Financial Advice From The Pros

Financial writing often buries the pearls of wisdom under a pile of chaff. This week, columnist Jeff Brown, MD, winnows down the bluster to offer some essential financial truths.

In every discussion that I have had with people in the financial industry, and in every financial article that I have read, I have noticed that you have to wade through a lot of chaff to get to the wheat. I am going to save you most of that bother with some post-winnowed results.

For instance, Paula Pant in USNews.com summarizes her piece on budgeting to say that “…its purpose is to make sure that you are saving.” I never thought of it that way, but sometimes it helps understanding to re-frame a subject.

Jeremy Grantham, GMO co-founder, has pointed out that “There are no great assets, only assets at great prices.” In other words, you need to be objective and cold-blooded in doing your evaluations, not infatuated. Of course, what he does not say is that the reason he is rich, and the average doc is not, is how he has determined what a “great price” is….

“Success in investing happens when your outcomes meet your expectations” according to Worth magazine. That partially explains why so many folks are frequently in a disappointed state about their investments; they don’t have a real plan with its inherent benchmarks to define whatever success and failure are in your particular situation. Too often, we have minimal discipline about saving but add a dollop of hope for good results, sometimes bleeding into fantasy.

Just like our medical work flow life, too often in our finances, we live a life seconded to reaction, rather than proaction. In our practices, we move from medical crisis to interruption, in our financial lives, we move from market sags to bubbles. I know, it’s easy to notice these things and tough to fix; “don’t wait, act,” but there it is.

Howard Marks, Chairman of Oaktree Capital Management wrote last year that “Unconventional behavior is the only road to superior investment results. In addition to superior skill, successful investing requires the ability to look wrong for a while and survive some mistakes.” If true, I guess that means that most of us are in for it. Most people just don’t have the biological makeup to buy low, hold and sell high. Nor the training to modify these tendencies.

A financial advisor named Samantha Sharf reports in “Forbes” that “Net worth is your root. It lets you hold on in a storm. Income is what gives you wings that let you do the things that you want to do.” In conversation after conversation, I hear net worth is much undervalued by the average doc in importance, in lieu of income or cash flow. Sharf’s suggestion to encourage an increase in net worth by saving more is to “Automate everything. Apps like Digit allow you to monitor cash flow and automatically save….Our biggest worry is the tendency to spend…lifestyle creep (is our net worth enemy) as our income rises.”

To finish on an up note, I turn to Bob Rotella PhD, the sports psychologist. His advice to jocks can apply to money matters, and much else in life. “Be optimistic and confident about your talent. Do visualization exercises. Forget mistakes and failures; treat them like accidents. Commit to working hard—sweat in (preparation) so that you don’t have to bleed in the game. As Yogi Berra once said, ‘Ninety percent of this game is half mental.’” Rotella is a bit over the top perhaps, but we all know that in most fields of human endeavor, from sports to money, attitude is everything.