Why the Best Decision You Ever Made Might Have Lost You Money (And Why That's Fine)
Annie Duke's Thinking in Bets explains the single biggest mistake investors make - and it has nothing to do with stock picking.
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Most investors judge themselves by the wrong scoreboard.
They buy a stock. It goes up. They conclude it was a good decision.
They buy another stock. It goes down. Bad decision.
It feels obvious. Intuitive. Almost unchallengeable.
And it’s completely wrong.
I’ve been reading Thinking in Bets by Annie Duke, a former professional poker player turned decision strategist. The book’s central argument is deceptively simple, but it has profound implications for how we think about investing - and it connects directly to the asymmetric framework we use at Schwar Capital.
The core idea is this: the quality of a decision and the quality of its outcome are not the same thing.
And confusing the two is the most expensive mistake an investor can make.
The Resulting Problem
Duke calls it “resulting” - the tendency to judge a decision based solely on its outcome.
It happens everywhere. A fund manager buys a speculative biotech stock on a hunch, no real analysis, and it triples because of an unexpected FDA approval. Everyone calls it a brilliant trade. A disciplined investor spends weeks analysing a high-quality business, buys at a reasonable valuation, and then a black swan event tanks the market. Everyone calls it a mistake.
But the first decision was reckless. And the second was sound.
The outcome doesn’t change that. It can’t.
This is the trap.
When we evaluate decisions by outcomes alone, we learn the wrong lessons. We reinforce bad habits that happened to work and abandon good processes that happened not to.
Over time, that feedback loop is lethal.
Every Decision Is a Bet
Here’s where Duke’s framework gets interesting for investors.
She argues that every decision is fundamentally a bet - a wager on an uncertain future with incomplete information. You’re putting something at risk (capital, time, opportunity cost) in exchange for an expected payoff based on your assessment of the probabilities.
Sound familiar?
That’s exactly what investing is. Every position in a portfolio is a bet. You’re staking capital on a thesis about the future, knowing that the future is uncertain and your information is incomplete.
The question isn’t whether you’ll be right every time. You won’t. The question is whether your decision-making process gives you an edge over many repetitions.
This is the same logic that underpins poker, and it’s the same logic that underpins what we do at Schwar Capital. We don’t need to be right on every position. We need our process to produce positive expected value over time.
And that requires separating the quality of the decision from the noise of any single outcome.
Thinking in Probabilities, Not Certainties
One of the most practical shifts Duke advocates is moving from binary thinking to probabilistic thinking.
Most investors operate in certainties. “This stock is going to double.” “The market is about to crash.” “This company is the next Amazon.”
But the world doesn’t work in certainties. It works in distributions of outcomes with varying probabilities.
When I evaluate a position at Schwar Capital, I’m not asking “will this work?” I’m asking “what’s the range of outcomes, and how do the probabilities weight across that range?”
That’s a fundamentally different question. And it changes everything about how you construct a portfolio.
If there’s a 40% chance a stock triples and a 60% chance it falls 30%, that’s a positive expected value bet - even though you’re more likely to lose than win on any single instance.
The expected value of that bet is positive because the upside in the winning scenario more than compensates for the downside in the losing scenario.
That’s asymmetry expressed through probability.
And it’s why I care far more about the skew of potential outcomes than about whether I think something will “definitely” work.
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The Two Enemies: Hindsight Bias and Motivated Reasoning
Duke identifies two cognitive traps that are particularly destructive for investors.
The first is hindsight bias.
After an outcome occurs, our brains reconstruct the past to make that outcome feel inevitable. “I knew it was going to happen.” No, you didn’t. You assigned some probability to it happening, and it did. But if it hadn’t happened, you’d have reconstructed an equally convincing narrative for why that was obvious too.
Hindsight bias makes us overconfident in our ability to predict the future. It erodes the probabilistic thinking that good investing requires.
The second is motivated reasoning.
We don’t process information objectively. We process it through the lens of what we already believe - and what we want to be true. When we own a stock, we unconsciously weight positive information more heavily and discount negative information. When we’ve sold a stock, we do the reverse.
This is why thesis discipline matters so much. At Schwar Capital, the sell decision is tied to the thesis, not the price. If the business fundamentals have changed in a way that breaks the original investment case, that’s a reason to sell - regardless of whether the stock is up or down. If the thesis is intact and the business is executing, that’s a reason to hold - regardless of what the market is doing in the short term.
Without a clear, pre-defined thesis, motivated reasoning fills the vacuum. And it will always tell you what you want to hear.
Process Over Outcomes: What This Looks Like in Practice
Here’s how this translates to real portfolio management.
Before entering a position, I try to define the thesis in specific, falsifiable terms. Not “this company is great” but “this company will grow revenue at 15%+ for the next three years because of X, Y, and Z.” That gives me something concrete to evaluate later - a benchmark that isn’t contaminated by the stock price.
When a position goes against me, the question isn’t “how much am I down?” It’s “is the thesis still intact?” A 20% drawdown because of a broad market sell-off is noise. A 20% drawdown because the company lost its largest customer is signal. The response to each should be completely different, even though the P&L looks the same.
When a position works, the discipline is equally important. The temptation is to sell and lock in the gain. But if the thesis is playing out - if the business is executing even better than expected - selling is the wrong decision, no matter how good it feels. You’re cutting off the right tail of the distribution, which is exactly where asymmetric returns come from.
After a position is closed, the review focuses on the process, not the outcome. Did I define the thesis clearly? Did I size the position appropriately for my conviction level? Did I respond to new information rationally, or emotionally? If the process was sound and the outcome was bad, that’s not a failure. That’s variance. If the process was poor and the outcome was good, that’s not a success. That’s luck. And luck runs out.
Why This Is Hard (And Why That’s the Edge)
The reason most investors don’t think this way is because it’s deeply uncomfortable.
It means accepting that you can do everything right and still lose money on a position. It means acknowledging that some of your best returns may have come from flawed decisions that happened to work out. It means resisting the narrative your brain desperately wants to construct after every trade.
Duke uses a concept she calls “the shadow of the future” - the idea that you should make decisions as if you’ll have to explain your reasoning to a group of thoughtful peers, regardless of the outcome. Not justify the result. Explain the process.
The investors who can sustain that mindset - who can stay process-oriented when outcomes are painful, who can resist the pull of resulting, who can think in probabilities rather than certainties - have a structural edge.
Not because they’re smarter. Because they’re more rational. And in a market full of emotional participants, rationality compounds.
The Takeaway
If you remember one thing from this post, make it this:
A good decision can have a bad outcome, and a bad decision can have a good outcome. What matters is the quality of the process, not the result of any single bet.
That’s the central lesson of Thinking in Bets. And it connects directly to how we invest at Schwar Capital.
We think in probabilities, not certainties. We define our thesis before we buy, and we evaluate against that thesis - not against the stock price. We size positions to reflect our conviction and the skew of potential outcomes. And we judge our decisions by the process, not the result.
The market doesn’t reward the people who are right most often. It rewards the people who think most clearly about risk, probability, and asymmetry - and who have the discipline to act accordingly.
That’s betting with an edge. And over time, the edge compounds.
Thanks for reading,
Dom
Schwar Capital
Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. You can see our full disclaimer here.