Balancing Method and Instinct in Investment Decisions

If you’re an investment banker, you’re paid to make good decisions. And like in any other decisionmaking career, it’s about a solid process and the instinct to make that process work. Let’s talk about how to balance those two things.

In some jobs, you’re trained to know how to fix furniture, how to clean bathrooms, or how to make snow cones. But investment bankers are trained to know the future (or at least, to make a pretty darn good guess about it) and then to turn those predictions about the future into recommendations for their clients.

Because of this, the stakes are miles high. If you make great recommendations and your client takes a risk that really takes off, you’ll end up feeling like the Nostradamus of investments. But if it goes south, you’ll find out real quick that in the investment world, reality refuses to pull its punches.

Like in poker, it’s all a question of whether the wins make the losses worth it. But if the investment world is like poker, an investment banker’s trained to count cards.

If you’re an investment banker, you need a crystal ball; a system to decide when and how to make client recommendations. Not a straight-jacket (the system needs enough room for your killer instincts and for your client’s personality), but a system that shows your work when you need to back up a decision.

So here are 7 ways to make great decisions (and keep a paper trail if it doesn’t work out).


As you know, it’s not just about diving head-first into an investment deal. So much of the work is done before you buy in.

For example, say you’re investing in a real estate developer. You have to do your homework. What’s their track record? What’s their investment profile (in this case, location, type of space, etc.), and what are the risks?

These are some basic homework steps, but if you don’t do the due diligence here, you may end up with a losing hand.


Don’t make your investment alone.

Sure, there’s something cool about going full lone-ranger on an investment deal. And sure that might mean a bigger reward in the end, like the Joker knocking off his own henchmen in The Dark Knight. But that also means that you’re more likely to miss a huge red flag.

When you’re driving in traffic, you’ve got blind spots. And sometimes you need your passenger to check their mirrors to let you know when you’re clear.

Investments are already high-risk, high-reward scenarios. There’s no reason to make it even riskier by going it alone.


You need to regularly update and reevaluate the system you have that allows you to come up with recommendations for your clients.

As a professional investor, you already have a system. And if you’re honest, you’d probably admit that there’s intuition involved, as well as a workflow

And if you’ve been in the game this long, your intuition is probably serving you well. After all, not everyone can make it in your business, and it’s not just because you’re good at sales.

So don’t give up your gut. We’re just saying that your gut needs backup. Maybe that partner is a spreadsheet that weighs the potential risks and rewards in an investment opportunity. Maybe it’s a certain set of parameters that are required to be met in order to consider investing. It’s up to you, but either way, you need a structure.

When it Doesn’t Work Out, Be Able to Explain Why.

Showing your work is for you and it’s for them. It’s for you when you’re building your process and your decisions are being captured and cemented into your mind as you work — and pay attention to the work you’re doing.

It’s for them when things go south on an investment and they ask you why. If you can explain that your decision was reasonable at the time, based on what you knew, how can they blame you?

Of course, enough of those, and you’ll just be considered unlucky and you should find a new line of work. But if you can explain your decisions — and the decisions of your firm — you set yourself up for longer-term trust.

And when people understand how you work and think, you’ve built in that trust, and failures have to pile up a lot more for you to lose that trust.

Paper Trail

It’s not enough to just have a system or a brainstorming session with other investors. You need to record and keep track of this process.

You need a way of showing your work. Even if that’s just notes you’ve written down in a notebook and handed to your assistant, you need to have a system of breadcrumbs in place so you can follow them if you need to.

Sure, if you’re really rocking and rolling you’re probably wondering why you would ever need a system for showing your work. But trust us, one day you will need it, and when that time comes you’ll wish you would’ve taken this advice sooner.

Fight or Flight

As a great philosopher once said, You gotta know when to hold ‘em and know when to fold ‘em.

It’s easy to get a good feeling about a potential investment and run roughshod over the red flags just to try to force your way to the end of the process.

But sometimes things will get rough. Maybe an investor pulls out and you’re asked to pick up the slack. Maybe the guy you’re investing in gets injured and he’s out for a few weeks and that sets things back. It could be a whole host of things. But when that time comes you need to stop and consider two options: fight or flight.

Christopher Hitchens once said that the only things in life you get to choose are your regrets. True enough. So as you look at an investment deal, ask yourself this question: Which regret would I rather have?

Would you rather make the investment and have it crash on you, or would rather not make the investment and always wonder what would’ve happened if you did? In other words, Fight or Flight?

It’s your call.

Watch Your Momentum

When you make a great investment deal, you’ll feel elated. When you make a recommendation that your client loves, you’ll like a million dollars. Maybe you’ll feel like some ancient caveman who just killed his first mammoth, and now he can’t wait to bring it home to his tribe.

So go ahead, celebrate. Take your family out for that steak dinner you keep promising them.

But watch out. Success creates momentum, and like a car accelerating down the freeway, momentum makes it harder to stop.

That momentum can make you cocky. It can make you blind to red flags. So after a win, make sure to slow down and think through your next investment opportunity very carefully.

Show, Don’t Tell

When it comes to guessing the future, which all investment bankers have to do, it’s important to remember: Show, don’t tell. Most clients don’t want to hear you rattle off all your great investments as a way of convincing them to accept your fool-proof recommendation.

People are far more impressed by seeing, not what you’ve done, but how you work. So show them your system, walk them through your breadcrumbs, and explain to them how your investment process works. Show them under the hood.

This kind of clarity creates trust. It gives people a safety net knowing that there’s a system in place that they can trust, and that system isn’t just your positive gut feelings. And once they get that feeling of trust, they’ll soon begin trusting more than just your system. They’ll trust you. And that’s how you create an investor-client relationship that’ll last far beyond this one investment deal.

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