An Integrated Advisor Network firm

"I have heard that your first fall off of a horse may determine what kind of rider you will be." I didn’t write that, my daughter Anna did. She continued:

"My heart dropped as I watched Sally fall to the ground, but I knew I had to stand back and watch to see how she would handle it. So did her coach, Sydney. Sally cried, stood up, got a hug from Sydney and hopped back on that horse with tears streaming down her face. Her lesson continued, and another rider who was in the arena came over to me and said, "That daughter of yours is going to be a great show jumper."

"There are so many basic things to learn before even thinking about going over jumps. That is why a coach is needed. A good coach knows when to push a rider and when to hold them back. It’s a matter of not only judging a rider’s skills, but also noticing when they become over-confident in their abilities or too trusting in their horse. It’s when they get these things right that they can guide the horse with clear and unambiguous signals.

"To the untrained eye this looks like nothing - barely perceptible movements - especially when watching an itty-bitty six-year-old. But I can tell you, it takes tremendous precision and skill. Over the last year, I have watched in amazement as my daughter has improved her skills and shown me what bravery, dedication, joyfulness, and passion looks like. I have also watched a relationship grow between a student and her coach. Sydney is an Olympic level rider who adores my daughter and treats her as a fellow rider with whom she is sharing her skills, imparting her wisdom and passing on her knowledge."

Anna’s not only my daughter, but also a fellow advisor with whom I have been sharing my insights and knowledge. And, like Anna being amazed by Sally, I have been amazed by the growth in Anna’s skills, passion, and dedication. Instead of just copying me, she is helping to push our firm into more efficient directions, new programs, and new ways of communicating.

Recently we joined with Integrated Advisor Network, a national advisory firm. This, along with the addition of my youngest daughter, Hillary, as an administrative assistant has made our operations more scalable and sustainable. We are adding a digital interface to our existing systems that will allow us to handle clients with relatively small account balances. And Anna is developing a podcast called Transitions to help people deal with the transitions we face in life – college to career, military to civilian, single to married, working to retired and so forth.

These changes will help us serve our clients better, increase our capacity to add new ones, and provide continuity if something should happen to me. They are not a means for me to slow down or to turn the reins over to Anna. Instead of replacing me, she is adding a focus on clients at the start and midpoint of their careers as a complement to the focus I have always had on clients at or near retirement.

When Anna was an itty-bitty girl, she was on a horse that spooked and, while she never fell off, she didn’t get back on for 30 years. Inspired by Sally, she started riding. Inspired by me, she became an advisor. However, it is her passion that is driving her now and her common sense that is keeping her from making over-confident mistakes and from relying too much on her dad (or trusting her horse too much.) You’ll have to ask Sydney or Sally about her riding, but I can honestly and unambiguously say, "That daughter of mine is a great advisor."

“You have no respect for cognitive reverie, you know that?” At the time I saw the movie, A Beautiful Mind, I had no idea what ‘reverie’ meant. However, when John Nash’s roommate retorted, “Yes, but…I have enormous respect for…beer,” I got that. And so did the John Nash character, because it drew him out of his daydreaming and toward the pub as he muttered, “I have respect for beer. I have respect for beer.”

My dad had enough respect for beer to make brewing it one of his hobbies. And like everything he did, he took the time and effort to become very good at it. He not only studied and experimented, but he also sought out experts. One such expert was in the process of turning his hobby into a small business. When my Dad found him, he was making beer in plastic buckets in a blue metal warehouse in my home town of Chico. Almost 40 years later that small brewery is still in business. You may have heard of it - it is called Sierra Nevada Brewery.

Public domain

According to their website, Sierra Nevada beer was built on “…plenty of passion” and a commitment “…to pushing the boundaries of craft beer.” Within a year of the founding of Sierra Nevada, another firm was founded with a similar passion and commitment to pushing boundaries. You may not have heard of it - it’s called Dimensional Fund Advisors (DFA).

Last October, Wall Street Journal columnist Jason Zweig pointed out that DFA is “the fastest growing major mutual fund company in the U.S… [and it is] the sixth-largest…” Nevertheless the “…firm remains all but unknown to the general public…” Sometimes I joke that DFA’s unofficial motto is, “We’re the largest mutual fund company that no one has ever heard of - and we want to keep it that way. “

Their apparent aversion to marketing seems to extend to their recruitment of advisors as well. Unlike other mutual funds that are always recruiting advisers, DFA makes advisers find them. And once you find them, Zweig points out, they “…set up a daunting steeplechase that advisers still must hurdle before they can market their funds.” So, when I found them 25 years ago, I had to prove I was committed to and passionate about their “…bedrock belief,” as articulated by Zweig, “that active management practiced by traditional stock pickers is futile, if not an absurdity.” Based on this core belief and the fact that DFA’s founders are pioneers of index funds, one would expect them to be strict passive indexers. But, that’s not so. They realized there were ways to “...achieve better returns than plain index funds deliver.”

I don’t know how the founders of DFA came up with that cognitive reverie about returns, but I do know from the work of psychologist Jonathan Schooler that it wasn’t from combining respect for cognitive reverie with respect for beer. As I learned from the book Imagine: How Creativity Works, the type of daydreaming required for inspirational insights involves disciplined mind wandering. And while drinking beer “…induces a particularly intense state of mind wandering…” it’s not very disciplined because you become less aware of what you’re thinking. In other words, “You might solve a problem while drunk, but you probably won’t notice it.” So, it wasn’t beer that inspired them but, as they told Barron’s, it was the desire “…to apply the ideas” of Gene Fama at the Booth Chicago School of Business. Ideas that a press release from the school says, “…push forward the boundaries of research in finance.”

As I now know, cognitive reverie is thoughtful daydreaming that leads to profound insights. And it is these creative ideas that turn passion and a commitment to pushing boundaries, at Sierra Nevada and DFA, into great products for their clients. So, I drink Sierra Nevada Pale Ale. But more importantly, I recommend DFA funds because I have enormous respect for DFA. And that’s not the beer talking.