The First Person to Blame When Your Investment or Financial Plan Fails.

Investor and educator Vishal Khandelwal @ Safal Niveshak reflected upon a quote from Seth Godin:

Blaming the system is soothing because it lets you off the hook. But when the system is broken, we wonder why you were relying in the system in the first place.

Seth godin

He remembers an experience more than a decade ago when he helped his friend restructure his battered portfolio.

It was not easy selling stocks at losses, but Vishal convinced his friend to do it, leaving only two FMCG (fast-moving consumer goods such as foods, beverages, and toiletries) stocks.

His friend… started to blame his “bad portfolio” on his “bad financial advisor friend”.

Vishal explained to his friend that the problem was not the bad advisor friend but more about himself:

1. He was greedy to earn quick money.
2. Fear of missing out on a hot stock that his colleagues and other friends made before the crisis unravelled.

This kind of conversation is not new to Vishal. He can always recall:

1. Friends who were sold bad insurance policies.
2. Bad mutual funds.
3. Bad portfolio management services.
4. Bad advice from friendly, neighbourhood financial advisors.

Vishal then explains that the “system” isn’t so broken. What is broken is the incentives of the giver of financial advice.

1. Brokers have incentives to make you trade more.
2. Advisors want you to buy more unit trusts and insurance policies.

Vishal wants us to know that before all this, the base rate, or the first principle is that there are a lot of incentives to set you up to feel inadequate:

1. You need a large amount of money because the minimal goals are so large, and inflation is a big monster.
   • How are you going to fulfil these goals? You need a higher return.
   • There are opportunity costs for holding money in cash. If you do, you will get further and further from your goals.
2. You need private healthcare because public healthcare is so shit.
3. And you don’t know what will happen. There is so much unknown out there.
   • Protect yourself by getting well covered.
4. Interest cost is so cheap for you to make use of.

Vishal then leaves us with two significant influences:

God, grant me the serenity to accept the things I cannot change,

the courage to change the things I can,

and the wisdom to know the difference.

Reinhold Niebuhr’s Serenity Prayer

 I may listen to others, but must do what my mind tells me to do. 

Vishal’s Grandmother

I think his point is how difficult it is for us to discern between confirmation bias, what we have no influence over and what we can change to impact our lives. If we cannot differentiate between them, then we will be chasing after the wrong things.

This reminds me of a small part in a recent Rational Reminder podcast on What are financial advisors (measurably) useful for (37 min 10 sec).

People with a good baseline understanding of personal finance and wealth are the people who would benefit the most from financial advice.

A big piece is reaching a state where you really don’t know what the true experts know, that you don’t know.

Knowing that will humble you enough to be open for advice.

I sort of have an idea of who will eventually come on board to be a client. Those with a critical ingredient.

People who understand their true wealth management capabilities, their own short-comings and enough suspicion that the financial world is broken in some ways.

If you reflect enough, see inward, you see that you are the source of many of the financial problems that you face. You begin to understand the incentives that lead you to those past financial decisions that lead to an inadequate outcome.

When I talk to some, or hear that accounts of what some talked about, you sort of get the feeling or know for sure that they are STILL searching for the wrong things.

Or that they still blame someone else but themselves.

Think about this.

If you are searching for returns, you are going to search for people with incentives to tell you their returns are great.

Who do you blame when the returns fall short?

1. The people that sell you? The influencers? Advisers? Investment managers?
2. Yourself?
3. Or the market?

Your reflection/answer to this question, when you sit opposite me, will tell me a lot about whether you get it or not.

It is ok not to get it but I will wonder how long it will take you to get it.

Coincidentally, I had breakfast with Ruiming from The Woke Salaryman yesterday. He shares how challenging it is to help young Singapore denizens correct certain faulty investing and non-investing beliefs.

There is a deep desire on our part for wanting something to work out:

• If you have an affinity towards property investing -> You search out things -> You are more receptive to the positives you encountered -> You dismiss the negatives either downplaying them or thinking that you can manage around the negatives.
• If you have an affinity towards dividend investing, growth investing see the above. It applies in a similar manner.

What is the problem here?

You failed to understand the baseline or the first principle:

1. Investment managers have an incentive to show good performance and downplay the challenges.
2. Insurance advisers have an incentive to stroke the availability bias to impress upon you the probability of something happening is much larger, or that it is more important.
3. Financial advisers have an incentive to move more of your net wealth into their AUM.
4. Influencers has an incentive to say the positives and downplay or omit the negatives.
5. The financial markets move in a way that your investment managers do not have influence over them.
6. Investors are going to go through lucky short, or long market sequences, or they are going to go through unlucky short, or long market sequences. There is very, very little what your investment managers can do about it.
7. Investment managers know much, much less about the markets than you think.
8. Investment managers know the turning points of the markets as well as you.
9. It is one thing to know but another thing to execute well. To sell, then buy, and execute well, the probability of success in one iteration is really low.

These are axioms of wealth management or truisms.

If you debate with me over time, it will make you look stupid eventually.

Some may forever not understand the above and constantly look at returns, and measure the success of their financial plans with returns.

You are going to be forever searching for that elusive asset class, strategy, security, investment manager that can give you that.

Because without it, you won’t have your financial goals.

And the problem often lies not on the investment manager, the market but yourself.

The first line of Reinhold Niebuhr’s Prayer really resonated with me:

Grant me the serenity to accept the things I cannot change.

It basically means we are not going to feel good about it and keep looking for solutions.

That is natural.

And the truly strong ones are the ones that can accept they cannot fight against the first principles.

I hope that someday… you will be able to connect with some of these axioms better. Then, you may be setup to find the solutions to supplement you better.

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