Part 2: How Serious Investors Think: Three Questions To Challenge Your Investment Thesis

This is Part 2 of a three-part series. Part 1: How Serious Investors Think: Feeling Right, Being Right, Being Profitable — the gap between feeling right, being right, and being profitable. Part 3 covers how to review your decisions honestly after the outcome.

Photo by Towfiqu barbhuiya on Unsplash

Three questions I use for making an investment decision. The more I use them, the more I realise they work beyond investing — in any situation where being wrong or being too cautious carries a real cost.

Most investors ask: Can I make money here? That’s the wrong question. It seeks permission, not truth — and your brain will happily supply the reasons to say yes.

These three questions are harder to fake.

1. Why do I think there is an investing opportunity with this company?

Every price reflects a consensus. If you can’t explain why the opportunity exists and why it hasn’t been taken, you don’t have an edge — you have a story.

2. What is the upside if I am right, and what is the downside if I am wrong?

Direction isn’t enough. Magnitude matters. A good investment has asymmetric payoff — and that asymmetry should drive how you size it.

3. What are the Type 1 and Type 2 errors here?

Type 1: You invest, and you’re wrong (i.e. wrong bet). Type 2: You don’t act or you underallocate, and you’re wrong (i.e. missed opportunity). Both are mistakes. Knowing which you’re more likely to commit — before and after — is how you improve.

Q1 and Q2 are about the opportunity — is it real, and is it worth it? Q3 is different. It is about you. Most investors spend all their time analysing the company but very little time asking whether their own judgment is sound. Are you about to make a bad bet? Or are you being too cautious and leaving money on the table? Both are mistakes. Q3 forces you to confront that honestly — before you act, and again after.

These aren’t just better questions. They’re the ones that cut through the story you’re telling yourself.

The goal isn’t certainty. It’s clarity about where you could be wrong. Rule: If you can’t answer all three clearly, you don’t invest.

Q3 doesn’t end when you make the decision. Once the outcome is known, go back and ask which error you actually made — and what it reveals about how you think. That is what Part 3 covers: How Serious Investors Think: Two Errors, One Complete Picture,

This is Part 2 of the How Serious Investors Think series. Part 1: How Serious Investors Think: Feeling Right, Being Right, Being Profitable covers the mindset behind serious investing. Part 3: How Serious Investors Think: Two Errors, One Complete Picture covers how to review your decisions after the outcome.