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Private Equity Investing: The 5 Things you should Practice when Making a Decision

By : Ziad K. Abdelnour| 23 June 2013
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In investing as you may know, there are many ways to fail but there are many ways to succeed too. The key is to have your process in line with your investing behavior.

Here’s some food for thought I’d strongly recommend if you are seeking to thrive or at least survive in this new financial landscape in the making.

Raise your awareness: Incomplete information and lots of uncertainty leads to poor outcomes. Behavioral economics research has found that more information increases confidence, but decreases the quality of decisions. So, knowing the difference between raising awareness and more information is critical.

Put yourself in the shoes of others: Consider the point of view or experience of the entrepreneur you are backing. This is generally a good decision move, but are you simply changing perspectives, or trying on another way of thinking. As both of these are done in your imagination, it will depend upon your level of mental development as well as the level of the person you are imagining. If his level is higher, you will simply be reflecting back to yourself what you would do.

Recognize the role of skill and luck: Sorting skill from luck is essential for evaluating outcomes and there is usually a clear cut line between both. Find it.

Get feedback: Maintaining a decision-making journal allows you to audit your decisions. The further the time away from a decision, the more memory will revise it in favor of preserving your self image. Writing things down right away reduces plausible deniability. Still, the practice presupposes you can consciously know how you made a decision, while the research shows most of the decision process will be outside of your consciousness awareness. This is one of the reasons for having an external procedural investing system. It provides feedback on what much of your system is (reducing the unconscious portions) and whether you are following it or not. Explaining your system to other people will get you even more effective feedback.

Create a checklist: It is always a great method that will alert you to think clearly about what you might advertently overlook.

Perform a premortem: Before finalizing a decision, imagine that, a year after it has been made, it has turned out horribly, then write a history of how it went wrong and why.

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