The Value of Leader$hip

Nancy Opiela’s article in the May-June 2008 CFA Magazine asks, "Is behavioral transparency more telling than financial transparency?"

E. Ted Prince, (featured in Opiela’s article) the founder and CEO of Perth Leadership Institute (be sure to check out his new white paper, The Financial Psychology of the Presidential Front Runners and Its Impact on U.S. Competitiveness), knows a lot about behavioral finance and a thing or two besides. To quote Prince,

"We’ve trained analysts to look at financial matrices, not at human behavior. To use an analogy, we’re making investment decisions using the 10 percent of matter we can see in the universe. There’s still that 90 percent of dark matter that’s hidden from view that doesn’t factor into anyone’s decisions...each individual has a systematic but unconscious bias on all decisions which have financial impacts and ramifications...if we can identify that bias, we can predict not only the financial decisions the executives might make but the impact of those decisions on overall financial performance and profitability and ultimately determine the financial value and market valuation of the companies they run."

Drawing on years of experience, Prince developed assessment tools to classify individuals by their financial “signature," which is what essentially drives different ‘decision styles’ into three buckets: balanced, resource-centric, and value-centric.

Prince, who believes, "The more financial signatures you have that are value-centric, the better you'll do in terms of your valuation relative to your peers...so you can think of the financial styles as having a direct impact on your profitability relative to your competitive peers," is on to something.

Now I don't know what my "financial signature" is, but I won’t be surprised if we have at least two value-centric signatures sitting on this Investment Committee, even on the days when I don't attend. Like the words musician Michael Lee Aday (aka Meat Loaf) sung in his second single hit, “’Cause two out of three ain’t bad.”

Investment Process and predictable cognitave errors

I meet with two colleagues each Wednesday. We needed a name for our committee, back when we started meeting and so we named it the Investment Committee (portfolio performance is our business imperative). Each person brings a unique something to the table. Most committees don't seem to benefit from the “sum of the parts” axiom, which, in most other spheres, theorizes that the sum of the parts is worth more than the whole. This committee is different. (You may recall my sailboat experiment. So far I've sold the mast, bow pulpit, and the trailer. The kick-up rudder is, at this moment, on Craigslist. But I digress.

We don't tell each other what we want to hear. Dissent is actually encouraged. We get to ‘go to school’ on each other’s mistakes. My ‘school,’ at 32 years, is the longest running, including 12 years as a stock broker (where I learned from Sir John Templeton, that outperforming the majority of investors requires doing what they are not doing, and to buy when pessimism is at its maximum) and 20 years as Registered Investment Advisor. Brian, our Senior Portfolio Manager, has 14 years’ worth. Justin has 3 (but they’re in dog years). He’s actually studied for the CFA Institute’s Chartered Financial Analyst designation) the last three years while putting his money where his mouth is. He knows mistakes are just an inevitable part of the investment process, “if we don't make too many bad mistakes, we'll do just fine,” he says. Now there’s a man who understands the wisdom of Yogi Berra.

I’m not sure what I did to deserve the privilege of working with not one but two highly calibrated decision makers, who focus constantly on knowing the 60/40 end of any investment proposition; not only do they know the 60 end of the stick from the 40 end, they operate with integrity whether the chips are up or down.

Cognitive errors are predictable, this we know, and they fall chiefly into four buckets: a) investor overconfidence, b) loss aversion, c) narrow framing, and d) overweighting samples of short term data. We’re every bit as capable of making the cognitive errors as the clients we serve, but the difference is, we’re trained to not act on those errors.

Glenwood Tutoring Program

Here's something big,
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Two marathons in one day

Friend and fellow Gate City Rotarian Darlene Leonard sent this article from the News-Record. When I saw Run Bobby Run! in the subject line I didn't have to wonder what she sent me.

I'm not a runner, but running marathons and doing my job (aka managing the hopes, dreams, fears, savings for college and retirement, for 117 wonderful client families) have a lot in common. Bobby, for those who might not now, is a runner. He runs through my neighborhood all the time. As much as he runs, he probably runs through everyone's neighborhood all the time.

Turns out, "When you're running you face challenges every day, but you have to keep on going, and when you get through it, there's a sense of accomplishment. So running is a metaphor for how we live every day -- for life, I guess." Says Bobby Christiansen, 50, marathon runner and Gate City Rotarian.

Bobby, I learned, runs with another runner in my neighborhood, Daniel Hassell, 40, dad, husband, physician, and friend; Daniel's too humble to say this about himself so I guess I'll have to say it for him: Daniel has without a doubt one of the best Lighted Christmas Ball displays in all of Greensboro, and that says a lot because he's across the street from me!

By the way, Bobby and Daniel ran in the Boston Marathon this Monday (check out their times), so if you happen to be posted where you can cheer them as they run by (and hopefully take pictures), don't blink or you're likely to miss them.

optimism is dangerous - stack the odds in your favor.

see another graph that's quite possibly the most creative thing ever done with Windows 98 and XP sounds.

Making a difference

The News-Record's Sonja Elmquist wrote a wonderful article about 600 orphan children living in one of the world's poorest nations, and how two men stepped up to the plate ten years ago to make a difference.

Brothers in law Jack Reynolds and Father Marc share a vision: make a sustainable difference in the lives of Haiti's orphans. All this excitement takes place at Theo's Work. Jack raises the money and encourages Father Mark in his role. Jack is really good at inviting anyone who will take him seriously to go with him to Haiti to see and to do, first-hand, meaningful life-changing work. Father Marc runs the orphanage and school and encourages Jack in his role. Father Marc does a terrific job involving and thanking donors, something not easily accomplished in the world of non-profits.

So far, Jack's involved at least three guys I know in this important work: Max Kern, Chuck Downey, and Drew Jones. Max, Chuck, Jack and I (and about 55 other fired-up men and women) are Gate City Rotarians. I don't know if Drew is a Rotarian or not, but he doesn't stand a chance. Next time he jogs through Sunset Hills, Jack and I plan to tackle him and bring him to a Thursday morning meeting, which if you haven't attended, you should.

Whoever said Rotary is just a club for old men and their fathers hasn't visited Gate City yet. I've been places where I've read the vision statement but at Gate City, I feel the vision statement.