Taking a personality test is an interesting experience. You find out that you are not alone. There is a whole segment of the population that is just like you. That can be either comforting or disconcerting, depending on your view of yourself. In my case, according to Personality Pathway’s Myers Briggs personality test, I am an “introverted thinker” who ponders “the apparent chaos of the world in order to extract from it universal truths and principles that can be counted on.” My wife is proof that opposites attract, because she is an “introverted feeler.” So, while I am trying to build logical strategies, she is trying to build personal relationships. I want to understand the universe and she wants me to understand her. She trusts feelings and I trust reason. To me, logic and emotions have always been mutually exclusive. What has become disconcerting is that I have found they can also be mutually ineffective.
To even consider that there might be limits to the effectiveness of logic is a heretical thought that is a denial of my DNA. My mom, a Daughter of the American Revolution, always said that I inherited the Adams’ nose and the Adams’ arrogance. The hawkish beak adds to the air of aloofness. However, the arrogance is not based on an over-inflated ego, but on an unwavering belief that through hard work and perseverance an answer can always be found. So, problems fall into one of two categories: those that have been solved and those that are waiting to be solved. The French mathematician, physicist, and philosopher, Blaise Pascal, must have been in our group of introverted thinkers because he once said, “Reason is the slow and torturous method by which those who do not know the truth discover it.”
So, while I gleefully proclaim the dangers of emotional responses to markets, I have to soberly admit that logical responses to markets can be just as ineffective. As Daniel Gross said in a web posting, How to Speak Hedgie, “Anyone who read the best seller The Black Swan knows that random geopolitical, financial and economic events can cause the prices of assets to move in ways that defy history and sophisticated computer models.” And, may I add, logic. Gross points out that when markets crash money managers blame their problems on “irrational collective behavior” brought on because “investor fear has overtaken reason…” In other words, our decisions were logical and rational; it was the market that was irrational.
As a Myers Briggs “thinking” husband, I am embarrassed to say there are times when I think my Myers Briggs “feeling” wife acts irrationally. But that is more of a condemnation of my understanding of her than it is an accurate description of her. What appears to be irrational are really factors that I don’t see, don’t understand, or just don’t pay attention to.
As a logical investment advisor, I likewise, understand that what appears to be irrational behavior of markets is caused by factors that I don’t see, don’t understand, or just don’t pay attention to. And as much as I would like to believe it is a problem waiting to be solved, I know that, for all practical purposes, movements of markets are unknowable in advance. In hindsight it is easy to construct logical explanations of market gyrations. However, they are no better than the self-deceptive logical rationalizations I use to justify arguments with my wife.
As illogical as it sounds to me, there are problems that can’t be solved. So, I need to relate to them based on universal truths and principles that are known to be effective. For markets, that means diversification and discipline, and for my wife that means back rubs and listening.
"I bet that cost you a pretty penny," I said with a grin. "No Daddy, it cost you a pretty penny," my daughter replied with an even bigger grin. The object we were referring to was a very expensive double BOB stroller that had caught my eye in my daughter's garage. It appears that, unbeknownst to Grandpa, Grandma had gone a little wild with gifts from Babies "R" Us. With a new grandchild arriving virtually every year for the last ten years, my wife has purchased so much stuff from that store that you would think she could have saved them from bankruptcy all on her own.
However, I don't begrudge her joy when it comes to buying presents for the grandkids. On the contrary, I encourage it because being doting grandparents is important to me. Growing up, I thought of grandparents as old people who lived far away, and you never saw. My mom's mom was 86 when I was born and her father was older than that. They lived in Boston and we were on the west coast. I saw them once before they died and I was only two at the time. My Dad's parents were half as far away, in the mid-west, but I only remember seeing them twice. The first time was when I was eight, and the main thing I remember about that trip was the agony of having to sit in a car for 10 hours a day. To calm me down when I threw one of my recurring "I can't stand sitting still" tantrums, my parents would tell me how wonderful it would be when I finally saw grandma and grandpa. So you can imagine the consternation I felt upon pulling into my Dad's hometown of Pewaukee and having Dad stop at the graveyard and say "That's where grandma and grandpa Ely are buried." Not realizing he meant his grandparents and not mine, I blew a gasket.
For those of you who are not mechanically inclined, that idiom refers to a car engine. When the head gasket blows, your car loses power, overheats, and eventually stops running. I don't know much about leaky head gaskets, but as a financial advisor I know the warning signs of a faulty financial head gasket. And that is why I am not worried about my wife's spending on gifts for the grandkids. They are well within our targeted spending rate, so there is no danger of blowing a financial gasket.
In a September 2018 blog, Michael Kitces, a well-known financial writer and advisor, explains why spending rates are so important. In his article he writes about the rule of thumb of saving 10% to 15% of your income for retirement. "The key point, though, is that it's not really the 'savings rate' that defines a successful savings path to retirement. It's actually the spending rate - and having a spending rate that is less than 100% of household income - because functionally most people don't 'choose' what to save per se... they choose what to spend, and then save the limited dollars that may or may not be left over..." And it is the big ticket items that make the biggest difference. So, "...making good decisions about the cars and the house matter way more than the lattes and the avocado toast!"
From the start of our marriage, we were prudent not only about our housing and transportation costs, but also about the lattes and avocado toast. We always lived in houses that were a little below our means and bought cars based more on economics than ego. We also controlled our monthly expenses by artificially limiting the amount available to spend. On top of that, we practiced what Kitces preaches that "...you can improve your spending rate (and therefore have more money available to save) by either spending less or simply by spending the same but earning more (or even earning more and spending more as long you don't spend ALL of the raise!)"
To paraphrase the Beatles: as an eight year old, I blew my mind out in a car. However, as adults, my wife and I have lived far enough within our means to avoid blowing a financial gasket. And now that our house and cars are paid for, grandma has the freedom to go a little bit wild.
"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."
What I thought would be the most important event of the summer, my sixtieth birthday, turned out to be an afterthought. Starting off the chain of events that got in the way of my big day was the birth of our first grandson. He was named Dominic after his great-grandfather, although there was some discussion of naming him Otis after the manufacturer of the elevator he was born in. Needless to say, he became the center of attention. And as he settled in and the family settled down, the center of attention shifted to preparations for my youngest daughter’s wedding.
I thought there was a chance they could schedule a party for me between the events. But with the declining health of my wife’s mother and her eventual death the week of my birthday, that chance evaporated. The sum total of the attention I received was an unwrapped pair of shorts given to me by my wife with the comment that I could exchange them if they didn’t fit.
The lack of attention, while understandable, still hurt. That’s why I was so excited when my oldest daughter invited us to a party for the new baby in the lull before the next big event, my middle daughter’s wedding. It was obvious that this baby thing was just a ploy to setup a surprise party for dear old Dad. As the party approached, I kept telling myself to act shocked when they sprung the surprise on me. As it turned out, I was genuinely surprised because the party came and went without any mention of my birthday or me. It really was a party to introduce the new baby.
Maybe if I had read Dave Foster Wallace’s famous This Is Water speech, I would have had a more realistic perspective. The point of his talk was "that the most obvious, ubiquitous, important realities are often the ones that are the hardest to see… Because, my natural default setting is the certainty that situations like this are really all about me." In other words, we are hardwired "to see and interpret everything through the lens of self." So, "a huge percentage of the stuff that I tend to be automatically certain of is, it turns out, totally wrong and deluded."
Bob Seawright, who did read Wallace’s speech, takes his premise a step further in Finding What We’re Not Looking For, by saying "if you are automatically sure you know what reality looks like… you will miss out on… opportunities to learn..." And it’s not only "our default settings that conspire against us… [but also] our increasingly data soaked and algorithm-dominated world." Amazon, Google, and the rest of the internet don’t challenge our defaults, they cater to them. They are "unparalleled at allowing us to find what we are looking for. [But,] if we are going to do better and be better we’re going to need to find what we’re not looking for."
Finding what you’re not looking for is hard because you’re never sure if you have found it. You are always in an uncomfortable state of uncertainty. Certainty, on the other hand, may be delusional but it feels better. And that, explains Seawright, is why we look for investment professionals who show themselves to be "confident and decisive at all times… [when we should be looking for advisors] who show caution and humility in the face of uncertainty…" Why? Because when we invest with certainty, "we are usually wrong, often spectacularly wrong."
"How can it be wrong when it feels so right?" asks Barbara Mandrell in a song with David Houston. The answer is that the feeling of certainty is based on a self-centered perspective we reinforce with handpicked facts, which may or may not be grounded in reality. So, Seawright is adamant that we need to be "curious, humble, self-critical, give weight to multiple perspectives, and feel free to change [our] minds." But, even though we know he’s right, our default settings delude us into believing that it’s different this time and we can trust our feelings. And that’s why, contrary to the most obvious and ubiquitous realities, I still can’t believe the party wasn’t for me.
Then again, the Association for Psychological Science informs us that parenting any child isn't easy. A recent post, The Myth of Joyful Parenthood, states that "Raising children is hard and any parent who says differently is lying." And that isn't an unsubstantiated opinion, explains John Cloud in a Time Magazine article -- Kid Crazy. "Researchers have known for some time that parents are... more depressed than nonparents..." They're more depressed and stressed, writes author Jay Belsky, PhD, because of "...a fundamental truism about the world we inhabit: The future is uncertain. As a result, no parent...can know for certain what would be best for his or her...child..." Neither can investors know with certainty what is best for their portfolios. So, like parents, "investors hate uncertainty," points out Wall Street Journal columnist Jason Zweig. But certainty, which he defines as "...a state of clarity and predictability... doesn't exist, never has, and never will." However, "Our need for certainty in an endeavor as uncertain as raising children [or, I may add, investing for retirement] makes explicit 'how-to-parent' [or investment] strategies both seductive and dangerous," warns researcher and TED Talk sensation, Dr. Brené Brown.
Therefore, it is hard to resist "...seductive-sounding ideas that will supposedly enable you to beat the market," writes Zweig or be a "perfect" parent, Brown would add. But you must. That's why Brown says you have to "let it go" and Zweig says to "get over it." By doing that, Zweig explains you can then "...try to control the things that are controllable," which is mainly your behavior. So, Brown encourages parents to "Be what you want your kids to be" and Zweig admonishes investors to adhere "...to a set discipline... [to] prevent yourself from making impulsive decisions..."
Investors should heed both pieces of advice and try to emulate the behavior of disciplined role models like Warren Buffett. That means not only knowing what he does but also doing it. "Only when you combine sound intellect with emotional discipline do you get rational behavior," Buffett maintains. For him to nurture such intellect and discipline, he told CNBC, "I do more reading and thinking, and make less impulsive decisions than most people in business." It's something "All of you can do," he points out, "but I guarantee not many of you will do it." And that's the reason why so many investors make the same mistakes over and over.
As humorist Franklin P. Jones observed, "Experience enables you to recognize a mistake when you make it again." Regrettably, there is more truth than humor in that statement. It's true because, "...it turns out that our brains are hardwired to get us into investing trouble," laments Zweig. In other words, nature has cross-wired our brains in such a way that we believe that the world is more predictable and controllable than what logic, observable facts, or past experiences would suggest. Because of that, neither parents nor investors can let go of the belief that perfection (or near perfection) is possible. And that's not very smart, is it? Ya think!
I hadn't been applauded for kissing my wife and walking down an aisle since our wedding day. However, this time the aisle in question was on an airplane instead of in a church. And the mood was more factious than festive because a family had been split-up instead of joined together. A mother (with infant twins) and a grandmother had seats relatively close together, but the husband's assigned seat was about a dozen rows away. To further complicate the matter, it appeared that neither woman could speak English and the husband's English skills were very limited. However, that had not stopped him from negotiating a couple of seat-swapping deals, including one with an obviously very drunk passenger. What the attendant was trying to do was to get everyone back to their assigned seats before initiating any changes. In addition to the fact that no one was listening to her, the attendant had another problem that could not be ignored. The three adults and two children were now together in a three-seat row in violation of FAA rules because there were only four oxygen masks for the five people. So, the attendant couldn't leave things as they were, but the husband--who was in paternal protection mode--wasn't about to leave his family.
It was at this point that I decided to pull an Alexander Haig and take charge, even though I didn't have the authority. Since I assume nothing (a characteristic of "people on the autistic spectrum," according to author Caroline Scott) the first thing I did was look for an empty seat, even though it was a supposedly full flight. To the surprise of the attendant, I found one. After that, the rest was simple. The puzzle could be solved in two moves. The husband would take my seat across from his family and next to my wife, and I would take the empty one a half dozen rows back. However, I couldn't resist hamming it up a bit. So, in response to the attendant's question about not sitting with my wife, I said, "We've been married for 40 years, we can sacrifice four hours apart." And then to a ground swell of applause and "aahs" I turned to my wife, gave her a big kiss, and headed down the aisle. Problem solved.
When you have a lot of problems, you get a lot of practice solving problems. I wouldn't say that I have more problems than other people, it's just that my brain makes everything a problem. For most people, the myriad of daily decisions about what to wear, what to eat, and how to prioritize tasks are so routine that they don't even consciously think of it. But for people on the autism spectrum, "the process of problem solving can be quite a challenge," says Sherry A. Moyer in an Autism Support Network article.
It's not that I can't figure things out, it just takes me a little longer. That's why the same teacher who originally referred to me as "retarded" reassured my mother that "Once Guerdon figures things out, he never forgets." However, figuring out school was difficult. To do that, I had to hand copy my textbooks to get what I had missed in class because I couldn't understand verbal instruction. Basically, I had to work twice as hard to be half as good. To excel, I had to work ten times harder. But the hard work turned a weakness into a strength. Alan Turing, the inventor of the computer, could have had me in mind when he said, "Sometimes it is the people no one can imagine anything of who do the things no one can imagine."
As a financial advisor, it seems that I'm still doing things that others can't imagine. That's why an attorney once introduced me as "The best at what he does, unfortunately, no one knows what he does." That was especially true when I switched to a fee-only structure and an academically based investment strategy, as well as started studying retirement distribution law and fiduciary responsibility issues. The driving factor in all those pursuits was a desire to better serve my clients. In the process, it made me half of rich and famous. While the notoriety was nice, I didn't do it for the applause. Like the situation on the airplane, I just saw a problem that needed to be solved and I did what I do best - solve problems.