When short-term rental investors crushed it in 2021, they looked genius. Then the market normalized and returns collapsed. The speaker argues you can't tell luck from skill by looking at results. Instead, evaluate your decision-making process: did you gather the right information, ask good questions, consider market forces? Annie Duke's Thinking in Bets offers a framework for this.
One of the worst things we can do is recency bias, meaning because I had a good outcome or because of the things that have happened to me recently, this must be a universal axiom that's true in all situations. If you were a short-term rental investor in 2021, you might look very brilliant at the end of that year because the market had a huge surge in demand after COVID. And all of a sudden now it looks like that market is incredibly saturated and returns are going straight down the drain. So it wasn't because you were an incredible investor during 2021. It's because a rising tide lifts all boats. If you're not prepared for the next phase of the market, you can get caught out and lose a whole lot of money. One book that I really love, it's "Thinking in Bets" by Annie Duke. The reason I love that is because it gives us a decision-making framework. We should only be focusing on the decision-making that led to making that investment. We're looking critically at, did I have the proper information? Did I know how to do due diligence? Was I considering all the market factors? Whether it worked out or not could be contributed to a myriad of factors, including market timing, luck, and many other things. When I'm trying to refine and improve my decision-making, I actually want to keep the outcome out of it and only look at what were the questions I asked and how can I improve those questions.
