RISCARIO INSIDER

Saturday, May 26, 2012

INSIGHTS FROM CARL RICHARDS AND HIS NAPKIN DRAWINGS (@behaviorgap)

"It only takes one big, bad mistake in a decade to blow your returns."
--- Carl Richards

Have you seen those nifty napkin drawings with profound insights? They are by Carl Richards. You may have seen them in the New York Times or his book, The Behavior Gap.

Carl was on his first Canadian tour this week. PWL Capital sponsored it. I got tickets from blogger Canadian Couch Potato, who attended in person along with Preet Banerjee. Carl spoke at The Academy of Spherical Arts.

Overload

I've seen too many presentations on investments over the years. That's a downside of being an insider in financial services.

The content tends to present a world view that's biased to what the sponsor sells. That might be commercial real estate, undeveloped land, foreign exchange, green, oil or an investment philosophy.

The risks get downplayed. The speaker is essentially giving an infomercial and saying nice things about the sponsor. Buyer beware.

Different

Carl is different. He talked about investing but gave no investment advice. That's refreshing. Instead, he helped us understand basics that get in the way of results. How we behave, for instance.

Carl has a knack for making things simple. As his drawings show, he takes out as much as possible. This takes skill and skill takes practice. He said, "People like to argue about the numbers and miss the point."

His solution is to remove the numbers.

Complexity

Carl understands the power of simplicity. He said:

We have a complex in our industry. We think complexity is a sign of an intellectual gift. When you propose that advisors should make things simpler, they sometimes get lost and wonder "What am I for"? They don't realize that people would rather pay to have things simplified.

The old sales model said: I'm going to dig you a hole and throw you a rope so that you can get out. Sometimes advisors are uncomfortable with this idea that making things really simple is really valuable. It takes some time for them to get their heads around that.

I’ve observed the same tendencies towards incomprehensibility, especially from the advisors with no meaningful designations. They think adding complexity shows their intelligence. If they’re that bright, why couldn’t they first earn professional designations and then learn how to simplify?

As Einstein said, “If you can't explain it simply, you don't understand it well enough.”

The Wrong Questions

During the question period and afterwards, some audience members asked for investment advice (e.g., signals for when to sell a mutual fund, how to identify the top/bottom of the market). Unlike children, adults like being told what to do even when there are no foolproof soundbite-worthy answers. Unfortunately, we can only spot the right investments in hindsight. Unfortunately, there are advisors who look convincing even to the non-gullible.

Trust

No one asked how to pick an advisor you can trust. I asked Carl privately. He said this is the most common question he receives at the New York Times. Maybe that's not surprising. He said that people want checklists but there aren't any.

Not everything can be made risk-free and drawn on a napkin. At least not yet.

Podcast 170

direct download | Internet Archive page | iTunes

PS I've glanced through Carl's book, The Behavior Gap. It looks like a great read.

Saturday, May 19, 2012

KEEPING PROMISES WHEN NO ONE’S WATCHING

When I ran a department, my team of 10 met every second Friday morning with whoever was present. I wanted the meetings to continue when I was away unavoidably. Instead, they would get canceled. Perhaps my staff saw the meetings as an imposition they wanted to avoid.

At work, we don't have a choice.

When you voluntarily join a small nonwork group that meets regularly, you do. There will be temptations to cancel meetings when a member is unavailable. The reasons vary: sickness, holidays, weather, conferences, clients, ...
Sometimes the reasons are unavoidable. Sometimes canceling is due to laziness or "not feeling like it".

Commitment

A meeting is a commitment and a commitment is a promise. That promise is to you as the promisor and to the rest of the group. Break a promise and you break a chain. Trust decreases.

I look for ways to keep promises, even when that's inconvenient. I sometimes go to a meeting even if other attendees cancel. If you show up, you've achieved a victory. You've planted another sequoia acorn in the forest of your character.

Zig Ziglar said, "If you do what you ought to do when you ought to do it, the day will come when you can do what you want when you want to do it."

Going to a meeting may not be the most enjoyable thing you can do at the moment, but maybe that's what you ought to do?

Fellow Victors

If some of the others show up too, you've strengthened a bond. The discussions are invariably better than with full attendance. There's more time for each participant to speak. The discussions go deeper. There may be unexpected tangents. You might get to know more about each other's personal lives. You build trust.

The "show up" pact works in public (e.g., blogging regularly). It also works in private when no one else know. In both cases, you know. And you're worth it.

The Others

Problems arise when others break promises. Say your advisor. You know they've failed you but in their minds, they not even know there's a problem. Maybe they're consistent in failing to deliver. Maybe you learn the pattern and make allowances. Isn't that rewarding misbehaviour? What will that get you?

If the offender is a family member or boss, you've got complications. Even then, you can focus on your Circle of Influence (yourself). By keeping your own promises to yourself, you'll build a habit that helps you keep other promises. Maybe you can nudge others to keep theirs. Or ditch the promise breakers.

Podcast 169

direct download | Internet Archive page | iTunes

PS This is the May long weekend but this post still shipped …