Smarter Decisions for Better Living

Working closely with people and their money for almost 35 years, I’ve seen and learned a great deal about human behavior. As doctors observe the physical impact of bad health habits and counselors uncover the personal and relational damage of bad life choices, caring advisors contend with damage done to lifestyle by bad financial decisions.

We humans like to think of ourselves as intelligent, objective, and rational beings and in control of the things most important to our lives. But in fact, we are in control of very little. Far more of our financial decisions are made subjectively and emotionally than we care to admit, to our financial advisors, or ourselves for that matter.

Back when I was getting started in the business as a young stockbroker with a mid-sized regional firm called Carolina Securities, a friend had lined me up with a small retirement plan as they were seeking new management. He told me there would be two other firms represented at the meeting and we would present our cases in order, with everyone at the table. I don’t remember much about the third guy, but the second was from Merrill Lynch and was dressed like a Madison Avenue senior exec pitching the top brass of Coca Cola.

I was in a grey pinstripped hand-me-down suit, one of several my uncle had given me when he retired from the brokerage business. As the Merrill man spoke, one could hardly miss his all-gold Rolex watch as he confidently and commandingly gestured his arms, hands and fingers making his points in the space over the table that separated him from his audience. It’s funny, while I remember nothing about what he said, my memory of his appearance and his performance are as clear today as if it happened yesterday. I’m guessing you have a pretty good mental image of the scene as well.

A few days later I received a phone call from my friend with the news of the committee’s choice. Though new in the business, I had become an expert on the ‘body language’ that precedes the no. My friend informed me that the choice was unanimously in favor of the guy from Merrill. Perhaps to console me or perhaps in truth, he shared with me that they were impressed with my presentation; the facts I laid out, my command of our investment process, and the earnestness of my delivery. “So what was their reasoning in going with the Merrill guy,” I asked. “They were impressed with his watch,” he said. “To them, his watch, his suit, and his style, represented success.” The kind of success they wanted. Once again, in an effort to console me, my friend suggested that his co-workers were highly impressionable as they were relatively unsophisticated in social and financial matters.

More recently I was chatting with a banker friend. He told me that a large foundation board, on which he sits, had just wrapped up presentations by five investment management firms to select a successor to their current managers, with whom they had grown dissatisfied. Since it would be a matter of public record, I asked who the participants were and which firm the board ultimately selected. To my surprise, he said that after much deliberation they decided to stay with their current firm. The presentations were all so complex that few on the board understood what was being presented and none saw sufficient reason to leave the known commodity that was their current relationship, however deficient and unsatisfying it was.

So there you have it. Whether we are unsophisticated or sophisticated on a subject, our natural tendency is to abandon, almost flee from logic and objectivity when decisions become complex and difficult only to rely on our infinitely more trustworthy and comfortable subjective side where our emotions dominate.

But investing and finances are disciplines where subjectivity, informed by emotions, is never good, always sub-optimal, and even calamitous, with measurable costs to lifestyles. Sadly, most people never realize the costs of suboptimal or bad decisions. They have no way of quantifying, no standard against which to measure to determine the best decisions against the lessor options.

Conversely, well-informed planning clients never fully realize the extent to which they have been made better off by their good decisions because the sum of relatively small benefits realized today compound powerfully into the future and because the explanations of various processes employed are generally complex and beyond their interest in understanding. Most are happy to trust and know with confidence that they, following the advice of their competent advisor, will achieve every goal they value, despite the twists and turns of life.

Quite simply, if you are not actively engaged in setting down, prioritizing, and stretching your goals, if you are not marshaling and managing your resources in the most coordinated and efficient manner possible, if you have not learned to ignore the uncontrollables of life, resting in the knowledge that you have planned for and addressed them to the extent possible, then you are left with gold watches or overly simple solutions to make important life decisions. It’s never too late to start making smart decisions for better living.