Unintended consequences

It has long been recognized that the path to success begins with discipline. Defining a particular strategy, choosing the research to support it, and implementing decisions in clear and consistent ways are some of the steps managers take along their path to success.

Uncalibrated inputs like heuristics, beliefs and biases can impact investment decisions, shifting managers off their disciplined path. Knowing when your decisions truly reflect disciplined investing verses more behaviorally motivated processes is difficult to distinguish. In fact, it is simply impossible to assess when or how often decisions reflect behaviorally spurred judgments, using only self reflection as your guide.

Understanding the value of judgments, and applying this insight to managing investment behavioral tendencies, requires rigorous analysis. Only when these tendencies are known, their persistence measured, and their impact on performance calculated are managers able to rely on their judgment to keep them on the path to success.