A Successful Tale





The first question I ask a prospective client is, “Why do you need an advisor?”  My second question is, “Why are you talking to me?”  Their answers give me insight to what matters to the prospective client.  I’ve heard hundreds of answers to these questions, but, in general, people work with advisors for four reasons.  The first reason is that they are ignorant about money and investments and they need a guiding hand.  The second reason is despite being knowledgeable about money and investments, people fail to make the type of returns they expect they should make.  They have behavioral issues and so they either hire an advisor for the first time or switch advisors.  The third reason is that although they are knowledgeable about money and investments and they achieve satisfactory rates of return, they don’t enjoy it and want to outsource this aspect of their life to someone else.  The fourth reason is insecurity or lack of confidence.  Specifically, this is someone who has grown their money to what they consider a substantial amount but now lacks the confidence to continue to manage it successfully.

I am not unique in this value proposition.  As I like to say and many of these tales imply, there is no perfect advisor for a client, there are dozens of perfect advisors.  However, this tale speaks to the ways I have seen people actually work with advisors successfully.  So let’s set the first rule.  You must first be honest with your advisor in order to have a chance at a successful relationship with your advisor.  It’s also important to be honest with yourself.  You must know why you are working with an advisor.  Like I said in the opening paragraph of this tale, there are four reasons that I’ve observed, and you need to decide which reason fits you.

The reason I say you must know why you are working with an advisor is simple.  If you don’t know why you have hired an advisor, you won’t know what your role in the relationship is or if they are doing a good job.  Here are some quick examples.  If you are ignorant, you could be underserved and not know it.  You need to start accumulating knowledge.  If you have behavior issues, you need to make sure you don’t transfer your issues to your advisor.  In this case, you may want to avoid excessive contact with your advisor.  If you simply want to delegate, you need to instruct your advisor and set parameters for your portfolio with periodic monitoring.  Lastly, if you lack confidence, you must work to have confidence in your advisor.  This self-awareness isn’t always easy and yet is important for a successful long-term outcome.

How can a person tell if they are ignorant about money and investments?  I call this skill “The Golden Rule.”  I’ve adopted the golden rule from the film Magnum Force.  In the movie, Clint Eastwood plays the role of Detective Harry Callahan and utters the famous phrase, “A man’s got to know his limitations.”  It’s also the subtitle of this tale, and when it comes to money and investments, the detective is right.

Knowing my limits is an important component of my personal life and investment philosophy.  We are all limited.  To deny our limitations only delays the realization of the inevitability of failure.  Choosing to work with an advisor is about knowing your limits.  Just because you are expert at something does not mean that it translates to the world of money and investments.  Heck, even experts use other experts.  Jack Nicklaus, Tiger Woods and Jordan Spieth are expert golfers, yet they use expert caddies because it makes them better.  Conversely, just because you are ignorant in the area of money and investments does not mean that you are ignorant.  If you are ignorant about money and investments you should devote your time to finding the perfect advisor.  Many intelligent and successful people don’t have the slightest interest in money and investments but have found they are very good at hiring talented advisors and so they focus on what they do best.  Know your limitations.

What else is important to know about yourself other than money and investment knowledge?  I break it down into two personality traits.  The first trait is trust and the second is what I call the second-guessing or kibitz factor.  For those who don’t know the meaning of kibitz, I first learned about it in chess.  When a spectator makes a comment on a chess game that is heard by the chess players while the game is in progress, they are kibitzing.  It is when someone offers unwanted, usually meddlesome advice to others.  In many ways, investing is the equivalent of an ongoing chess game.  If you have a high kibitz factor, you can’t successfully work with an advisor.  Why do I say this?  Your comments will distract your advisor, and eventually your advisor won’t play the moves he should, he’ll play the moves you tell him to play.  If you second guess or criticize your advisor enough, you will absolutely get a poor outcome and you are much better off playing your own game of chess.  With regard to trust, you need to determine if you are capable of trusting someone to invest your money.  Most people are capable, even if the trust develops over time.  However, if you are a person who can’t delegate or must always be in control or views money as a private matter, my advice is that you learn as much as possible about money and investments because you won’t be able to successfully work with an advisor.

Where does this leave us?  Based on the logic I’ve presented, we are left with eight variations of clients based on the three parameters I’ve outlined, knowledge, trust and the kibitz factor.  Rather than go over the eight variations, let me summarize.  In my opinion, most people should hire an expert advisor regardless of their knowledge level.  This will give them the best chance of a successful outcome.  However, if you are incapable of trusting someone with your money, then you can’t work successfully with any advisor.  You then must either overcome this trait or learn these tales and much more so that you can manage your own affairs.  If you have the need to kibitz, but are capable of trust, then you can successfully work with an advisor once you learn how to focus your comments in a constructive fashion.  When I look over my clientele and envision where my clients fall under this spectrum, I find that those who have long-term success are those who are trusting and constructive in our discussions, regardless of their knowledge or interest level.  Many of these clients have learned to be constructive and trusting over time even if they didn’t start out that way.  You can too.

Before I finish this tale, I need to make special reference to what I call “The Young.”  My clients often ask me to work with their children, and the sooner their children learn how money works the better.  I believe it is my duty to teach my children as well as others.  It is the primary motivation for these tales.  I strongly believe young people are ignorant about money and investments.  Why, you ask?  If you guessed, “Because they are young,” you would be correct.  They need to learn how money works and, over time, if they pay attention and have interest, they will develop knowledge that will at least expose them to opportunities they wouldn’t otherwise recognize.  It is primarily for this reason why this book purposely avoids complicated material and why I only selected sixty-one tales.  I have written hundreds of tales and had many to choose from, but only sixty-one made the cut for this book.

It is always an honor and a great responsibility to advise my client’s children.  My advice to them is consistent, but is based on some conflicting beliefs.  I strongly believe that young people should take undue risk because they have ample time to recover from mistakes and their mistakes are less costly when they are young since they have less money.  Furthermore, making their own investment decisions gives the young an opportunity to understand their ability to deal with risk.  This knowledge will make them more likely to work successfully with an advisor in the future if they choose to go that route.  I know that if they hire an advisor from day one that they lose this learning opportunity.  I also recognize that competent advisors won’t take undue risk for a client, so the probability of making a client’s child super rich is zero.  On the other hand, if young people work with a competent advisor from the very beginning and throughout their lives, they won’t be poor either because they experience the effect of watching their money compound over a long period and can devote their time to other, perhaps more pleasurable endeavors.  Specifically, I recommend that the young trust half of their money with a competent advisor and that they try to grow the other half themselves.

This tale teaches us you must trust and speak constructively with your advisor in order to have a chance at a successful outcome, regardless of your knowledge about money and investments.  We must also understand ourselves and recognize our limitations.  What we didn’t learn is how to know when your trusted advisor is competent.  What if you learn to trust and learn to speak constructively but you sense there is something wrong with your results?  What if you are doing your part, but the advisor isn’t doing their part?  What do you do?  When do you know it’s time to find a different advisor?  I subscribe to the motto “Well started is half finished.”  If you do too, then you probably won’t find yourself in this type of situation.  But what if you were fooled?  How can you tell?  Unfortunately, it’s difficult.  The concept of determining advisor competency is complex.  This theme comes up throughout these tales, but there is no substitute for knowledge.  Please note that although knowledge isn’t a necessary condition for a successful outcome, lack of knowledge could prevent you from recognizing a bad situation.  If you don’t take the time to educate yourself, then you have no basis to determine advisor competency.  I strongly urge everyone to learn.

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