May 26, 2012


Carl Richards live (click to enlarge)"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.


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.


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.


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.


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

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

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