The question of whether to trust one’s own gut or to painstakingly analyze any problem has received different answers among different people and in different situations over the centuries. On the one hand, there is certainly such a thing as “paralysis by analysis”. I’ve seen many cases myself where real estate investors spend a lot of time (and money) learning, only to never actually buy a property. You may also see some “seminarholics” at many events who have been to countless bootcamps and such, but have not closed a single deal.
Besides, as the famous saying goes, “time is money.” So even though a detailed analysis will give a better result, it is not necessarily the better course of action as the time spent on such analysis may not be worth the cost.
But gunsmiths who just go with their intuition have been known to make a lot of mistakes, including some huge ones. Former WeWork CEO and certified nutjob Adam Neumann was able to get SoftBank CEO Masayoshi Son to invest $4.4 billion in his wildly overvalued company during a 28-minute car ride to the airport. needless to say, that gut decision didn’t play very well,
Thus, we are left with a conundrum, should you trust your gut or do detailed analysis? There’s no exact answer, but a deeper dive (or detailed analysis, if you prefer) can provide some useful guidelines.
The power (and danger) of human intuition.
Needless to say – the more experience you have with something, the better your intuition. But other than that, for any small decision you should go ahead and use your discretion. Should you install a ceiling fan or regular light fixtures in this bedroom? do not think much. decision fatigue It is also a true fact. Just decide and do it.
That being said, you should be under no illusions about how useful your gut can be. A series of four studies from Harvard had the following results“The first determines that most people believe that intuition is a better guide than systematic thinking to accurately predict another’s thoughts and feelings. The other three studies found that the opposite is actually true.
With hiring, for example, trusting your gut has a very poor track record. Jack Welch, the great former CEO of General Electric, estimated that about 25 percent of his employees were “a player” by the time he implemented it. a topgrading approach developed by Brad and Geoff Smart, In turn, that number rose to 50 and then 80 percent.
Geoff Smart puts it in his great book WHO,
“Fraudsters can pass off fake pictures as genuine time-pressed buyers, and people who badly want a job can fake an interview lasting only a few minutes. Gut instinct is very wrong when it comes to placing. If you make an offer based on the feel of a good gut, you are going to get gutted!
At the same time, your gut instinct can reflect a variety of experiences and knowledge that your analytical mind cannot always properly articulate. A great example was given by Malcolm Gladwell in his book Blink Describing decision-making expert Gary Klein’s investigation into how a lieutenant firefighter narrowly avoided a catastrophe.
“The fire started in the kitchen, behind a single-storey house in a residential neighbourhood. The lieutenant and his men broke down the front door, laid out their hose… put out the kitchen fire with water. Something should have happened then: the fire should have been extinguished. But this did not happen. So the men sprayed again. Still, it didn’t seem to make much difference. The firefighters went through the archway back to the living room, and there, suddenly, the lieutenant thought to himself, something is wrong here. He turned to his men. ‘Let’s go outside Now, He said, and moments after he did so, the floor he was standing on collapsed. It was learned that the fire started in the basement.
“‘He didn’t know why he ordered everyone out,'” Klein recalls … for the next two hours, over and over again [Klein] The firefighters are taken back to recount the events of the day in an attempt to find out what the lieutenant did and did not know. ‘The first thing was that the fire didn’t behave the way it was supposed to,’ says Klein. The fire of the kitchen must be answered with water. It didn’t. “Then they went back to the living room,” Klein continued. ‘He told me that he always puts his ears up because he wants to know how hot the fire is, and he was surprised by how hot it was. The kitchen fire should not have been so hot. I asked him, ‘What else?’ Often a sign of expertise is to see what doesn’t happen, and another thing that surprised him was that the fire was not making noise. It was cool, and it didn’t make sense how hot it was in there.'”
“In retrospect all those discrepancies make perfect sense. The fire did not respond to sprinklers in the kitchen because it was not concentrated in the kitchen. It was quiet because it was buried by the floor. The living room was hot because the fire was under the living room.” , and the heat rises. However, at the time, the lieutenant had made none of these connections consciously. All of his thinking was going on behind the closed doors of his unconscious… The fireman’s internal computer spontaneously and immediately Found a pattern in the chaos.
If they had sat down to analyze the situation for a few seconds, they would all have died.
Now I must confess that I find Gladwell a frustrating intellectual who is better at asking questions than answering them. Blink Goes back and forth between examples of one’s gut intuition working perfectly and then backfiring spectacularly. It has been said that the thesis of the book may even be “Always trust your gut except when you shouldn’t.”
Although, in fairness, Gladwell does try to solve this puzzle late in the book,
“One of the questions I’ve been asked over and over Blink As it turns out, when should we trust our instincts, and when should we think things through consciously? OK, here’s a partial answer. On straight options, deliberate analysis is best. When the question or analysis and personal choice become complex – when we have to juggle many different variables – then our unconscious thought processes can take over.
Ironically, as Gladwell himself notes, this contradicts what many other experts say. For example, Harvard Business Review have a piece emphatically said, “Don’t trust your gut.” It states that “the most dangerous of these flaws, when it comes to intuition, is our deep-seated need to see patterns” and thus, “the more complex the situation, the more misleading intuition becomes. In a truly chaotic environment—where cause and effect no longer have a linear relationship—the last thing you want to do is try to apply patterns.
In other words, Gladwell believes that you should trust your gut when things are complicated, not when they’re straightforward, and Harvard Business Review Thinks you can (probably) trust your gut when things are straightforward but not when they’re complicated.
So what should we do?
how to use your gut
As mentioned above, the first series of events for which you should always use your gut are simple and relatively unimportant decisions. Try to take small decisions quickly and do not overthink them. Mexican or Italian food? Which movie to watch? What color backsplash to install? Just decide and go for it. Analyzing things like this in depth isn’t worth the cost.
After that, I’d like to look at your gut as two major uses. The first is when something seems really wrong. If it sounds right, but a detailed analysis doesn’t support it, I’d still shy away from it (unless, of course, it’s low-cost, like buying Dogecoin when it was a hundredth of a penny).
This is what happened with the firefighter example above. Something felt really wrong, even though the lieutenant couldn’t quite put his finger on it. In such cases you should move away. In fact, Gladwell begins his book with a similar example of an art historian finding that an extremely expensive sculpture that a museum was about to buy turned out to be a fake.
If something really feels wrong I’ll stay away.
The second use is when your gut tells you something – good or bad – you should at least check it out. Look at it like a litmus test. It’s not the answer, but it serves as a guide as to where to spend your mental energy.
Lately, I felt we were spending way too much on HVAC, and despite being told it was pricey, I decided to dig into it and found we could save a sizeable amount by switching manufacturers , even if that manufacturer is considered operational. high end. Several years ago, our previous property manager kept telling us that our turnover was really high, and that’s why they were costing us so much. After a while, it just didn’t feel right. So, my brother went and checked some of the units himself and found their explanations flawed, to say the least. She didn’t last long as our property manager.
Another time a third party property manager told us that internet advertising didn’t work for an apartment we had in a less desirable area. We naively accepted this explanation for a while before finding out it was nonsense when we took the building back to manage ourselves after more than a year of low occupancy.
Every real estate investor (and business owner, for that matter) has had many experiences of slapping their foreheads with regret upon realizing that they were overspending or underutilizing a potential resource. Looking back, it always seems like it should have been blatantly obvious.
But things move fast in business, and lots of fires and other problems have to be resolved. ,Quadrant 1 ActivitiesAs Stephen Covey would say.) It’s easy to let issues like this slide, even when your gut says something is wrong.
This is especially true of bad employees, who are unfortunately often quite good at gaslighting their supervisors while being bad at their jobs. For example, about a decade ago we had a rehab manager who was taking kickbacks. It was only after he left that we found out, but it was becoming clear that his projects were coming in too expensive, and he was oddly selective about which contractors he wanted to use, even if it didn’t make sense. Taking his word for it when our guts said otherwise cost us dearly.
This also applies to the opposite. I had a good feeling about bitcoin in 2012 when it was worth less than a dollar, even though I didn’t really understand it. Well, I probably should have taken the time to figure it out…
On the other hand, our decision to move to Kansas City in 2010 to open a second branch felt right. Once we saw the market and an opportunity to buy and hold in a more cash flow friendly market, rather than Eugene, Oregon, where we were, it made sense, and so we pursued it.
conclusion
Finally, your gut is an important but dangerous tool. Acting like a gunslinger and relying only on your intuition is bound to land you in trouble. But giving it up completely will be a waste of time and often leaves you stuck in analysis paralysis.
Work on allowing yourself to quickly rely on your intuition for small decisions and sharpen it as a warning beacon to investigate issues when things feel wrong (or right). But be sure to use an analytical approach when examining any intuition you had. Your gut will often lead you astray.
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
