As a financial advisor I often see clients with regret. For some investors it’s the regret of missing out on big gains. For others, the regret of taking part in big losses.
Regret is a powerful emotional force that has the potential to shape investing strategies and mentalities. When I think about how regret ties into investing, I believe it really comes down to minimizing regret wherever possible.
But is that a good framework for other decisions in life?
Nearly every decision in life involves some sort of give and take, some sort of risk. And I think it is our human nature to minimize this risk. But there is such a thing as a good risk.
Jeff Bezos, the CEO and founder of Amazon.com gives us an interesting perspective on this in the book Algorithms to Live By: The Computer Science of Human Decisions.
Here is Bezos story from that book:
Regret can also be highly motivating. Before he decided to start Amazon.com, Jeff Bezos had a secure and well-paid position at the investment company D. E. Shaw & Co. in New York. Starting an online bookstore in Seattle was going to be a big leap — something that his boss (that’s D. E. Shaw) advised him to think about carefully. Says Bezos:
“The framework I found, which made the decision incredibly easy, was what I called — which only a nerd would call — a “regret minimization framework.” So I wanted to project myself forward to age 80 and say, “Okay, now I’m looking back on my life. I want to have minimized the number of regrets I have.”
I knew that when I was 80 I was not going to regret having tried this. I was not going to regret trying to participate in this thing called the Internet that I thought was going to be a really big deal. I knew that if I failed I wouldn’t regret that, but I knew the one thing I might regret is not ever having tried. I knew that that would haunt me every day, and so, when I thought about it that way it was an incredibly easy decision.”
It brings up two interesting questions:
When I am 80 years old and look back, do I want to minimize my regrets?
Are there things that I want to do that might be uncomfortable or might stretch me, but that I would regret NOT trying to accomplish?
We are constantly forced to make decisions and choices every day. Some have big consequences, some little. Some are even what I call “defining moments”. We all try to make the right decisions along the way – but life is not a casino. You never know the odds of the outcome in advance. Life is complex and messy and things are never perfect.
Bezos made an important distinction between a decision you can live with, even if the outcome doesn’t go to plan, and avoiding that decision all together. There is a big difference between experiencing regret and experiencing a poor outcome.
Failure is part of life – you cannot expect every risk to pay off. At times you will experience small failures and learn from them. I call them “tuition”, and learning from these small failures can help to avoid large mistakes. This applies to both life decisions and investment decisions.
Investors constantly battle conflicting emotions and desires. The want for a higher return and lower risk, the desire for long term growth while watching short term volatility… Each of these are contradictory, so investors are forced to make trade-offs and do the best we can.
So, here are two questions to ask yourself based on Bezos framework for making life-altering decisions:
Have I minimized the number of regrets I have in life?
Will I regret NOT having tried this?
If you would like to have a conversation about the emotion of regret, feel free to contact us. If you know someone who struggles with the emotion of regret – and would benefit from hearing this message – forward the video to them.
Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with objective investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.
https://prosperion.us/wp-content/uploads/2016/11/the_value_of_regret.png424757Steve Boorenhttps://prosperion.us/wp-content/uploads/2017/02/whitelogosized.pngSteve Booren2016-11-04 18:54:352017-05-22 15:03:32The Value of Regret
Did you know there’s an 80% chance that a 60-year-old couple will have at least one spouse reach the age of 90?
And about 1-in-10 adults will live past age 95, according to the Social Security Administration. That’s a problem for most investors. Few retirement plans account for such a long period (sometimes more than 30 years!) of time.
So the typical question becomes: what’s going to last longer, you or your money?