The Day You Became a Better Thinker

“The race doesn’t always go to the swift, nor the battle to the strong, but that is the best way to bet.”
- Hugh Keough

I recently went from being your average run-of-the-mill thinker to an improved one after learning a simple concept. Once you hear how it works, you’ll be able to use it all the time and make better decisions.

Good thinking requires focus, open-mindedness, understanding, and clarity - and the ability to avoid distraction by the unimportant. In short, it’s all about the base rates.

Base rates - the probability that something will, or won’t, happen based on previous experiences - can be used for virtually every thought process or decision.

For example, if you were considering opening a restaurant, you would first determine what success looks like to you, and how likely you are to achieve this. So, how do you go about doing this? Look around.

First stop: Google. It’s not just there to learn the name of the least famous Baldwin brother (poor Daniel). Google can answer most every question you have. A few quick searches will help you estimate how often restaurants are profitable - i.e., if 90 per cent close within three years, it should give you pause. A long one. Because, that 90 per cent failure level is the base rate, or expectation, of restaurants closing in less than three years.

You are unique, you say! You’re smart, hard-working, creative, and better looking than the average restaurateur. But can your talents change the expected 9:1 failure rate? Unless your last name is Ramsay, Oliver or Flay, the odds are heavilyagainst you. As Warren Buffet likes to say, “I don’t look to jump over seven-foot bars: I look around for one-foot bars I can step over.”

Base rates can apply to most aspects of your personal and professional life. Looking for a new career? Look up the average salary for each field you’re considering. You’ll also want to know the age, experience and education of employees earning that salary.

Perhaps you want to buy a house built in the ’60s. You should probably know the average upkeep expense for homes older than 50 years.

Using base rates won’t work every time. There are times when the odds might be in your favour, yet one misstep could be devastating. While most decisions won’t make or break your life, not having house insurance, for example, could ruin you financially if you’re unlucky. So, when the downside is catastrophic, avoid even the unlikely situations, or at least ensure you’re protected.

And that’s it. When reasoning through a problem or making a decision, figure out what the base rate is and apply it. Unless of course, even one failure could lead to devastation. Then avoid it like the plague.

Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Matthew Lekushoff, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.