Is Your Decision-Making Objective, Self-Contained, or Influenced by Outcomes?

If I jump off a cliff twice in a row and branch after branch catches me—and I’m as lucky as Duan Yu, stumbling upon the Wuliang Cave, meeting the Fairy Sister, and learning the Lingbo Weibu—should I then conclude that jumping off cliffs is a good strategy?

So after succeeding once or twice, should I keep jumping a third and fourth time?

A sensible person wouldn’t treat cliff-jumping as the right call just because a branch happened to catch them and they stumbled on a fairy sister.

You have to break the habit of tying your judgment to a single outcome.

When a single jump lands well and the branch catches you, don’t get cocky and decide every cliff jump is correct.

And when a single jump goes badly, don’t immediately doubt your investment strategy.

You must isolate your strategy from any one-off result.

Whether a strategy is good or bad is determined by long-term, large-scale, repeated testing—that’s what we call systemic thinking.

What would your strategy do if the drawdown hit 25%?

What if it exceeded 50%?

What if it exceeded 75%?

What if it stagnated for a long time?

If your strategy can profit in all those scenarios—just varying by how much—then you’ve got a trading system.

Then you assess the time scale on which it profits:does it profit every year, every month, or every week?

That’s variance.

Profiting every month looks better on a volatility scale than profiting only once a year.

Would you prefer losing in 11 months out of 12 and making it all back in the final month, or profiting every month?Would you rather lose for the first three weeks and recover in the final week, or profit every single week?

Besides variance, there’s also maximum drawdown.

Up 30% for the year but with a 50% max drawdown—or up 25% with only a 5% max drawdown.

Which would you choose?