It's human to experience regret.
In the context of personal finance, most of my clients express regrets about financial decisions they’ve made in the past.
Sometimes these regrets relate to what they’ve done, such as investments that worked out badly. (Usually these relate to businesses or property.)
Just as often, these regrets relate what they didn’t do, such as investments they didn’t make.
It doesn’t take much imagination to come up with something to regret. As I write this, the following examples* come to mind:
- I could have purchased a single bitcoin for $583 in January 2016, and it could would be worth approximately $75,137 right now. (Another way of putting it: if I’d invested $5,000 in 2016, my net worth would be $650,000 higher today.) Even if I’d purchased exactly a year ago, the value of the bitcoin would have jumped from $11,515 to $75,137.
- I could have purchased Apple shares in 2008 for less than $3 per share and they would now be worth more than $100 per share. Or I could have purchased Amazon shares in January 2016 for around $600 and they’d now be worth more than $3,000. Likewise, I could have invested in Google, Facebook, or Tesla many years ago and have generated a very good return.
- If, instead of renting, I’d purchased an equivalent house to live in and sold when I moved, I’d also be in a better financial position.
Some people are better at imagining scenarios like this than others.
Some people dwell and ruminate over these sorts of scenarios more than others.
It’s not hard to frame it so we all have regrets in life, especially when we think of the universe of options that have been available to us.
Channel your tendency to think of counterfactuals
I’ve historically had a tendency to think in terms of counterfactuals or what-could-have-beens. In most scenarios I’d have ended up in a worse position than I am currently in now. “There but for the grace of God”, I’d think.
In recent years, I’ve stopped doing this.
More than anything else, I put this down to a single insight: this tendency to think in terms of counterfactuals doesn’t have to be a weakness, but can be a strength if channelled properly.
Instead of focusing on the past, and what-could-have-been, I have found a lot of success in terms of focusing on the future and what-could-be. In essence, this involves the same psychological mechanisms, but is both more productive and psychologically enriching and fulfilling.
Yep, we’ve all missed opportunities in the past. But there will be opportunities in the future, too.
Tim Urban of Wait But Why illustrates this well:
Instead of focusing on the black paths (which are closed to you), why not focus on the green paths (which are open to you).
Beliefs and strategies for managing regret
I’ve observed some commonalities among clients who are more sanguine about past decisions than others. Employing these beliefs and strategies has also worked for me personally.
Accept that there’s always potential for regret.
There will always be “best case” scenarios that we miss out on. As Arthur Miller wrote, “all one can do is hope to end up with the right regrets”.
Accept that everyone makes “mistakes”, ourselves included.
Even the most “successful” people in the world aren’t successful all the time. The Beatles wrote some bad songs. When he ran Microsoft, Bill Gates made some bad commercial decisions.
If we had a fully-functioning crystal ball, we might be able to avoid mistakes. Without a crystal ball, however, we have to accept that we don’t have perfect foresight, just like everyone else. We will all miss opportunities.
Judge decisions based on the information available at the time.
It’s important not to judge decisions (which include decisions not to do something, or decisions not to pay attention to something) not on their outcomes, but on whether they were appropriate decisions at the time.
Good decisions can lead to bad outcomes. Bad decisions can lead to good outcomes. Poker plays use the term “resulting” for when you judge the quality of a decision based entirely on its outcome .
Almost everything seems obvious in retrospect. It’s easy to judge decisions, and feel regret, when you have the benefit of hindsight. However, these feelings are often driven by a distorted idea of what we thought and felt at the time of the decision, influenced largely by our subsequent knowledge.
Develop a decision-making process, especially for consequential decisions.
I have found this useful for myself, in several respects.
- By having a robust decision-making process, you can be more confident that you’re making the “right” decision (or at the very least, an appropriate decision – it’s often the case that there are several “right” decisions available).
- It puts you at peace with the decision. If you’ve followed a process that ensures that you’ve factored in the key considerations, then it can be easier to sleep at night in relation to the decision.
- If you document the decision, you can look back and it can help you reassess where you were coming from at the time you made the decision. This often prevents regret. It also provides insight if you subsequently overlooked something important, which is something you can learn for future decisions.
I recently wrote an article explaining my decision-making process before I decide to buy something expensive (for example, photography equipment, or mountain biking gear). On reflection, this is a microcosm of my broader decision-making process, which I will probably set out in an article in the near future.
Living is a creative act. Be creative in useful ways.
Instead of using your imagination and creativity focusing on regret, I encourage you to use that imagination and creativity with a future orientation – by helping you make better decisions from this point forward.
If you’re going to focus on the past, you can’t change it. Use your considerable imagination and creativity to reframe the narrative, and make it empowering (a learning process) rather than something disempowering (regret to wallow in).
* I don’t personally feel any strong regret in relation to any of the scenarios I listed. They’re just examples I invented for the purpose of this article. For the reasons outlined above, I don’t feel any strong regret about the decisions I’ve made, investing and otherwise.