I spent some time over the holidays thinking about ways to make things easier. The more that we can automate the easy tasks in life, the more brain power we reserve for the harder stuff that requires deeper thought. This is important because scientists proved recently that our brains get exhausted the same way our muscles do – it’s called decision fatigue and maybe you’ve experienced it too.
The more decisions we’re faced with in a day, the more our capabilities to make those decisions decline. Like a mental autopilot, at a certain point our brains end up avoiding putting thought into the decisions we’re making, regardless of how important the perceived outcome. The trouble is there’s no blinking light to tell us we’re on autopilot, it just switches on whether we like it or not.
Thousands of years ago this went a long way in ensuring the survival of our species, but it isn’t so useful in a twenty-first century knowledge-based economy. In simplest terms, if the odds of getting a decision right is inversely related to the number of decisions we have to make, then the answer is finding a way to decide less.
Running a systematic investment strategy, I’m obviously in favour of reducing decisions to a bare minimum. I believe that defining a process and automating it provides such a significant advantage to investors that it quite literally sets them apart from the competition. The greatest investors of our time, including Peter Lynch, Warren Buffett, Walter Schloss, James O’Shaughnessy, and Joel Greenblatt each followed a defined and rather automated process to generate substantial investment returns. But this is not just about investment returns.
Many successful companies outside of the investment world have also found competitive advantage through automation. In any field, when you know which decisions are the important ones, and you can find a process-driven way to evaluate them, you create value. Amazon is perhaps the most relevant example this past holiday season. They and other highly valued technology companies have not invented new things for their customers, they’ve just removed (automated) a step in the background to deliver a product their customers already buy. Removing those steps saves time and company resources in the long run.
In 2011 venture capital investor Marc Andreessen wrote a notable Wall Street Journal op-ed where he proclaimed “software is eating the world”. This is a trend that today’s most valuable companies are exploiting to create wealth for shareholders. As the easier tasks are increasingly handled by process and automation, hopefully we too will free up some brain power for the bigger and better.
Ben Kizemchuk is a Portfolio Manager & Investment Advisor with Altus Securities Inc. in Toronto. He offers financial planning and investment management for high net worth Canadian investors. Ben focuses on high quality investments, the Growth and Income Portfolios, low risk investing, and reducing tax.