What It Takes to Make Good Decisions

To me, investing is like playing basketball without a shot clock. 

As long as you have the ball, all you have to do to win is just keep passing until you’re sure you have a shot you can make. While other teams might lose patience and take off-balance, low-percentage shots from behind the three-point line, at Blackstone we wait for exactly the right moment. We keep moving and passing until we can get the ball into the hands of our seven-foot center standing right underneath the basket. We obsess about the downside of every potential deal until we are certain we cannot miss.

So what does it take to get the perfect shot? Below are a few rules that guide our decision making -- rules designed to help us seize opportunity and manage risk. 

1. Bring more people to the table.

It is easy to fall for a good sales pitch. Once during the early days of Blackstone, I heard pitches from two partners who had opposing views on whether or not we should invest in a steel company called Edgcomb. I backed the partner pushing for the deal – in large part because he had the stronger presentation with more detailed information supporting his view. The investment ended up failing spectacularly.

I vowed this would never happen again. Blackstone needed a process for making investments. Since then, all senior partners are involved in our investment decisions – there is no “King Solomon” single-handedly green-lighting a deal. We never talk to just the lead partner on any potential investment. Everyone involved – regardless of their seniority – is expected to voice their opinion and participate so that we can incorporate all perspectives into our analysis.

By working together, debating opposing points of view and applying our collective wisdom and experience to evaluate an investment’s risks, we are able to examine our deals more objectively.

2. Take your time.

We also began insisting that anyone with a proposal has to write a thorough memorandum and circulate it at least two days before any meeting so it can be carefully and logically evaluated. Finance is full of people with charm and flip charts who talk so well and present so quickly you can’t keep up. The two-day requirement gives readers time to mark up the memo, spot any holes, and refine their questions.

We want a dispassionate and objective review of deals – not decisions made under pressure. Often others will push you to make a decision for their own purposes, internal politics, or some other external need. But you can almost always say, “I think I need a little more time to think about this. I’ll get back to you.” It’s a great way to diffuse the pressure in a given situation and make a decision when you are ready.

3. Focus on the risk.

Blackstone’s investment discussions focus almost exclusively on the downside. It is the job of everyone in the room to find potential problems that haven’t been addressed and handicap the impacts of the risks that have been identified. This process can be challenging for the people presenting a deal, but the “only criticism” rule allows us to critique each other’s proposals without worrying that we might be hurting someone’s feelings. 

Once this process concludes, whoever is running the deal has a list of problems to address and questions to answer. In doing so, they may even uncover new risks that haven’t yet been identified. Then, they are ready to come back for another round of discussion. The team does this again, and by the third round, we hope, there are no longer any nasty surprises lurking in the deal.

4. Everyone owns the outcome.

The final way we depersonalize and derisk our investment process is to encourage a greater sense of collective responsibility. Because every partner on our investment committee participates in assessing a proposed investment, they also share responsibility for whatever decision is made. If something goes wrong with a deal, the team who initially proposed it bears no more blame than anyone else. We make every decision in the same predictable manner and we all own the outcomes.