A founder bought an e-commerce turnaround company driven by a savior complex when the seller was dealing with family tragedy, ignoring rational analysis. He connects the mistake to Kahneman and Haidt's work on how subconscious impulses override reason, then shares the investment rules he now follows to prevent emotion from steering decisions.
My biggest investment mistake ever acquiring this e-commerce turnaround was deeply driven by the fact that the founder during our negotiations had a personal family tragedy. There was like a savior complex in me that wanted to make it right for this guy. I loved to believe that I was investing with a rational framework and rational decision-making. And now as I've looked back and as I've unwound some of these personal patterns, I found that I was always making an emotional decision. And I wasn't trained and I didn't know how to look for the hidden emotions that were driving me to make some of these businesses. The way our brain operates, this is characterized in Thinking Fast and Slow by Daniel Kahneman and The Happiness Hypothesis by Jonathan Haidt. Jonathan Haidt uses the analogy of the elephant and the rider. The elephant is our subconscious brain and the rider is a little man on top trying to steer that elephant. And that's our ego or our rational brain. Our subconscious is way more powerful than our rational brain. And so we constantly have to be checking in. Now I have a very specific set of investment rules that I strive to follow to keep me safe from that subconscious brain, that elephant that's going to drive me in a direction that isn't necessarily the best for my portfolio.
