For the better part of the last twenty years, I’ve not only been giving advice but thinking about advice and the business of giving advice.
Like any profession, the advice dispensed can be good or bad. The best advice is usually an alchemy of wisdom, personal insight, and experience — be it professional or personal — but sometimes even that magical combination will miss the mark.
My uncle has a ton of experience and is a smart guy about a lot of things, and he’s been investing for a long time. He’s even wise about certain matters, like matters of the heart. He used to tell me, “don’t marry a girl hoping it’ll get better with time, if it’s not great now… it ain’t ever gonna be great.”
At least in my recently biased brain, he was very right about that. My first marriage was tough from the beginning — and never got better sadly, so we ended it. I’ve since remarried, and it’s been great from the beginning — my uncle was right.
Here’s the thing though, my uncle also bought Beanie Babies and gold among his many eclectic ideas about where the world was going. He was convinced Lucent was going to make him a millionaire 10x over. (You Millenials might need to Google that one).
He was wrong about pretty much all of it, again and again.
Still, every time I talk to him he’s got an idea for me to look into.
This happens because people love to give advice to pretty much to anyone who will listen because it’s an honor. Like elders in a tribe, the giver of sage advice can steer generations forward. Or, right into a cliff.
But you, fine reader, are smart and discerning. You won’t fall for that mess. You don’t read Foolish blogs about trends and the next great opportunity. You don’t subscribe to email newsletters about gold and silver, or the next great crash.
You probably wouldn’t listen to my uncle, and you definitely would not listen to the guy in this video even though there are some kernels of truth in what he’s saying between the moments of madness.
We, of course, tend to favor the “successful.”
In 2011, the headlines on September 15, were all trumpeting one of the “most successful” billionaires move, Mr. Donald J. Trump. He’d just become the first landlord to take gold as payment for a lease in his 40 Wall Street building.
Here’s the price of gold since. (click to embiggen)
It’s never hit that price since, in the last seven years. Not once.
Michael Batnick’s new book explores this topic in spades, on how successful investors still make mistakes. I can’t wait to read it.
So, here’s the thing I’ve been thinking about.
In all the wisdom of the Deities of Dinero, when even “successful” people will clearly miss the mark on which direction things will go with regard to money, why do we focus most of our time as investors and professionals on explaining what’s next?
I’ll give you another example, one from the emergency room…
ER doctor here, here’s a weird one. A patient came in to the ER one night saying she was infected with worms. She told me she had been noticing worms in her mouth and in her urine and stool. She said it had been happening for a few months and it was worsening.
She actually brought a sample of these worms. She brought them in a glass, covered with saran wrap. I held it up to the light … looked like saliva with clumps of mucus in it. As I was trying to convince her that it was just normal spit, her parents arrived. They had driven down from out of state, in a panic that their daughter was dying of a parasitic infection.
Mom and dad were livid with me when I suggested that it was in her head (there’s actually a delusional disorder named Delusional Parasitosis)… They couldn’t accept the fact that her daughter was crazy. They asked for a GI consult so someone could look into her infection.
So I opened up the glass, and with a gloved hand, I pulled out the “worms.” I ran it around in my fingers and showed them. The dad’s reaction was something to behold. It went from “don’t be ridiculous, she’s sick” to “what the hell are you doing?” to “wait a second, that looks like just spit” to “holy shit my daughter is fucking crazy.”
I saw it in dad’s face, and then he turned to his wife and said “honey, I think we need to talk.” I left the room, and they took her home 15 minutes later. I offered a psychiatric eval but they said that they would go to her mother’s psychiatrist.
Maybe the answer is just that simple… we’re batshit crazy.
We as humans are hardwired to do a lot of crazy things — self-destructive, non-productive things — and often times we even know we’re doing it, or worse we do and simply don’t care; we give up.
Bad day? Break out the Hagen Daaz. Have the extra glass of wine. Markets stink? Work yourself up and read twelve different articles telling you thirty different things.
Einstein is famously quoted as saying. “the definition of lunacy is repeating the same thing and expecting different outcomes”, and yet we as investors and professionals have continued to define success, financial success, as “more than we have now, or enough, or more than enough.”
So, maybe we’re not asking the right questions. Like, why?
I’ll explain. I have a client and they are very wealthy. How wealthy? If they went to cash today, they could spend $400,000 a year for 93 years. They are in their 60s and they do not spend that much money each year. Yet, each time the market drops by 5% and they lose roughly $1,000,000 dollars in the market, they do not like this. They hate it. They lose sleep sometimes. Most of you might like to have this problem, I know… but it is a real problem for them.
So, what to do?
Some advisors would stay “take less risk, you’ve already made it — and that’ll make you feel better”. We talked about that… and then they won’t make as much, which will also make them feel bad. Or, just… “worry less.”
Many advisors and investors alike are so focused on the outcomes that the go-to solution has become pulling out some charts and a financial plan to show that, “Hey, no matter what happens… we’re gonna be fine.” Or, maybe look at some stress tests of other terrible times to help steel yourself for the next inevitable, bigger, drop.
Here’s the thing — the advice dispensed here misses the point entirely.
What I realized with this client was, I was asking the wrong questions and providing the wrong answers as a result. I was showing them “how” they’d be fine, by showing them the “what” and “where” instead of seeking to understand why they felt the way they did.
The prescription for addressing the “why” is a completely different than addressing the how.
It turns out this client had experienced the loss of both of their parents when they were 19 and I actually knew that because some of today’s money was the result of them receiving that money when they lost their parents.
That money was the genesis of their wealth today, which they grew with extreme care. What I had overlooked, maybe the most obvious thing in the room, was “how” did losing your parents feel? What did that do to them? What would it do to you?
It turns out that this person is petrified of losing their money, that this money represents all the safety they had come to count on when they were eighteen (and in charge of their younger siblings too). They also feel a huge responsibility to be a good steward for their family.
Even though they know it’s completely 100% irrational for them to fret as much as they did when they were a kid, that “fear” is etched into their brain — hardwired — and needs a completely different toolset to solve than backtests, and charts, and graphs.
When I changed the conversation and used a different set of tools, based on behavioral science, I learned something very different.
I learned that they are quiet, to the point where they will actually suffer in silence — so now I know she will need some positive reinforcement along the way. They actually like budgeting — it gives them freedom. Yet they struggle to organize themselves to do it, so we will find a solution to help them. I learned that giving back to causes and their family gives them true joy, and yet they feel frozen with where to go and what to do. So, we’re going to help them find the causes to champion.
Helping them focus on which wall to lean their proverbial ladder with their focus yielded a completely different result. After our conversation, I saw peace of mind, and yet we still had actionable steps to get them to refocus on the things they can control.
The best advice we gave was focused on helping define and understand a lot more about their “why.”
These people are not outliers.
The advice game is going to change. It has to change because charts will only go so far — and we’ve reached the limit.
Real advice in the future is going to focus way more on behavioral coaching and life coaching. It’s going to focus on principle-based goals planning. It’s probably going to be higher touch, too.
The next level of advice is going to focus on helping people be awesome. The money will simply become the byproduct of the real personal work being done.
All of that starts, with asking very different questions…
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