are not mentally ready to make such, as much as possible buy yourself enough time to think clearly without emotions on the decision. What you want now and in 3 hours you don’t want again is an example of decision that sliding time purview will greatly help to fix.

Let time slide and see if you still want to abide by that decision.

Sliding time purview is well known and can be a very useful tool. Remember an observer cannot truly understand a system of which he himself is a part, sliding time affords you the opportunity to separate yourself from the system for a while.

With this said, plus your careful consideration of the spirit of the word, you are on your way to living a life where you have less and less decisions to regret in life.

Ask another person about it, don’t take unilateral decisions, take time to consider all points of view before deciding, and after you’ve decided, before execution, allow time to pass if it’s possible. You should hardly go wrong. This is a needed loop as you journey on in life and make life-defining decisions.

Originally published here