Managing finances is a lot like managing our teams, work or lives. The principles we need to do a good job as managers of our finances are easily accessible – a penny saved is more valuable than a penny earned, compounding, time value of money, and diversification among others. There are many ways to apply these principles and it is on us to pick our own philosophy and style.
Like a management philosophy, picking a financial philosophy involves making peace with the fact that it won’t work at all times and in all situations. Every process has a range of expected outcomes. So, if we choose to be a low risk investor who expects to spend very little bandwidth thinking about money, we can’t expect to make an investment that gives us 1000% return. It may happen. But, the more likely scenario is that it won’t.
The challenge, however, is that we don’t start off knowing what kind of manager or investor we are. Luckily, thanks to the scientific method, that is a solved problem. We pick a hypothesis and begin working toward it. As we experiment and inevitably fail, we begin to learn and develop an approach that begins to work for us.
And, I’ve found that a reliable way to ensure that we’re extracting all possible lessons from our stumbles is to maintain a finance thesis sheet. The only requirement to maintain this is write out these principles, your philosophy, and your hypothesis. Then, keep a log of every key financial decision you make and what you learn from it.
Over time, this thesis sheet will become richer and better and will enable us to iterate our way into a style that suits us.
Just as in management and life.
A Learning a Day 