Saturday, September 27, 2008

The Doctor is In

Ron Lieber knows value when he sees it.  Not intrinsic value, but examination value.  In his feature article in today's New York Times, he says good financial advisors have the examination skills of an ace psychologist.  I've heard financial advisors called lots of things, but I haven't often heard them called keen observers of minds and money.  Lieber rounded up a bunch of planners and advisors who got their starts as psychologists or studied the field as graduate students. 
Lest you think I fall into either of those categories let me assure you neither I nor anyone else in my firm started as a psychologist nor studied psychology in graduate school.  We have, however, spent hundreds of hours with psychologists, some spent on their couches trying to understand our own quirks and biases, but hundreds more spent with clients, psychologists, and psychiastrists on our couches, though fortunately not all at the same time.  Meir Statman taught us how to "make science our ally".  From Dan Ariely, we've discovered how hidden forces direct our minds in the making of decisions that are predictably irrationalCFA Institute provides us with a digital library filled with presentations on economics, finance, and behavioral psychology, explained by world-class experts in their fields.
We take our calling seriously and have asked more than one client to encounter professional therapy, and our reading room has served as a makeshift emergency room for more than one financial intervention, the most memorable of which included: the client couple, her therapist, his therapist, their accountant, our management team, and their small group.  (I'm just glad the fire department didn't pop in that day, checking expiration dates on fire extinguishers and rounding up frayed extension cords, if they had, they would have had to join up with our recovery group (hey what's a few more people?), never mind leaving a fire truck parked on the curb with its flashers on.  We look back on that day with fondness and gratitude; each participant shone, contributed magnificently, and on that day, the hero (the husband) and the heroine (the wife) put a stake in the ground, changed the river course for good, and re-wrote the history books of their lives.    

Lieber's feature is worth the read.  He shows real advisors in a light neither the newspapers nor the talking heads know anything about, maybe because it doesn't sell advertisements.  Growing money is a process that doesn't happen overnight, it takes years and decades, not days.  Check the article out here.

Most of you reading this post can take comfort in the reality that time on your side is the best insurance policy against volatility and permanent loss of capital. Some of you can't, maybe time isn't on you side.  No psychology sheepskins here, just authentic, wise, and caring people, alumni of the bear markets, the emergency room, and the trenches of real life.

If anybody knows of any other articles about financial advisors serving as financial therapists, please leave leave a comment or drop us a line. 

Friday, September 26, 2008

Economics Haikus

Justin here. One of the blogs I have set up in my Google Reader is Freakonomics at the New York Times. They follow all the cardinal rules of blogging: short, funny, plenty of pictures, frequent but not too frequent posts.

A few weeks ago they asked readers to submit entries into an economic haiku contest (9th grade english refresher: poem with 3 lines each containing 5, 7, and 5 syllables in each respective line.) They had over 300 entries, but see the final six here.

I submitted the following haiku in honor of Jon's (his name at work) aka my Dad's (name on the weekend) 58th birthday today:

My Dad's Lesson to Me:
Speed, Price, Quality
You can get one, maybe two
But never all three.
— Posted by Justin

If my poem doesn't make sense, don't feel too bad; it's only because "Speed Price or Quality" wasn't said to you at least once per day as a kid. Like sitting at a slow gas pump because they are selling it for $0.05 and all the pumps are being used. Or when a fast (yet expensive) car would zoom by us on the road. Or when our pizza (fast and inexpensive) was delivered only partially cooked.

I carried on the tradition. Millie has always shopped at Wal-Mart, and when she comes home after waiting in the checkout line for 45 minutes, she says "Speed, Price or Quality" through her teeth. That was, of course, until the quality started to go south, and she decided it wasn't worth it to just get "Price". So she started shopping at Harris Teeter where she gained speed and quality, yet gave up price. And then she started clipping coupons, thus giving up speed and gaining back some price . . . and on and on the endless pursuit of all three.

Fascinating how that works.

The closest product I've found that has all three is Pastabilities, a restaurant in Greensboro with the best bread and pasta in town, fast service, wonderful ambiance, and a dinner for two with tip is under $20. Of course, usually when you find all three, prices go up, so get it while you can!

Thursday, September 25, 2008

Presidential Address

Justin here. I tuned in last night to watch the President address the nation about our financial crisis. I was impressed with the way he laid out the problem and its causes, clarified the difference between a "bailout" and an "investment", and explored the consequences of not doing anything.

He didn't say anything funny as in the past (like "Americans are working hard to put food on their families") but it was a great address none the less.

For anyone wanting a recap, it's well worth your next 12 minutes. Take caution though: The "If We Don't Do This" Scenario isn't for the faint of heart!

--Update #1--
It looks like we've done it after all. The video is still worth it

--Update #2--
. . . or maybe we haven't done it. (And note that the link under "Update #1" used to take you to an article that said "negotiations resolved; deal is on the way" or something like that.)

Thursday, September 18, 2008

Enemies in the financial markets are fierce warriors

Jonathan here. Having just talked with his friend in Manhattan, Dick Barron, business reporter at the Greensboro-News Record, writes, in his BizBytes newsletter (click here, follow instructions to subscribe to BizBytes)

  • "As one of my friends in Manhattan wrote today on [his] Twitter [page]: "Just walked to Wall Street for a meeting and back. The mood on the street is weird. Everyone looks weak, frightened and angry, like on 9/11" [emphasis mine].
Sun Tzu wrote The Art of War in the 6th century BC. His military strategies are still being taught.
  • “Draw them in with the prospect of gain. Take them by confusion. Use anger to throw them into disarray."
Understanding Sun Tzu's brilliant strategies puts the unprecedented economic events and (investors' unprecedented reactions) into perspective.
  • Investors have been drawn in with the prospect of gain.
  • Investors have been taken by confusion.
  • Investors have been thrown into disarray.

You need allies in your war. When the News-Record called us during Monday's 504 point drop in the Dow, we said investors needed to "take a deep breath," and we explained why we didn't need to "stay glued to the TV for the latest headline." Click here to read the article.

Monday, September 15, 2008

Predictably Irrational Group on LinkedIn

I've been fascinated with LinkedIn since April, when an Internet search  for my friend Mark Tosczak directed my web browser to his public profile on LinkedIn.  (LinkedIn's reference to Mark appeared first in Google's search results page
In July, after learning Linkedin had a dozen or so members (out of more than 20 million members) with keywords "Dan Ariely" or "Predictable Irrational", I launched the Predictably Irrational group on LinkedIn.  LinkedIn recently enhanced Group functionality by providing our own page for group discussions, etc. Still in its infancy, I anticipate our discussions will generate unusual and stimulating insights.  If you're interested in knowing more, click here.
Our group is diverse; vocationally, we represent, among other things:
Consultant in the U.K.
Quantitative analyst with Bank of America
Consultant with United Airlines
Director of Product Development with LinkedIn
Retired CMDR U.S. Navy
Another quant with Bank of America
Sales effectiveness coach in Paris
Resident at the Center for Future Banking
Professor with Duke University, the author
Scientist at LinkedIn
Health and Disability Speaker
Director of Security and Special Ops
Software Architect with Bluestreak
Principal Product Manager with eBay
Senior Training Specialist for USDA
Lead Business Analyst with Ocwen