What obstacles did you face?
What things, including feelings, experiences, or advice, helped you make a decision? Try to trace back to earlier lessons in life or to values or principles that were passed on to you by your parents, elders, mentors, or other people that influenced you.
Refer back to the list of values and see what values you recognize in your stories and in yourself. Now can you narrow your list down to eight core values?
Test Your Values
If you have not spent much time thinking about your core values (and most people do not), these exercises might feel a bit unusual. When anything feels new or unfamiliar, it is helpful to test things out, wear them for a while, and see how they fit. Put your decisions to the test against your values and see if they stand (are keepers) or if they fall (need revisiting or relegation). Your list of core values might change after you have had the chance to reflect upon them. This doesn’t mean that your values have changed, but rather that their prioritization or your awareness of them may change.
In the next chapter, we’ll dig deeper into how to make integrated investment decisions that also align with your values.
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INTEGRATED INVESTMENT DECISION MAKING
I WAS EXPOSED TO saving and personal finance early on in life. My parents helped me open a bank account when I was a child, and I invested my meager savings in national savings bonds.
As a teenager, my education was well-rounded. I tried my hand at all sorts of subjects, including science, mathematics, creative writing, music, and visual arts. But when it came to choosing a career path at the end of high school, I decided to become an accountant because I was good with numbers. I also remember thinking that the world would always need accountants.
I studied mathematics in university and majored in accounting, and later earned a post-graduate degree. I even learned how to code, as computer science was a significant component of the math faculty in my university. I can’t say I recall having much exposure to investing during my university years other than a course on corporate finance, the real-life application of which I wouldn’t realize until much later on in my career.
My studies landed me a job with a global accounting firm, where I spent my days auditing financial information and meeting with finance teams and chief financial officers of entrepreneurial companies.
Working for a global accounting firm opened the door to Europe. I relocated to the UK with my firm, and there I first had exposure to mergers and acquisitions, private equity, and corporate finance. I became a corporate finance advisor in London, working with and advising entrepreneurs who were buying companies, selling them, or raising finance. But after a couple of years of advising and recommending, I wanted to understand investment decision making better. I wanted to get up close with investment capital, and be directly involved in the decisions about how it would be invested.
My desire to understand the investment decision-making process in greater detail became a driving force in my career. This guided me toward investment banking, and later to where I am now—designing, building, and leading new venture funds and applying a more integrated approach to investment decision making for both myself and my clients. I am excited and passionate to share what I know about integrated decision making with others because it’s a better, more holistic, purpose-driven approach that anyone can apply to their investment activities and benefit from in the form of financial, impact, and social returns.
Integrated decision making is linking, coordinating, and combining inputs and information from multiple sources to choose a course of action, including analysis, and your emotions, body, and intuition. Integrated investing specifically applies decision making to the activity of investing and combines motivations, mindsets, and tools for yielding integrated investment returns.
We are at a turning point in the economy and society, when the old approaches to investment decision making have failed us. To embrace a new idea or concept requires us to let go of analysis, just for a moment. Suspend your disbelief that investment decision making is only about analysis. We must also engage emotion and intuition, and pay closer attention to our bodies, to make sound investment decisions. In the absence of all other information, integrated decision making is where you start and what will help you make decisions even when facing the most complex investing dilemmas.
For example, you could apply integrated decision making when you meet an entrepreneur and learn about their venture, and you are evaluating whether or not it is an investment opportunity you should pursue. This specific point in the investment decision-making path already has a lot of complexity. At this point you’re wondering if you like the entrepreneur, whether you can work with them and their team, whether the venture is going to succeed in having a meaningful positive impact, and whether it will be economically viable and profitable.
Integrating information from analysis, emotion, body, and intuition will help you answer these questions more quickly and confidently.
In this chapter, we’ll go over the parts of the integrated decision-making process, which include the following:
How analysis helps us decide
How emotion affects our investment decisions and how greater emotional awareness can actually help us make better decisions
How our bodies can affect how we approach risk or stress and therefore affect investment decisions
How intuition is necessary for making investment decisions in the face of uncertainty
How to integrate analysis, emotion, body, and intuition into investment decisions
Once you have a better understanding of the integrated decision-making process, you’ll see why it is so effective.
How Analysis Helps Us Decide
Analysis is probably the decision-making input you are most familiar with. It involves formulas, metrics, measurement tools, numbers, and ratios that are pegged against some benchmark in such a way that they can help you decide whether an investment is worthwhile for you or not.
We use four analytical tools in investing: count, calculate, compare, and contrast. For example, the number of years in business and number of customers are counted. Revenues, margins, profits, and ratios are calculated. Entrepreneurs and companies are compared and contrasted to others that you’ve read about, that you’ve worked with previously, or that you’ve met recently.
It can be tempting to compare a company’s current revenues and profits to those from previous years, or to those of other companies, but with early-stage ventures, there is limited information on revenues and profits (or if there is information, the results from the early years are often lumpy and inconsistent). Instead, we try to analyze other information we can count, such as the number of customers, or we try to analyze the entrepreneur’s record of success from previous companies and ventures.
Sometimes we compare and contrast an entrepreneur to others we know. We look at their credentials, degrees, and professional designations. We compare and contrast the number of years they have been working or the number of businesses they have started and exited.
What Analysis of Businesses Tells Us: Examples
The following are examples of three investments made by the impact venture fund Pique Fund, based in British Columbia, Canada. This isn’t the only analysis we did. We also analyzed past financial statements, future forecasts, and projections. The following gives you an idea of the types of analysis we did.
Wearable Therapeutics —At the time of Pique Fund’s investment in Wearable Therapeutics, the founder had already sold a significant number of the company’s product, Snug Vest. Although the company was not yet profitable at that time, its revenues could be measured. Snug Vest is an inflatable vest, a wearable technology that enables users to experience a form of deep pressure therapy. Analysis of the number of children and adults with autism who had purchased Snug Vest gave us an indication of how many people Wearable Therapeutics was able to help. A quick analysis of the competitive landscape showed that there were a number of businesse
s aiming to serve a similar customer base.
Beanworks Solutions —Beanworks provides accounting workflow automation software. To analyze the opportunity for Pique Fund, we looked at the number of invoices processed by the software and growth in invoices processed. We also examined the number of customers, signed users, customer growth and retention rate, and new business generated through referrals. We had sufficient data to analyze the largest customers. The CEO also committed to at least a 50% female workforce, which can be measured.
e PACT Network —ePACT is a digital social networking platform that connects people to their entire community, providing a platform to securely share emergency information and communicate in the event of a crisis. We analyzed the emergency preparedness market to get a sense of the potential size of the market opportunity. We also analyzed ePACT ’s year-on-year revenue growth, user growth, and average customer size.
Analysis is helpful, but has its shortcomings. It is best suited for situations where something has already happened. To make a decision about the future in the face of uncertainty, we develop models and formulas to draw from the patterns of the past. These predictions are useful, but not infallible. There will always be uncertainty about the future, because it hasn’t happened yet!
Analysis helps us take some of the guesswork out of an investment decision, but it is only one type of information. Our emotions, body, and intuition are critical for making meaningful and purposeful investment decisions in the face of uncertainty.
How Emotion Shows Up in Our Investment Decisions
Historically, investors have been encouraged to leave emotions out of investment decision making, but this is like asking investors to stop being human. Instead, I encourage you to become more aware of your emotions while investing, and understand how they influence your decisions alongside the information and inputs you get from analysis, body, and intuition.
Faced with a decision, ask yourself what you want to do. When you have to make a decision between what you think you should do and what you feel you want to do, your emotions generally make the final decision.
Around the time I started connecting emotions to investment decision making in 2010, my husband told me about a radio interview that he had heard with Antonio Damasio, the David Dornsife Professor of Neuroscience and Head of the Brain and Creativity Institute at the University of Southern California and Adjunct Professor at the Salk Institute. Damasio had conducted research on patients who suffered from injuries to the frontal lobe, the part of the brain that directs emotions, and his research supported what I had observed anecdotally about the importance of emotion in decision making.
Damasio gave examples of simple decision-making situations experienced by some of his patients who had lost the ability to feel emotions, such as choosing a time for an appointment or choosing a restaurant. In the former, one of his patients would deliberate logically between the merits of Tuesday or Wednesday, but struggle to actually choose between the two and make a decision. In choosing a restaurant, a patient would look at an empty restaurant and rationally analyze it, taking its emptiness as a probable bad sign that the food was not so good—but that would be followed with reasoning that the restaurant being empty meant they could get a table, so perhaps they should go there. The debate between the two choices would continue endlessly.
At the Aspen Ideas Festival in 2009, Damasio said in an interview that his patients struggled with choosing amongst options because they were missing the “lift” that comes from emotion. He makes a compelling case that it is emotion that drives people to decide something is good, bad, or something in between. His patients who experienced damage in the frontal lobe were missing the emotional impetus and therefore could not decide between one thing and another.
Damasio went on to note that our decisions can be swayed in the moment, even by small changes, because we draw from our experiences. It is not just the facts or the outcomes of an experience that influences our decisions, but also what we remember about how we felt, whether we felt good or bad about the experience.
The major conclusion drawn from Damasio’s research is that the associated emotion of an outcome must be taken into consideration alongside the facts of the outcome. He believes people develop wisdom over time as a result of understanding and developing the knowledge about what our emotions tell us and what we learned from them.1 Understanding our emotions—not ignoring them—is critical for wise, more impactful investment decision making.
Studying the Emotional Brain
In 1994, Damasio wrote his book Descartes’ Error: Emotion, Reason, and the Human Brain, which included research on two subjects: Phineas Gage from the 1800s, and a man named Elliott, one of Damasio’s neurology patients. One of the earliest pieces of scientific research that suggested emotions are necessary for making decisions was a study of Phineas Gage, a railroad worker who, in 1848, suffered a severe injury to the frontal lobe of his brain when an iron rod pierced his head in an accident. Surprisingly, Gage survived, but he suffered from severe deficiency in practical and social decision making. According to Damasio, the case of Gage and other patients with similar frontal lobe damage presented evidence that the part of the human brain that drives emotions is critical for and inextricably connected to making decisions.2
Damasio wrote that after damage to the frontal lobe of the brain, basic intellect and language might not be affected; however, a person’s previously learned social etiquette, and social practical and ethical rules (which is particularly interesting in an impact investing context) could be lost. Damasio’s research also captured evidence of a part of the human brain that affects a person’s ability to anticipate the future and plan within complex social situations and contexts, social responsibility toward one’s self and others.3 These findings, that within parts of the brain there is a strong connection amongst emotions, future-orientation, ethics, and social responsibility, have incredible impact on how investment decisions are made. Impact investing needs more than just measurement to have more effective impact. It needs emotions.
The study of Phineas Gage taught us that complex functions such as decision making and social cognition are largely dependent upon the frontal lobes. Damasio argues that emotions help us deal with uncertainty and plan for the future. Emotions point us in a direction, so that we can then put logical, rational action to good use.4 I would add that logic, measurement, and analysis help narrow down the field of choices for us. But to make a decision, we need emotion to guide us.
More recent research conducted in the 1980s also supports the claim that emotions are key to decision making.
In 1985, together with Paul J. Eslinger, Damasio studied the case of his patient Elliott. He was a businessman who had a benign tumor removed from the central area of his prefrontal lobe. After the operation, Elliott experienced a series of problems and setbacks. He began to perform poorly at work, to the point of losing his job. He found himself in financial difficulty after a series of bad financial and professional decisions. He got divorced, remarried, and divorced again. Elliott was unable to get any disability support from the government at the time because he was unable to prove what his ailment was. On the face of it, there was no obvious evidence that his brain was malfunctioning. The standard neuropsychological tests at the time did not reveal anything. He scored average or above average on all the tests. Elliott’s language and mathematical abilities and his memory appeared to function normally, but the problems he was experiencing showed that he was struggling to solve the problems of everyday life. Neurophysiologically, this ability arises from the cooperation between the amygdala and the frontal lobes.5
Damasio proposed an original theory of the mechanisms by which these structures interact. Elliott’s prefrontal lobe, which is the part of the brain associated with emotions, was damaged during his operation. Damasio theorized that people whose brains demonstrated a disconnect or miscommunication between the amygdala and the frontal lobes would have problems making subtle emotional judgemen
ts of the effect and content of their actions. This flies in the face of what we’ve been indoctrinated with. We shouldn’t be leaving emotions out of our decisions. Instead, emotions are an essential condition for being able to make rational or personal decisions in everyday life.6 These findings are overlooked and ignored far too often. It’s time we change our approach and build a greater understanding and appreciation of how emotions help us in our decision making.
Emotions and Investment Decisions
If emotion enables and influences your decision making, it follows that it affects your ability to decide whether an investment opportunity is good, bad, or neutral. As Damasio noted, we not only remember the facts and outcomes from previous situations, we also remember whether what we felt was good or bad.
Apply that to investments and you are likely to make a decision based on the emotions you experienced as a result of a past investment decision. For example, if you invested in a first-time entrepreneur once and it felt good, you’re likely to have a positive emotional reaction if presented with a similar opportunity, and therefore be inclined to make the investment again. Conversely, if your prior experience ended poorly, you’re likely to be more conservative in your decision making. If you invested in a private venture previously and it didn’t succeed, such that you lost your investment and felt bad about it, you’re likely to be more cautious the next time you’re approached with a private venture investment opportunity.
Reminders in Building Your Emotional Awareness While Making Investment Decisions
Move past the emotion of fear of investing in an opportunity. Balance this negative emotion with analysis.
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