What’s Next? I Dialed Annie Duke, Not an Economist

Daddy isn’t Economics what you do?” #3 asked.

“Not really honey,” I answered.

There are a lot of things I will never forget about April 2020, including my middle daughter studying Economics at our dinner table. All my kids know I do not help with homework. But, I love talking through each of our biggest challenges of the day, during dinner. That table got a lot of action this month.

I believe not knowing the answers can become a rare superpower, if humility and curiosity is mixed together with desire. In the digital age of immediate gratification and social media highlight reels, one of the most uncommon answers at any age now is…“I don’t know.”

Depends on Where You Look

I was biting my lip this particular night about what my daughter was reading in her textbook were good or bad economic outcomes. Then, she scrunched her eyebrows and tilted her sweet freckled face at me, “But, I remember what you always say – ‘the answer isn’t good or bad, it’s - depends on where you look.” Some of the dinner table talks are sticking!! We aren’t supposed to have a favorite kid, but at that moment my other four were all playing for 2nd place.

We talk a lot about how to make decisions without perfect information. When they get older, somebody will measure our kids’ Intelligence Quotient (IQ). I want to work on their (AQ) Adjustment Quotient. Many pages of that Economics book are about to be torn out and re-written anyhow.

Month over month United States leading economic indicators by Krueger and Catalano in Houston, Texas.

Then, #1 turns the table “What about you, Dad, anything fun happening at work?

I said, “Well, I did have a call with one of the smartest people who I’d rather listen to than any economist. She won the World Series of Poker.”

Wait…what?”#2 turns his head, now all-in.

Probabilistically is the Best

My favorite mind for thinking probabilistically belongs to Annie Duke. She has a new book coming out that I recommend, called “How to Decide–simple tools for making better choices.” I am buying extra copies as gifts.

A quote by Annie Duke on changing perspectives by Krueger and Catalano in Houston, Texas.

My notes from our call below apply to my business of investing, but I think have even more upside in parenting. I wanted to share Annie’s words directly in italics, and you can take her wisdom wherever you wish.

We can’t shove certainty into situations it doesn’t belong.”

We were built for false positives.”

“In groups, decisions don’t get better but confidence in them goes up.”

As we say in our portfolio management offices - always be curious and never convinced. Investing is not statistics, it is calculus, and best studied away from the crowds.

People just want to know how things are gonna turn out. Or, if they can just get more data then they can really decide. All rather than think probabilistically as we should.”

She summarizes perfectly our exponentially growing risk of more information to consider, in an attempt to know more answers. Instead, in the digital age more than ever, the rewards will go to who can originally source the best data to calculate odds quickest, and then decide what is most likely.

The Best Trade: Want to get it right more than YOU want to BE right

It’s valuable to do pre-mortems. If this goes wrong, what might that look like?”

A brilliant exercise, Annie says do a pre-mortem before a decision, while crowds will wait to finger-point afterwards. She talked about the self-discipline of asking yourself ahead of time – ‘if I am wrong, what might that look like?’ In my business we utilize strict sell-stop disciplines on every single stock we buy. We do not count on, or blame, the overall market as good or bad. It all depends on where we look. In an overall financial plan, that means insuring against downside before any upside is considered, with risk-free investments first.

A far less crowded application of this pre-mortem advice is on the OTHER side of risk - how could things turn out better than we expect? If somebody is convinced something worse is going to happen, they also need to do this same exercise if they want peace of mind. If they are wrong, do they have buy-stop? Look at that chart above again. The worst leading economic indicators ever, almost double the previous low, all happened.

The call ended with Annie talking about using precious time to learn more new stuff she knows nothing about. Her humility and curiosity, which will undoubtedly help future decisions, were best summed up when she said:

Peering into the universe of what I don’t know is really where I want to be.”

Annie is my favorite example of the Financial Freedom (and great parenting) that comes from NOT knowing, but learning how to decide.