How to use hindsight effectively
Photo by Damien Santos on Unsplash
Towards the end of last year, I had a client who had an opportunity to purchase additional shares of their employer’s stock at a discounted price. We discussed the pros and cons while looking at how their decision could impact their overall financial plan. Ultimately, we decided to pass on purchasing any additional shares.
Fast forward to present day and their employer’s stock price is now down about 40% since our initial conversation. When I spoke with those clients recently, they thanked me for advising them to not purchase additional shares. And while I appreciated their kind words, I told them I couldn’t take credit for the outcome because we just got lucky.
It’s easy to judge our past decisions with the benefit of hindsight.
Instead, I reminded them that their employer stock could have just as easily been up 40% over the same period of time. And if it was, that wouldn’t make it a bad decision to not buy the additional shares either.
All we can do is make the best decision using the information available to us at that moment in time.
Applying hindsight to our past decisions leads to one of two outcomes. We either:
A) convince ourselves we’re super smart/skilled because we experienced a positive outcome that we just knew was coming.
or
B) convince ourselves we should've seen what was coming because we experienced a negative outcome.
But if we’re being honest with ourselves, the truth is that we had no way of knowing the outcome – good or bad – ahead of time! That’s why the best we can do is to make an educated guess using the information available to us at that time about an unknowable range of outcomes.
Hindsight is actually more useful in making our current decisions. The more we learn from our past choices and outcomes, the better our educated guesses around our current decisions become. And once we’re more confident in our decision-making, it becomes easier to accept the outcomes – positive or negative – knowing we made the best decision we could.