You do something that goes exactly how you planned, and even better. You buy a stock that rises 20% the day after you bought it. You sell your startup and make a couple million dollars before you even have the final product. What does it mean? Does that make you successful in what you do? Does it make you invulnerable?
In business, as in real life, every step we take is affected by factors we have no control over and that influence each other in a way we can`t always understand. A famous theory is “the butterfly effect”, which states: “a butterfly`s wing movement on one side of the world can cause a tornado on the other side”. If we`ll try to analyze this theory, we will come to a conclusion that in some way we can reach full control of our actions – only we have full knowledge of everything that happens around us. But in real life, there are a lot of things that happen without us being aware. Those little things can affect our actions without us being able to understand their impact.
How can we overcome this?
Planning Your Next Gamble
At first, before we even do anything, we need to have a plan. It doesn’t matter if we are running a business or investing in stocks, we need to have a plan that considers most of the factors we can think of and the way they may affect our actions.
During our process, we need to act as we planned. If not, we need to remember to write down the changes we made and the reasons for those changes. If we have no actual reason to make the change, we shouldn’t make it.
After the process we need to look at the results – We have three conclusions:
- As we expected.
- Better than we expected.
- Worse than we expected.
Regardless of the conclusion, we need to analyze the results and figure out whether it’s a result of factors we took under consideration or a result of new factors which popped up during the process.
Why is it important to know what affected the results?
The results of your actions will motivate you to your next step. If this motivation is based on false information it can cause a catastrophe. For example: you buy a stock and at the next day or week it climb 20% – now you think you are a great investor which can predict the market way better and faster than any other investor, so you make another trade, and another one, keeping yourself uncovered whiletaking more risk than you could afford, which leads you to catastrophe as soon as the market turns on you. In the good case you will lose some savings you had for a rainy day while at the worse case you end up losing your house or car payments and start taking loans to cover your loses (and even lose those loans).
On other hand, you might have done everything right, but some rare combination of coincidence made you end up with results worse than you expected, which will make you give up trying in the future, even though there was nothing you could have done better.
How can you control the results?
By creating a good plan and analyzing the results each time, you can build and improve your actions from time to time. Keep in your state of mind that there is an option that everything you do is affected from pure luck and things can go wrong at any point. What`s amazing in random-action is that sometimes it doesn`t seem random at all.
If you understand the risk and put it under control, with a good and solid plan you should do ok in the long run. Never get too excited when you succeed, never get too down when you fail. Do your best to understand what have happened and what the things aer you need to change for the next time. Also keep in mind that there are things you will never be able to predict.
The CEO Game.
October 16th, 2009 at 9:42 am
Hi,
Financial planning is not an easy task but you share a great article and the caution to act sensitively and keeping brain cool even in extreme success and failure is a great key if remembered then can bring stable success.
Keep sharing.
All the best.
Your friend Always.
October 29th, 2009 at 3:53 pm
[...] my last article I discussed the factors in life and business that we have no control over, but still affect us in [...]