The Go-Giver vs. the Go-Taker

60 Minutes this past weekend aired yet another example of professional athletes being taken advantage of by slick talking financial advisors.  This is very similar to a piece that I wrote about back in July when three high profile athletes Mark Sanchez, Jake Peavy, and Roy Oswalt were ripped off for ~$30M.

The key piece in both examples but maybe more so in the 60 Minutes piece is the share lack of due diligence on behalf of the players.  One player, Vernon Davis who plays for the Washington Redskins, said he shoulders much of the blame for his losses.

The 60 Minute piece also highlights some responsibility on behalf of the NFL’s Players Association who put out an approved list of registered financial advisors for whom players can work with.  Advisors are required to pay a fee to be part of the NFLPA’s program but how they are vetted is unclear.

I strongly believe that there is a stereotype that continues to plague the financial advisory industry because of incidents such as the two I have highlighted in this post.  Taking the first step to work with an advisor is sometimes a very scary and daunting task to begin with but made worse with negative headlines of bad people.

One of the underlying principles of why I got into this business and started my firm as an independent was to give back to people.  My beliefs in this principal is highlighted in the book, The Go-Giver by Bob Burg and John David Mann.  This is in stark contrast to those advisors who put their own interests first rather than their clients.

I have talked about how to properly vet and find a financial advisor herehere and here.  I wish I had a way to get this into the hands of the NFLPA’s leadership as it might help their constituents down the road and not be taken advantage of. 

The Holy Grail of Investing

Many of you unless you are into reading about investment management have likely never heard of Jack Schwager author of the Market Wizards series of books.  Within his books, Schwager interviews some of the most legendary investors of our time. 

Within each interview, Schwager tries to get at the heart of what has made that trader successful.  While there is no holy grail to investing, Schwager finds varying insights and strategies that in some cases are completely opposite but have led traders onto individual success.  The point being that there is more than one way to make money investing but that there are some key principles that bind successful investment managers together which include the following; 

  1. Persistence
  2. Self-awareness
  3. Methodology
  4. Flexibility

Within my own investment process that I put to work at TAMMA, I have developed my own key investment principles many of which were also critical to the success of individual investors within Schwagers series of books;

  • Discipline

    • Invest without emotion
    • Stick to your own beliefs
    • Know when to do nothing
  • Risk control = Loss control

    • Cut you losers and let you winners ride
    • To be a winner, you have to be willing to take a loss
    • Don’t be afraid of risk
  • Diversification

    • While diversification can help to lower your risk, it cannot help you when market correlations all turn to one and everything moves in the same direction
  • Opportunity Costs

    • It may make sense to liquidate a holding even if it is a sound investment in order to invest in an even better opportunity
    • Even if it bounces back, holding on to a losing position can be a mistake if you could have invested elsewhere at a greater return
  • What is the catalyst, it is more than simply being undervalued

    • A great company can be a horrible investment if its price has already more than discounted the fundamentals
    • Hope is a four-letter word.  Superior performance requires not only selecting the right investment, but also having the conviction to make it a meaningful part of your overall portfolio

And finally, here are some of the lasting quotes from Schwager’s Market Wizard book;

  • Mark Minervini, “Being wrong is acceptable, but staying wrong in totally unacceptable”
  • Peter Lynch, “If you can’t summarize the reasons why you own a stock in four sentence, you probably shouldn’t own it”
  • Warren Buffet, “The widespread adoption of a new technology doesn’t mean that anyone is going to make a profit”
  • Dr. Ari Kiev, “To achieve a goal, you not only have to believe it is possible, but you also have to commit to achieving it.”
  • Steve Cohen, “You can’t control what the market does, but you can control your reaction to the markets.”

What I am Reading

  • The Jeff Bezos Regret Minimization Framework (A Wealth of Common Sense)
  • Twitter's Identity Crisis Gets in the Way of a Sale (Bloomberg)
  • This is How To Find Happiness: 6 Proven Secrets From Research (Barking Up the Wrong Tree)
  • The Great Productivity Puzzle (The New Yorker)
  • How to Get More Pleasure Out of Retirement Spending (WSJ)
  • 7 Essential Money Questions Sure to Start a Conversation (NYT)

Taking a Leap of Faith

Even the best laid plans in life can require a certain leap of faith.  You can pull all of your numbers together, put forth your best forecast based upon your current facts and assumptions, and arrive at a sound analysis.  Everything indicates that this is the right move but then nothing.  Nothing but fear.

Fear can be a crippling factor within any decision that we make whether it is financially related or some other life decision.  I see this fear often when speaking with prospective clients who are unsure on how to take that first step in putting together a financial plan for their lives.

My wife and I have been experiencing this same fear relentlessly for the past few months.  The decision has centered around her career.  Should she stay at home full time, try to go down to a part-time or reduced schedule, or ask for an extremely flexible work schedule?

Within my own analysis, I was focused on the following critical factors;

  1. Any change away from a full-time career would have a financial impact which would cause us to make some mild to significant lifestyle changes.
  2. For the first 6 years of our children’s’ lives, my wife has missed out on seeing her kids grow and being a positive influence upon their lives due to her demanding career and commute.
  3. The health and well-being of my wife both physically and emotionally has deteriorated over the past year and more dramatically over the past 6 months.

Honestly, the straw that broke the camel’s back for me was factor number 3.  For my wife to not be able to physically pick up any of her kids or in doing so would inflict so much pain upon her was the tipping point for me.  Even though I had poured through all of our financial information and the results were going to require some changes, I knew that this was much more than a financial decision, it was a quality of life decision.

There are situations and decisions that we are forced to make regardless of what the financial outcome may be.  We have to take a leap of faith and believe that everything will work out.  Could we have put ourselves in a better position to lessen the financial blow?  Sure, there have likely been countless opportunities where I should have taken the same advice that I provide to my own clients but didn’t.  Life happens and we need to continue to strive to make better decisions while keeping our personal and financial goals within sight.

I have told close friends who knew about our circumstances that it never ceases to amaze me in how situations like ours have a way of working out.  And when I listen to other people’s stories, I often here the same statement.  It was about a year ago that my wife and I were faced with another major life decision.  We put together a well-crafted plan, had actionable steps to take, and most importantly took a leap of faith in believing that everything would work out.

I am blessed and fortunate to say that everything has worked out today, better than we could have ever planned it.


How Decluttering my iPhone Helped to Eliminate my Facebook App

This weekend my wife and I were able to go on a college road trip with some very good friends of ours.  This was one of the rare trips where I wasn’t going to have to drive and the drive was likely going to be close to 5 hours each way.  I was prepared to get some work done with my laptop, iPad, and iPhone at my disposable.

As my laptop power began to fade on the trip back home (forgot to charge it the night before), I switched over to my iPhone to see what I could do with it.  Lately I have been building up quite the collection of Podcasts which are now taking up a good chunk of storage on my phone.  I decided to begin the task of decluttering my iPhone in order to free up some space.

I have always found that decluttering or cleaning anything can be a very liberating but daunting experience.  I came across so many apps that I had never used that had likely been on my phone for years.  Apps are a double edge sword; they are great when you need one but I can also see where they can become so overwhelming with the sheer number of them.  I took a look at my wife’s iPhone and she must have had hundreds of apps.  I have no idea how she manages them all.

As I began trashing one app after another I came upon the Facebook app.  I had been toying with the idea of getting rid of the app for months.  I am a huge fan of Cal Newport an Associate Professor of Computer Science at Georgetown University, who has done tremendous work on the topic of Deep Work.  Deep Work is a movement if you will that addresses how to seek focused success in a distracted world.

While I have many readers who see and read my content via Facebook, I have found it to be a big distraction at times, but not how you would think.  I have never really spent a lot of time on the site but I found that when I did, it was always when I was waiting somewhere or just had some idle time.  Time that I still considered to be very valuable where I could be more productive, whether that be following up with a friend or client, reading an article on a research topic, or listening to one of those many podcasts.

Although I am not looking to give up social media sites like Facebook and LinkedIn (I don’t use Twitter although my content is posted there), I took the plunge and deleted my Facebook app after watching Cal’s TEDx talk Quit Social Media.

So how does this story of decluttering my iPhone and eliminating my Facebook app have to do with wealth management?  I came up with the following intersecting thoughts;

  • How many mutual funds are you holding onto within your portfolio accounts that have the same stocks, risk exposure, and asset allocation?
  • What is the cost in both time and money by not paying attention to your assets?  Think of the fees that you may be paying or by not having the right asset allocation which could derail your long-term plans
  • Without the distractions, how much more time would you be able to spend thinking about what you really want to achieve in life and a plan to go with it?

Spending time with my wife and friends this weekend once again proved to me that you can still have a social life without social media on your phone.


The Most Important Thing

Howard Marks is the Co-Chairman of Oaktree Capital Management a leading global investment management firm.  Mr. Marks is regarded as a leader within the investment management industry.  His breadth of knowledge is often highlighted within his memos that are published on a regular basis and his book, The Most Important Thing.

Mr. Marks and I share many of the same investment and wealth planning principles.  I wanted to share with you specifically four core themes and subsequent insights from his book that lay the groundwork of a solid investment process.  Many of which are key tenants to my own investment practices and processes that I utilize at TAMMA.  (All of the bullet points below come directly from Marks’ book, The Most Important Thing)

First & Second Level Thinking

  • To be right, your thinking has to be different in order to beat those whose thinking is the same.
  • Investment approach be intuitive and adaptive rather than be fixed and mechanistic.
  • First-level thinkers look for simple formulas and easy answers. Second-level thinkers know that success in investing is the antithesis of simple.
  • Different and better: that’s a pretty good description of second-level thinking.

Understanding Risk

  • “Risk” is—first and foremost—the likelihood of losing money.
  • Much of risk is subjective, hidden and unquantifiable.
  • In regard to risk, “the first step consists of understanding it. The second step is recognizing when it’s high. The critical final step is controlling it.”
  • “There’s a big difference between probability and outcome. Probable things fail to happen—and improbable things happen—all the time.” That’s one of the most important things you can know about investment risk.
  • Bottom line: risk control is invisible in good times but still essential, since good times can so easily turn into bad times.  Risk control is the best route to loss avoidance. Risk avoidance, on the other hand, is likely to lead to return avoidance as well.
  • Several things go together for those who view the world as an uncertain place: healthy respect for risk; awareness that we don’t know what the future holds; an understanding that the best we can do is view the future as a probability distribution and invest accordingly; insistence on defensive investing; and emphasis on avoiding pitfalls.

Impact of Psychology

  • The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.
  • Many people possess the intellect needed to analyze data, but far fewer are able to look more deeply into things and withstand the powerful influence of psychology.
  • What, in the end, are investors to do about these psychological urges that push them toward doing foolish things? Learn to see them for what they are; that’s the first step toward gaining the courage to resist. And be realistic. Investors who believe they’re immune to the forces described in this chapter do so at their own peril. If they influence others enough to move whole markets, why shouldn’t they affect you, too?
  • The desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing—these factors are near universal. Thus they have a profound collective impact on most investors and most markets. The result is mistakes, and those mistakes are frequent, widespread and recurring.

Investment Philosophy

  • There’s no simple solution: no formula that will tell you when the market has gone to an irrational extreme, no foolproof tool that will keep you on the right side of these decisions, no magic pill that will protect you against destructive emotions. As Charlie Munger says, “It’s not supposed to be easy.”
  • Establishing and maintaining an unconventional investment profile requires acceptance of uncomfortably idiosyncratic portfolios, which frequently appear downright imprudent in the eyes of conventional wisdom.
  • First, the process of investing has to be rigorous and disciplined. Second, it is by necessity comparative. Since we can’t change the market, if we want to participate, our only option is to select the best from the possibilities that exist. These are relative decisions.
  • Simply put, we must strive to understand the implications of what’s going on around us. When others are recklessly confident and buying aggressively, we should be highly cautious; when others are frightened into inaction or panic selling, we should become aggressive.
  • Without enough time to ride out the extremes while waiting for reason to prevail, you’ll become that most typical of market victims: the six-foot-tall man who drowned crossing the stream that was five feet deep on average
  • Short-term gains and short-term losses are potential impostors, as neither is necessarily indicative of real investment ability (or the lack thereof). Surprisingly good returns are often just the flip side of surprisingly bad returns. One year with a great return can overstate the manager’s skill and obscure the risk he or she took.

Just like in football, there is an offense and a defense.  Investors need to decide what type of investor that they are and the associated investment process that comes along with that decision.  You can be aggressive, defensive, or take a balanced approach of the two but you cannot be all three.  The danger lies in trying to go between these three styles rather than committing to one approach and developing a strategy for the long run.

Be aware that whatever approach or style that you choose, there will be times when one approach will be in favor with the markets while your approach is out of favor.  And while it may be tempting to change your approach, you do so at the risk of blowing up your entire game plan.

It takes time, focus, and knowledge to manage investment assets.  If you don’t feel comfortable handling this important responsibility on your own, then you should seek out an expert advisor.

What I am Reading

  • The Cost of Holding On (NYT)
  • How to Finance a Vacation Home That’s Also a Short-Term Rental (WSJ)
  • Disrupting Your Own Happiness (A Wealth of Common Sense)
  • How to pick a financial adviser, could be the most lucrative decision you ever make (Washington Post)
  • The More Cash People Have, the Happier They Are (WSJ)