Decisions

When we first moved to South Carolina, we lived in Conway. Conway is about 15 miles inland from Myrtle Beach, and has a distinctly different culture. Christian music festivals, the hardline symmetry of white and black neighborhoods—the old South. It has evolved a bit since then, but not much.

Anyway, I wasn’t very happy there. So we started looking at homes on or near the beach. We kissed a lot of frogs, but finally came upon a house on Pawleys Island proper, just off the beach, on the other side of the street. It was a cool house—on stilts, naturally, octagonal, with two levels—the guest bedrooms were on the first floor and there was a cool office overlooking the ocean on the second floor. I liked the house. But there was something weird about it—it was as if a zombie apocalypse happened and the entire family fled, leaving food in the fridge and clothes strewn across the bedrooms. Apparently, there had been a nasty divorce. There was a plaque on the wall that said, “Where Two People Fell In Love…” and then we found strip club flyers elsewhere in the house. It was $825,000 for 3500 square feet—reasonably priced, even for 2014.

My realtor asked me if I wanted to put in an offer. “Let me sleep on it,” I said. So I went to sleep that night, and the next day I woke up crying. Uncontrollable sobbing, all day. My wife asked me what was wrong. I had no idea. All I knew was that I did not want to put in an offer on that house. And when I told my realtor that I wasn’t going to put it an offer, I immediately felt better.

But it was not a conscious decision. It was not a rational decision. My heart made the decision. My soul made the decision. My body made the decision. I couldn’t articulate why I didn’t want to buy that house—but I knew with every cell in my body that I didn’t want it, that it had bad juju, that it was cursed, somehow.

As someone who makes decisions for a living, I think a lot about what it means to make good decisions. And I have made a lot of good decisions over the years. Houses, cars, jobs, partnerships, ventures, investments—I don’t make too many bad ones. When I do make bad ones, I clean up the mess, I don’t dwell on it, and move on. As my father explained to me one time, we are the sum total of every decision we have made in our lives. The people who made good decisions have health, wealth, and prosperity. The people who made bad decisions have the opposite. I’m sure you know a person who consistently makes bad decisions—especially about relationships. Books have been written on that.

So how do you make these decisions? I remember being taught in grade school that when you are presented with a decision, you make a list of pros and cons, and if the pros outweigh the cons, you sign on the line that is dotted. Well, sometimes you make a list of the pros and the cons, and the pros outweigh the cons, and you have a voice in the back of your head telling you that this is still a bad idea. You should listen to the voice in the back of your head. That voice is intuition, and intuition is your friend.

I am a trader. Now, I got waxed on Friday, like a lot of people did, but it could have been a lot worse. Right before payrolls, I got a hunch—I got a hunch that two-year notes and the dollar would reverse after the payroll number. I didn’t look at any data or charts. I didn’t read an email or talk to anyone. I just got a feeling. So minutes before the release, I very quickly closed out my long in twos and my short in the dollar, and it prevented a bad day from becoming a catastrophic day. I don’t have an explanation for it. And what I’ve found over 26 years of trading is that when I ignore that voice in my head, when I rationalize it away, I get in trouble. That voice is rarely wrong. There are stories about Paul Tudor Jones, about how he’d end up the day long a billion dollar/yen, and he’d tell everyone in the firm that he was long dollar/yen, and he’d go to bed, wake up in the middle of the night, pick up the phone and close out the position and put on the opposite position, and he’d be right. There is nothing rational about this.

I have pretty good radar when it comes to people. This happened a few years ago—had a phone call with a prospective client, and had a funny feeling about it afterwards. Couldn’t quite put my finger on it. The guy turned out to be a villain. It’s not that I meet people and I immediately think they’re a scumbag. I just get an unsettling feeling, which I usually ignore—and the feeling then turns out to be right. Liars, manipulators, I can spot them a mile off, but I rationalize it away and then I regret it. I also have a pretty good bullshit detector, too. These days, I just assume everyone is full of shit. You can tell when someone is willing to go out of their way to help you—everything else is just talk. One note here: don’t be a bullshitter. If you tell someone you’re going to help them out, actually help them out. Otherwise, just say you don’t have time. Nobody gets offended by that.

I wrote a book about how it is a few big decisions that will shape the course of your financial life—not a million small decisions. The house, the car, and the student loans. If you make bad financial decisions, especially the big ones, you will be crippled for life. It always strikes me how people have such bad intuition about these big financial decisions. I mean, part of it is innumeracy—if you’re going to spend $300,000 on an education and go $300,000 into debt, then you should be able to reverse-engineer what kind of job you’d need to pay down that debt and how much you need to get paid. Likewise with the house. Part of this is agreeableness, or misplaced optimism—I will figure it out later. But a lot of this is simply bad intuition—some people make good economic decisions, and others don’t. When we made the decision to build our current house, that was probably the biggest financial decision of our lives. A lot of risk involved, above and beyond interest rate risk. Risk of cost overruns (that happened), delays (that happened), selling our old house (turned out to be a lot harder than we thought), but at this point, we have about 70% equity and unless Trump blows up the fucking planet with tariffs, we should be able to have it paid off in about 3 years. The house is almost—but not quite—too much for us. But everything worked out.

Having been married to the same woman for almost 28 years, I actually can’t speak to relationship decisions. But I have heard some stories. Boy meets girl, everything is perfect, there is no indication of any problems, but as soon as they get married, she starts screaming all the time. Or the guy has something on the side. Or whatever. You think you have a sense of someone’s character, and then—surprise. Then there are the marriages you know are doomed from the start. You’re at the wedding, and you’re like, this isn’t going to last 24 months. I guess the only guidance I can offer here is that the two people in the relationship must have shared values. My wife and I both value hard work. We value honesty. We value openness. The sex is fun for a while, but then that wears off and you have to fall back on the shared values. But you meet someone for the first time, and you fall in love, and—let me just interject here and say that picking a partner should not be a coldly rational decision. It’s not a job interview. “Falling in love” is your intuition, your heart, your body telling you that this person is the one. It happened with my wife, when we were teenagers—we actually used to have 12-hour long distance phone calls back then. All night, lying in bed, on the phone. We knew.

This is part of a larger theory of mine that people are irrational, and all the books and podcasts and videos tell us that we should be rational, but we should embrace the irrationality and use it to our advantage. Yes, human beings have the capacity for reason. Reason is what gave us Newtonian physics, followed by relativity, all scientific discoveries, cures for cancer, artificial intelligence, and all that jazz. But you know what unreason gives us? Animal spirits. Booms and busts. Economic growth. Risk-taking. Traders aren’t making discoveries with their rational minds—the only discoveries they are making are the paths that prices will travel, and they do it with their guts. My financial readers will probably intuitively know this—if you traded in such a way that “made sense,” you would lose your ass. The market isn’t rational, nor is it random. If you can’t make decisions and thrive in irrationality, you will perish.

I just wrote 1600 words on how you should trust your gut. If you don’t trust your gut, you don’t trust what makes us human.

RULE 62: Meditations on Success and Spirituatlity is coming out on June 24th.