Investing Psychology Chapter 7: The Good Enough Investing Framework
Previous: Chapter 6 Part 2
After six chapters of bad news about our brains, Chapter 7 finally gives us something we can actually use. Richards calls it “Good Enough Investing.” Not perfect investing. Not beat-the-market-every-year investing. Just good enough.
Here’s the thing. We’re all biased. We’re all confused. We all lie to ourselves. But in the land of the blind, the one-eyed person is king. You don’t need to be perfect. You just need to be a little less terrible than everyone else.
This chapter pulls everything together into a real framework. Let’s walk through it.
The Seven Rules Before the Seven Steps
Before getting to the framework itself, Richards lays out seven guiding principles. Think of these as the foundation.
Rule 1: The Rule of Seven. Your brain can only hold about seven pieces of information at once. George Miller proved this in the 1950s. More data doesn’t make better decisions. The famous jam experiment showed this too. Give people too many choices and they freeze.
Rule 2: Use Tools. Humans are tool makers. Decision trees, checklists, spreadsheets. Use them. But here’s the problem: tools are a support, not a replacement for thinking. In 2008, Wall Street relied on models they didn’t understand. We know how that ended.
Rule 3: Nothing Works Forever. Markets change. Strategies that worked in a bull market might fail in a bear market. You need a meta-method. A method for updating your method.
Rule 4: Be Skeptical. Confirmation bias is one of the worst biases in investing. You’ll naturally look for evidence that supports what you already believe. Fight it. Actively look for reasons you might be wrong.
Rule 5: Don’t Trust Yourself. Your memories are unreliable. Your emotions are unreliable. Your confidence is probably too high. Keep a rainy day fund of at least three months of expenses so you never have to sell investments in a panic. And never borrow to invest.
Rule 6: Self-Control Is Key. Remember the marshmallow experiment? Kids who could wait for a second candy had better life outcomes and were better with money. If you can’t resist impulse purchases, you’ll probably struggle with investing too.
Rule 7: Get Feedback. This is the most important one. You need someone or something to show you where you’re going wrong. We gloss over our mistakes too easily. An independent pair of eyes is worth more than any strategy.
The 7-Step Behavioral Investing Framework
Now the real stuff. Richards gives us a simple loop that you can use for every investment decision.
Step 1: Make It Personal
Write a personal investing mission statement. Yeah, it sounds corporate. But it works. When markets go crazy (and they will), your mission statement is what you come back to.
Richards shares his own: “My mission is to invest in high quality corporations when they are undervalued relative to the market, and to hold them until such time they become extremely overvalued relative to the market.”
Every phrase means something specific. “High quality” = real financial metrics. “Undervalued” = he hunts stocks hit by bad news. “Extremely overvalued” = he holds for a long time and only sells when prices get really stretched. Your statement will be different. That’s the point.
Step 2: Build a Checklist
Checklists work. Peter Pronovost proved this in hospitals where a simple checklist nearly eliminated certain infections. Nothing new was added. Just making sure people actually followed the steps.
But here’s the key. Richards says your investing checklist should not just be about financial metrics. It should also check your behavioral state. Are you emotional right now? Did you just read scary headlines? Are you buying because your friend told you to?
Get the person right and you’re halfway to getting the investment right.
Step 3: Write It Down
When you make an investment, write down why. What’s your thesis? What do you expect in one year, three years, five years? Where did you find the idea? What’s the weather like? (Seriously. It becomes useful data later.)
Three rules here. Do it immediately, before commitment bias kicks in. Never edit your notes after the fact. And don’t make exceptions.
If you rely on memory, you’ll fall victim to hindsight bias. You will not remember correctly. Richards is very clear about this.
Step 4: Schedule Your Reviews
Put review dates in your calendar right when you buy. Richards suggests after three months, then every six months. Don’t check prices daily. Too much checking leads to overtrading.
Be careful with news. Most of it is sensationalized or managed by PR departments. Watch for warning signs like management speak changing tone, weird transactions, or big stock option gifts to underperforming executives.
Set triggers. If you don’t schedule reviews, you won’t do them.
Step 5: Get Feedback
Reviews serve two purposes. First, check if the investment still meets your criteria. Second, compare your original expectations against reality. Your written thesis is the baseline.
Try to stay objective. It’s tempting to say “my thesis was right, it just hasn’t played out yet.” That’s the same excuse experts use when predictions fail. Sometimes it’s true. Often it’s not.
Even better: find an investing buddy who will challenge your reasoning.
Step 6: Do Autopsies
When you sell a stock, win or lose, do an autopsy. Go back to your original thesis. Walk through every review. Figure out what went right and wrong.
Richards also suggests intermediate autopsies. If a stock drops 30%, pull up the floorboards and look underneath. And once a year, review everything you sold and everything you looked at but didn’t buy.
Step 7: Update Your Method
Feed everything you learn back into your mission statement and checklist. This is the adaptive part. Markets change, so your approach needs to change too.
If your method consistently underperforms the market, you have two options: switch to index funds or find a good adviser.
As Richards puts it: “The fools will always be with us; but we don’t have to be one of them.”
The Worst Biases and How the Framework Fights Them
Richards maps the framework against the biggest behavioral biases:
- Overconfidence is beaten by checklists that force you to follow every step
- Loss aversion is beaten by reviews and autopsies that show you holding losers too long
- Mental accounting is beaten by treating all your capital as one pool
- Hindsight bias is beaten by written records you can’t edit
- Confirmation bias is beaten by actively questioning advice you agree with
- Emotion is beaten by forcing yourself through the process before acting
He ends with a quote from Richard Feynman about the Challenger disaster: “For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.”
Markets can’t be fooled either. You can fool your friends. You can fool yourself. But your portfolio doesn’t care about your stories.
Mechanics of Investing: Quick Reminders
Richards also drops some practical tips: diversify (it’s the closest thing to a free lunch), watch fees (overtrading destroys returns), avoid popular stocks (by the time everyone talks about it, it’s too late), look for moats, skip IPOs, and remember that your edge as a small investor is patience. You don’t need quarterly returns like the big funds do.
Chapter 7 Key Takeaways
- Don’t gather too much information. Focus on a few key things
- Use tools like checklists and decision trees to support your process
- Always demand feedback on your actions
- Keep updating your method as markets change
- Learn broad lessons, not specific ones
- Maintain self-control when markets go crazy
- Question your advisers, especially when you agree with them
The whole book has been building to this chapter. All the biases, tricks, and emotions come together here in a system you can actually use. It’s not flashy. But good enough is good enough.
Next: Chapter 8