What You Can Learn From Bill Gross And PIMCO’s Troubles

“Trouble. Trouble, trouble, trouble, trouble.” Reading all the news about Bill Gross and PIMCO, I keep hearing that Ray LaMontagne song in my head. (Go ahead—give it a listen while you read this, just for fun.) EGO

The king of bonds isn’t yet abdicating the throne, but it’s been a rough stretch since PIMCO came down from the mountain to translate the etchings on the “New Normal” tablets. It was, of course, hard to argue the logic in 2009, that U.S. markets would struggle under the weight of a sluggish economy hampered by high unemployment and systemic government debt. But as it often does in the face of supposed certainty, the market defied man’s expectations.

Following the new normal playbook, PIMCO bet against Treasurys in 2011, when its flagship fund, Total Return, captured only 53% of the Barclays U.S. Aggregate Bond index return for that year. In 2013, the fund barely beat the Barclays index, but it lost money for the first time since 1999—accelerating a trend of fund outflows.

Then things started to reflect daytime television, when Gross’ heir apparent, Mohamed El-Erian, departed in the midst of rumors of dissent at the top of the organization. Those rumors were confirmed when The Wall Street Journal published an article based on reports by unnamed inside sources, accusing Gross of comparing himself publicly to the unbeatable racehorse, Secretariat. Then Morningstar downgraded PIMCO’s “stewardship grade” to C from B.

Beyond the tabloid fodder, however, there is a vital investing lesson to take away from this still-evolving story:

Pride goeth before a fall.

Ego and ignorance are at the core of nearly every investment blunder. As un-shocked as most of us were to find that an investment management bigwig making $200 million a year had an ego problem, ego is at the core of the PIMCO dilemma.

(Click HERE to see me discussing concerns about Bill Gross' ego on CNBC's "Street Signs.")

Ego, then, often leads to an interesting form of ignorance. While none of us would dispute Gross’ intellectual brilliance, his presumption of preeminence might be his downfall.

When everything goes right for an extended period of time, we often mistakenly allow ourselves to believe that our success is disproportionately attributable to us and not outside forces. It’s called the fundamental attribution error. We attribute our success to our innate traits and our mistakes to external circumstances while assuming that the errors of others are due to internal shortfalls, like a lack of character or intelligence.

It’s a blind spot. Unfortunately, the financial industry seems to be full of them. Everybody thinks they’re smarter than everybody else—and the market, even though the overwhelming evidence stands in opposition.

Déjà vu all over again?

Remember the story of the fabled fund formerly known as the Legg Mason Value Trust? Bill Miller had beaten the market for so many years that he forgot it was possible for him to not beat the market. When he lost to the S&P 500 for the first time in his tenure with the fund in 2006 and 2007 — and then very badly in 2008, betting he could will the financials out of their downward spiral — everything started to become clearer: The fund had returned more than the broader market largely because it was taking on more risk than the market—then, it simply lost more than the market because it was taking on more risk than the market.

Almost two decades of apparent outperformance were undone in a single year.

Or go back even further to explore the life of Jesse Livermore in the fictional account based on his life in Reminiscences of a Stock Operator. Some Wall Street firms still offer this as a securities trading handbook, even though Livermore lost his fortune more times than he was able to make it and ended his life by his own hand, in poverty and disgrace.

The Bottom Line:

The market rewards humility over hubris, discipline over gut feelings and proactivity over reactivity. By acknowledging that you’re not omniscient, you free yourself to compose an investment strategy grounded in evidence that makes up for its lack of sex appeal with its elegant simplicity—and most important, its effectiveness. You can choose to stop chasing the market and build a portfolio designed to get everything the market has to offer.

More on that next week.

If you enjoyed this post, please let me know on Twitter, @TimMaurer.

 

 

Financial Advisors: Differentiate Yourself By Being Yourself

The most freeing day of my career was when I sold my golf clubs.

Different

Although the transformation had been under way for several years, it was a moment of symbolic importance. It signaled an official decision to permit myself to be something other than what I had come to believe the financial industry wanted me to be. I was officially granting myself permission to be myself.

Conformity

I apologize in advance for stereotyping, but the sales managers I had worked for had personified the industry for me. Not fond of nuance or implication, they simply had expressed that I was to be, among other things, a golfer. So I bought a set of new clubs outfitted with a nice bag, and I hired an instructor to help me master the gentleman’s game.

After several lessons, my laidback instructor told me he’d never seen anyone grip the club quite so hard. We discovered that I had complemented my less-than-elite athleticism with heavy doses of intensity and hustle to remain competitive in sports while growing up. Unfortunately, as it turned out, these traits were counterproductive to success in golf.

Instead of investing thousands of dollars in psychotherapy to try and loosen my grip on a golf club, I sold my clubs and bought a used road bicycle. I grew to love the sport, which rewarded my overcompensation of will and desire.

But I wasn’t just dumping golf at that moment. I was dumping it all—the notion that I should only wear dark suits, plain white (or light blue on Friday) shirts, power ties, hair that is neither too long nor short and a clean shaven face. Eureka—I could even wear a pair of jeans to the grocery store now!

Differentiation

Paradoxically, as long as I lived inside of the industry’s box, I was taught to differentiate myself professionally—to become “the guy” for orthopedists or cosmetic dentists or corporate attorneys. Everything I did in life, work and play was supposed to send a message that would presumably attract a specific niche of people who are known for making especially profitable financial advisory clients.

Of course, there is nothing wrong with golfing, differentiating yourself or serving a niche. In fact, each of these pursuits can be beneficial for you and your clients when practiced in earnest. What is wrong—or at least unhealthy and more than a touch manipulative—is becoming someone you are not for the benefit of purposefully differentiating or conforming.

What if the Holy Grail of finding your niche and setting yourself apart from the crowd was found simply in permitting yourself to be yourself?

Being Yourself

If you always wanted to be a Navy fighter pilot but got turned down because you’re too tall or your eyesight was worse than 20/20, you could develop a niche serving military officers. If you aspired to be a surgeon but threw up all over the cadaver on the second day of medical school, you could serve the medical community. And of course, if you’re passionate about golf and enjoy the simplicity of uncomplicated garb, you should be entirely free to live up to the stereotype of the financial advisor.

There’s only one caveat, but it’s a big one: When you give yourself the freedom to be exactly who you are, you might disappoint other people. It’s easier for companies and managers—even parents, spouses and, in some cases, kids—to put you in a predictable construct that may best serve their needs and wants.

What if you want to help social workers navigate the world of personal finance and thereby would likely have to take a pay cut? What if it means you’d be working with clients less and drawing more? What if becoming fully you means moving to Latin America to manage a micro-finance operation and teach English? What if it means educating advisors more than investors?  What if it means designing a practice that conforms to your family instead of the reverse?

You might have to change ZIP codes, companies or professions altogether.

Unfortunately, being who you are—especially in the financial industry—may not be the easiest thing to do, but choosing to be yourself is simple because it’s natural, and incredibly liberating.

If you enjoyed this post, please let me know via Twitter @TimMaurer.

 

Time Is More Precious Than Money

As the Fed has taught us through the money-printing machine cloaked as quantitative easing, the potential supply of U.S. dollars is limitless. Even for most of us individually, we are capable, to varying degrees, of generating and regenerating money through work, investment and happenstance.

Time, however, is a different story.

Thanks to Emily Rooney for permission to feature her artwork

Thanks to Emily Rooney for permission to feature her artwork

It brings to mind these lyrics: “Where you invest your love, you invest your life,” croons Marcus Mumford in the song “Awake My Soul” on Mumford & Sons’ debut album, “Sigh No More.”

Sure, musicians are notorious for writing lyrics because they sound self-important, or maybe simply because they rhyme, but Mumford has earned a reputation for lyrical brilliance and offers us something deep and meaningful here to apply in our lives and finances.

No matter how much we strive, delegate and engineer for efficiency, there are only 24 hours in each day. We are unable to manufacture more time, and once a moment has passed, it is beyond retrieval.

Of these 24 hours each day, if we assume that we will sleep, work and commute for approximately 17 of them, that leaves us with a measly seven hours to apply ourselves to loftier pursuits. After an hour at the gym, an hour to eat and another hour to decompress with a book or TV show, we’re down to four hours to personally affect those for whom we are presumably working and staying healthy—the people we love.

Our human capacity to love also has its limits.

While not measurable, we can all acknowledge that our capacity to love, in the four hours each day that we have to invest it, is affected by how we’ve invested the other 20 hours. By the “end” of many days, we are just beginning our four hours, and we are already spent. Even if we wanted to, we have nothing left to give—no love left to invest.

I am a chief offender of misallocating my love.

I often allow the four hours I have to give to my wife, Andrea, and two boys, Kieran (10) and Connor (8), to shrink to three, two or even one. In whatever time is allocated, I often serve leftover love, having over-invested myself throughout the day. Then I steal from their time, interrupting it with “important” emails and calls.

I must acknowledge that these are choices I make.

We have the choice to order our loves, to acknowledge the limited nature of time and our own capacity, and to prioritize our work and life.

It’s entirely appropriate to love our work and the people we serve through it. It’s entirely appropriate to love ourselves and to do what is necessary to be physically, fiscally, psychologically and spiritually healthy. It’s entirely appropriate to love our areas of service and civic duty, and to serve well. Therefore, almost paradoxically, it’s entirely appropriate to spend 83 percent of our daily allotment of time in pursuits other than the direct edification of those we love the most.

But what would our lives look like if we engineered our days to make the very most of the other four hours?

Would we have a different job? Would we live in a different house or part of the country? Would we drive a different car? Would we say “no” to some people more and to other people less? Would we invest our time and money differently?

Would you invest your love differently?

I’m excited to be part of a contingent of financial advisors asking these questions of our clients (and ourselves).  We don’t believe that the only way to benefit our clients is through their portfolios, and we believe that asset allocation involves more than mere securities.

This isn’t a particularly new concept.  Indeed, the second phase of the six-step financial planning process, as articulated in the Certified Financial Planner™ (CFP®) practice standards, is to “determine a client’s personal and financial goals, needs and priorities.”  But thought leaders like Rick Kahler, Ted Klontz, Carol Anderson, George Kinder, Carl Richards and Larry Swedroe are persistently nudging the notoriously left-brained financial realm to reconcile with its creative and intuitive side for the benefit of our clients.

With statistics suggesting that as many as 80% of financial planning recommendations are not implemented by clients, it’s officially time to recognize that personal finance is more personal than it is finance.

If you enjoyed this post, I'd love to hear from you on Twitter via @TimMaurer.

How To Show People You Don’t Care About Them This Holiday Season

0079936679582_500X500Bankrate reported the findings of a survey this week, suggesting that 53% “of the general population preferred general-purpose gift cards.”  These cards, unlike brand-specific gift cards (for iTunes or Best Buy), allow a gift recipient to spend their gift allowance however and wherever they choose. But think about this for a moment—if everyone gave everyone else a general-purpose gift card, it would effectively eliminate the purpose for giving entirely!

Envision this with me:  If I give you a $35 general-purpose gift card (GPGC) and you do the same in return, we’ve effectively given each other nothing at all.  We could just skip the whole charade and spend our own money on ourselves.

In giving each other the opportunity to buy anything, we’re actually giving nothing at all.

Why the rise in the popularity of GPGCs?  Bankrate answers that question:

"It's a much easier, more popular way to provide a gift to somebody," says Madeline Aufseeser, senior analyst at Aite Group. "If I don't know your particular taste or size, then I am safe with a gift card."

It’s easier.  It’s safer.

It doesn’t require you to really know or care about a person.  It saves you the time of applying any meaningful thought to what makes your friend or loved one unique.

It eliminates the possibility that you’ll read someone incorrectly and guess wrong, but in playing it safe you’re also guaranteed not to get it right.  Not to leave a memorable impact.

So if you want to show that special someone that you really don’t care that much about them this holiday season, by all means, get them a general-purpose gift card.

Heck, maybe we could even start a movement among our family and friends openly acknowledging that we’re all too busy and we care far too little to engage in the antiquated notion of purchasing gifts that symbolize our mutual affinity for one another.  Let’s just agree to ditch gifts all together and go on individual shopping sprees for ourselves.

Tis the season.

If you enjoyed this post, please let me know on Twitter @TimMaurer, and if you’d like to receive my weekly Forbes installment via email, click HERE.

How To Win $120,000 Playing Poker

poker_hand1My wife, Andrea, won $120,000 at Resorts Casino in Atlantic City playing Caribbean stud poker in 1997, before I even knew her.  She parted with exactly $16 in that fateful hand, and received 7,500 times her investment after being dealt a royal flush of a-girl’s-best-friend diamonds.  For the abstainers, that’s a ten, jack, queen, king and ace of the same suit—the best possible hand in poker.  The chances of being dealt such a hand are one in 649,740.  To put that in perspective, the odds of getting struck by lightning throughout your lifetime are one in 3,000.

Luck Be a Lady

After playing for over four hours with a $100 budget for the night at the Caribbean stud tables, Andrea was down to six dollars in chips and expecting it to be her last hand.  Indeed it was.  She made the minimum blind bet of five dollars to play and anted up an additional dollar to be eligible for the progressive pot.  The progressive pot fills up (and up and up) with the aggregate of the one dollar side bets at a collective of tables in the casino until someone with a qualifying hand earns some or all of it.  The dealer shuffled and dealt.  Andrea peeked at her five cards to reveal a royal straight flush arranged in the following order, from left to right: ace, king, queen, ten, jack.

As she choked down her leaping heart, she realized she needed to borrow a $10 chip from a friend to satisfy the minimum raise to win.  But even then, the dealer had to have a qualifying hand of at least an ace and a king, the hand that falls just below a pair of twos.  If the dealer has bupkis, so do you, receiving only a doubling of your initial bet—and no progressive pot.  The dealer qualified.  Then his face turned white when he saw Andrea’s hand.  Then everyone at the table saw Andrea’s hand.  Then everyone in the casino heard Andrea’s table erupt with a noise that sounds like corporate joy, but actually represents exasperated, alcohol-soaked, oxygen-infused envy.

Everyone now darted their gaze to the centrally located progressive pot sign, as the dealer struggled to turn the key to stop the number from rising, faltering enough to add a few more thousand dollars to Andrea’s winnings—in  all, $118,529.  The dealer was whisked away by the pit boss and Andrea was escorted to the casino teller as zombie-eyed gamblers pawed her in hopes of a mystical transmission of luck.  After tapes were reviewed to confirm she hadn’t gamed the system and taxes were withheld, Andrea walked with a pocketful of cash and a check for $81,786.  Not bad for a night on the town.

Survivorship Bias

THIS is the story the casino wants you to hear.  (They don’t want you to hear that Caribbean stud offers some of the worst odds at the casino.)

THIS is called survivorship bias, and it’s the foundation upon which casino empires and the “success business” have been built.

Survivorship bias draws our attention away from the failures which are more numerous to the successes which are fewer.  It makes us think that because Andrea won $120,000 off of a $16 hand of Caribbean stud poker that it is somehow more likely that we will.  Survivorship bias inclines us to believe that following the prescription of someone who’s enjoyed abnormal success—in their career or marriage or parenting or investing or any number of pursuits in life that require an incalculable number of variables to align in our improbable favor—will help us achieve a similar level of success, when the success guru du jour may have simply been dealt the 649,740th hand.

David McRaney gives a much more thorough explanation of survivorship bias in his article of the same name, warning us that “the advice business is a monopoly run by survivors,” invoking Daniel Kahneman’s brilliance: “If you group successes together and look for what makes them similar, the only real answer will be luck.”  But McRaney’s is not a pessimistic manifesto for underachievers.  He addresses the noticeable differences seen in the lives of those deemed lucky contrasted with those who aren’t.  Based on compelling research collected over a decade of observance, the following conclusions are reached:

Unlucky people are narrowly focused…crave security and tend to be more anxious…remain fixated on controlling the situation…as a result, miss out on the thousands of opportunities that may float by.

Whereas:

Lucky people tend to constantly change routines and seek out new experiences…tended to place themselves into situations where anything could happen more often…exposed themselves to more random chance than did unlucky peopletry more things, and fail more often, but when they fail they shrug it off and try something else.

This, however, is far from the self-deceptive “gotta play to win” approach off of which casinos have thrived.  The lucky put themselves in situations where they have a chance to succeed today, but never take such enormous risks that they lose the ability to take a chance tomorrow.  Yes, the optimist who falls down indeed gets back up, but the overly-optimistic gambler who gets hit by an 18-wheeler typically stays down.  As McRaney puts it, “success boils down to serially avoiding catastrophic failure while routinely absorbing manageable damage.”

In keeping with this theory, Andrea’s big take in Atlantic City wasn’t her first or last display of luck.  But to her, suffering the embarrassment of, say, calling a radio station for the chance to win a trip to the Emerald Isle, is a small price to pay.  And this gent of Irish descent very much enjoyed that trip.

If you enjoyed this post, let me know on Twitter via @TimMaurer.

Don’t Disregard Mom’s Financial Instincts

mothers-day-heartThe collective work of moms everywhere is so incredibly significant that it almost seems too limiting to honor them only one day each year.  Thousands of years of paternalism has allowed society to feel entitled to receive the oft unnoticed contributions mothers offer households, while presuming moms’ ignorance in other categories—especially household finances.  It would, however, be a dreadful mistake to ignore the keen financial instincts of moms.

Married couples have a tendency to dole out household duties in the form of roles for which individuals are best suited.  This is an entirely wise strategy that optimally leads to a more efficient and livable familial space.  But while handling household finances has historically defaulted to the dude in charge of changing light bulbs, taking out the trash and removing vermin, it is a mistake to presume that the mother of the house is the non-financial spouse.

Even if Mom is the household member least interested in asset allocation, insurance deductibles and itemized deductions, it’s vitally important to include Mom’s non-financial thoughts in financial decisions.  This is because personal finance is more personal than it is finance, among other things.  Here are three areas of personal finance where a mom’s stereotypical instincts are especially valuable, if not vital:

1)     Insurance – Guys have earned the stereotype for having a higher tolerance for risk and a lower tolerance for paying for that which doesn’t feature high definition pixels, buttons, wheels or triggers.  We also occasionally struggle to admit when we make mistakes, so paying for something that is intended to protect us from mistakes may seem like wasted money.  “I’m not going to die, our house isn’t going to burn down and I’m not going to have a car accident,” so let’s use that insurance premium money to buy a jet ski.  Yes, even if Mom doesn’t know how to read an actuarial table, her instinct to protect the homestead and its inhabitants from harm is a good one.  Of course, we still want to view insurance through the eyes of a risk manager, not a collector of insurance policies for every known fear, but Mom’s sixth sense brings a healthy balance to insurance decisions.

2)     Investing – Here again, Dad stereotypically makes investing decisions by focusing on that which gives the best opportunity for return, downplaying the inherent likelihood that the stock or fund with the greatest potential for return also possesses the highest probability of loss.  But woe to the man who ignores Mom’s gut feeling to make capital preservation a higher priority in the handling of the family nest egg.  The world’s best investors focus more on risk than return.

3)     Nurturing – Financial planning is a process, not a product, and much like moms are often the parent most attuned to the nuanced evolution of their offspring—from newborn to adult—a mother’s nurturing instincts are well suited to seeing that the financial planning process has a forward-thinking trajectory.  While dads are stereotypically project-oriented—occasionally spending weeks, months or even years in a special place called Oblivion—moms are often best suited to get the myriad of financial to-dos produced in a plan checked off.

It’s rare that we’d range as far as household finances to find affirming words for moms on Mother’s Day, especially when considering the plethora of other tangible and intangible benefits they bring to our families, but financial planning is yet another important subject in which a mom’s innate maternal instincts should be recognized and heeded.

Don’t Cut Your Spouse Out Of Financial Decisions

Love and Money-01“I make all the financial decisions in my household, but does it make sense for my spouse to be involved in our financial planning?” is a question I’ve heard several times in my career and seen implied many more.  Absolutely!  is the answer.  Both spouses in a household need not be financial experts, but it is imperative that both contribute to the financial decision-making process.

While it is not always the case, we often find that there are two financial types of people in every life partnership.  One member of the team is the “financial spouse,” while the other is the “non-financial spouse.”  A conspicuous dose of historical paternalism has led many to stereotype these roles as gender-specific, and the male-dominated financial industry has shamefully reinforced this fallacy.  But our firm’s 30 years in the industry has proven otherwise—men and women seem to share the title of financial spouse equally, even if the household roles have been established to the contrary.

Typically, we know who is who within minutes of our introductions.  We don’t derive this knowledge from a fancy questionnaire or psychological analysis; we simply ask the couple.  It’s exceedingly rare that they don’t immediately spit out their respective roles.  This, of course, doesn’t mean that mismanagement of said roles doesn’t cause a great deal of disagreement in households.  With over 50% of marriages ending in divorce and over 50% of those splits citing financial disputes as the primary reason, having a clear understanding of which spouse monopolizes the fiscal prowess doesn’t seem to help much.  In fact, it may be part of the problem.

This problem comes to bear most often when respective partners fall into the trap of living out the stereotype of their role.  Non-financial spouses may deem it their responsibility to be irresponsible.  They may presume it the other spouse’s duty to handle the household’s finances, and focus more on the household duties that mesh better with their proclivities.  In extreme cases, non-financial spouses may even—hopefully subconsciously, but not always—permit themselves an allowance of financial foolishness.  And sometimes, the financial spouse almost deserves the punishment, especially if they’ve taken to condescension and judgment of every decision the non-financial spouse makes.

Yes, marriage does have a way of bringing out the worst in us, but it need not be the case.  It’s actually imperative that non-financial spouses not abdicate the role of participating in financial decisions and that financial spouses engender a collaborative environment for decision-making.  Here are three reasons why:

  1. Like it or not, one of life’s only guarantees is that it—our life—will eventually come to an end.  If it’s the financial spouse who leaves this earth first, it’s extremely important that the non-financial spouse knows enough about the household finances to survive that difficult personal transition without financial stress.
  2. It’s impossible to survive in this modern world without being at least reasonably financially literate.  Whether or not you’re a “money person,” nearly every decision we make involves money.  You don’t have to learn how to calculate the alternative minimum tax or understand the standard deviation of a mutual fund, but everyone must understand the basic s of cash flow (budgeting), banking, investing and insurance.
  3. Financial spouses make better decisions when inviting the non-financial spouse’s influence.  Financial spouses tend to be analytical and more prone to taking on risk, but financial planning and investing is not an exact science.  That means the non-financial thoughts of the non-financial spouse are vital to the success of a balanced plan.

I realize that money isn’t exactly romantic discussion matter, but making it a recurring topic of discussion in your household might just save your marriage!

2013 Personal Finance Reading List For The Attention Deficient

When a student of mine recently asked for a reading list that could help satiate her budding interest in the intersection of money and life, I was pleasantly surprised and inspired to aggregate a list of titles that met the following criteria:

1)     Not boring

2)     Not long

3)     Not salesy

As you may have suspected, these criteria ruled out the vast majority of those books written in the subject matter, and forced me to expand my search well beyond prescriptive how-to books.  The list is bookended with two novels, but every entry utilizes a fair amount of narrative to communicate its message.  This is vitally important, because regardless of how much the financial industry lobbies to make your financial peace contingent on its proprietary products and processes, personal finance will always be more personal than it is finance:

Warm Up

The Ultimate Gift

Master storyteller, Jim Stovall, has sold over 4 million copies of this book that was turned into a movie and spawned a series of associated books and movies (one of which was co-authored by yours truly).  The original is a novel about a billionaire who dies and attempts to save his grand-nephew from destroying his own life with money.  Although it was never intended to do so, The Ultimate Gift attracted a cult-like following among financial, estate and tax advisors who bought the book en masse to give away as…gifts, pun intended.

Simplifying and Downsizing

Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money

This book is written by a good friend of mine, Carl Richards, who, in additional to being a great financial planner, also writes for The New York Times.  He uses simple drawings to distill the complexities of personal finance in a way that is practical and approachable.

You Can Buy Happiness (and It’s Cheap)

This book is written by Tammy Strobel, a woman who previously worked in the financial services industry and then went on a quest to radically simplify her life.  I doubt that many of us will take it to the extreme that Tammy has, but if you could take just a few of her principles into account as you craft your existence, I think you’d get more out of money and life.

Preach!

The Total Money Makeover

Need your butt kicked into financial shape?  This book, by radio/TV superstar, Dave Ramsey, is my first recommendation for people who are in trouble with debt.  Dave’s message has helped thousands (millions?) get out of debt and live true financial freedom.  And even if you’re not in debt, this book helps lay out a foundation for making sure you stay that way, save enough and keep your priorities straight.  Dave tends to oversimplify some financial disciplines to a fault—like investing—but nobody gives a better kick in the pants to those ready to receive it.

Wealth: Is it Worth It?

You don’t have to like chicken sandwiches to enjoy this book—and even have it change your financial life.  Truett Cathy is the 90-something founder of uber-successful fast food giant, Chick-fil-A, and while he does have a tendency to sermonize, he does so lovingly, and heck, he’s earned it.  (You can read my review of the book and hear an interview I conducted with Mr. Cathy by clicking HERE.)  In addition to much of his own wisdom, he shares feedback he’s received personally from other notable luminaries, like a guy named Warren Buffett, whom I’ve heard knows a few things about money as well.

Exposé

The Big Short: Inside the Doomsday Machine

This book, written by Michael Lewis (bestselling author of Moneyball, The Blind Side and others) is the best explanation of how the financial crisis really played out that you’ll likely find.  And because he’s an amazing author, it’s also very entertaining.  Please be aware that this is Rated R for language—the default vernacular under the pin-striped exterior of the financial industry.  (You can read more of my thoughts on this book HERE.)

Reminiscences of a Stock Operator

This book may be considered THE classic on security trading, but while it is the most technical of my selections, it’s actually a novel based on the life of famed trader, Jesse Livermore.  [Spoiler alert] The hero actually died—at his own hand—virtually penniless after making and losing at least four fortunes.  But while this book was written as a cautionary tale, many in the financial industry have strangely deified it, still handing it to new recruits as a how-to.  The morale of the story, in my opinion, is actually that beating the market is exceedingly difficult and that the voracious pursuit of money leads to, at best, a big pile of money and at worst, death.  Although it’s a great deal longer, I do recommend the annotated edition by Jon D. Markman, which embeds this fascinating story in historical context.

Life Planning—The Most Important Part of Financial Planning

Anything You Want

This is a very short book—more like a manifesto—by a guy named Derek Sivers.  Derek was a rock star who started a company, CD Baby, to help musicians sell their music online.  It became huge and he sold it for millions of bucks…but he donated all the proceeds to charity and moved on to his next project [insert screeching record sound].  You’ll love this short volume.

The Art of Non-Conformity

Chris Guillebeau is a lifestyle/travel blogger—not a personal finance guy—but this is a great book for opening your eyes to the type of career and life you want to have.

The 4-Hour Work Week

Speaking of non-conformity, meet Tim Ferriss.  This book has turned into a phenomenon and a “4 Hour” series by Tim Ferriss.  Read it and you’ll see why.

Life Changing

Same Kind of Different As Me

Let’s finish up with a break from all that wisdom and practical advice to enjoy this brilliant re-telling of a true-story in novel form.  This is really a book about greed and spiritual awakening, co-told by an adulterous big-shot art dealer and a homeless man.  This will break your heart…and then warm it.  Enjoy.

Oh, and I almost forgot…

The Ultimate Financial Plan

Yes, the one financial book that every one of my students is required to read[i] I did co-author, with the aforementioned Jim Stovall.  It’s intended to walk you through a comprehensive personal financial plan in the spirit of The Ultimate Gift’s timeless truth with timely applications you can use to the benefit of your todays and tomorrows, personally and financially.

Most of these books are pretty short and fast reads—I’ve got a touch of (depending on who you talk to) A.D.D. and it takes a really gripping book for me to make it through, but all of these passed the test!  I’d love to hear your thoughts if and when you read any of these, as well as your suggestions to be added to this list that meet the three criteria.


[i] The other required text for my class is the Strunk and White’s The Elements of Style, the short classic writing/grammar book, because one thing most educational institutions forget to tell their students is that if you can’t communicate well, your degree is WORTHLESS!

Less: The New More

One of the things that frustrates me most about financial planning and financial planners is that it seems we’re simply in the business of helping people accumulate more.  More of everything—cash, stocks, bonds, mutual funds, houses, cars, collectibles and other belongings.  Indeed, how many financial success stories are based on depictions of households who have LESS this year than last?  If anything, the financial industry may be in the business of inspiring a spirit of greed—albeit in the guise of commercials and marketing slicks with beautiful, ageless smiles in ideal settings typically involving sailboats, golf courses and vineyards.  Come pay us to help you get…more.

And I don’t think anyone would deny that we, as a country, bought it—hook, line and sinker—over the course of the 80’s and especially the 90’s, during the birth of the now foreclosed McMansion.  Yes, it was as if an entire generation of Americans consented to hopping aboard a giant hamster wheel of accumulation, all striving toward the imaginary objective of acquiring enough stuff and a pot of money big enough to sustain a comfortable level of consumption through to the grave.  The results speak for themselves: a housing bubble that has left a quarter of the country under water, the corresponding market crash that left a slew of investors without a positive rate of return for over a decade, perpetual car payments and credit card bills, the decline of selfless charity, the demise of the single-income household and millions of workers who abandoned their dream jobs for whatever would pay the most money.

Fortunately, we’re starting to see a shift away from our self-worth being determined by the square footage in our houses, the emblem on our cars or the title on our business cards.  Led by a generational strain more impressed with subjective quality than objective quantity, folks like Tammy Strobel, author of the book You Can Buy Happiness (and it’s Cheap) and the Rowdy Kittens blog, are showing us by example how LESS really can be MORE.  Prone to material minimalism and houses as small as a parking space, they are not condescending or judgmental.  They’re just choosing to live a different way, disregarding much of the supposed accumulation gospel preached by the financial services majority, and inviting a growing community to do the same.

Tammy and her husband, Logan, are both 34 years old, and while she told me it wasn’t a particularly easy transition to go from the life they had to the simplified one they have, it has been a wholly gratifying experience they’d never trade.  A few years ago, they were spending in excess of $70,000 of household income, and they owned two cars and a big apartment filled with stuff.  Now, they live in a tiny house—128 square feet!—have no cars and rarely have monthly expenses in excess of $700.  I’m sure your response to that was similar to mine: “That’s crazy!”  But they have simply chosen to value relationships, community, independence and the most valuable commodity of all—time—over the everyday trappings that dominate most of our lives.

What is to be gained by simplifying life from a physical and fiscal perspective?   It“… allows you to create your own lifestyle, one with the freedom, money and time to do what you love…” according to Strobel.  Sounds an awful lot like the promises offered in a retirement planning pitch, doesn’t it?  But many of these folks are living this unique style of financial independence decades away from a traditional retirement age.

While these simplifiers may be light years away from qualifying for any of the big dogs’ wealth management services, they’re actually living by the foundational precepts of sound, commonsensical personal finance.  And while some may be inclined to dismiss them as a cult of upstart hippies, their behavior is more vintage and classically conservative than nouveau and socialist, most closely representing the habits of our grandparents and their parents.  Those generations actually owned houses they could afford, using mortgages sparingly.  They put in a day’s work and enjoyed the balance of their time with family and friends.  They considered a single car—much less two or three—to be a luxury, and couldn’t have imagined using leverage to buy one.  And they spent more time seeking to reduce their expenses than increase their income.  What a novel notion.

If it sounds crazy for a financial planner to be lauding deleveraging, downsizing and dispossessing, please let me remind you that the goal of the best financial plan isn’t necessarily to have more money…but to have a better life.

Money Vs. People

Some time back, I tweeted, “Money serves us best when it is a facilitator of relationships, not an end in and of itself.”  A follower replied, “What are your thoughts/suggestions on how to live this out?”  Quite sure that, “I’m not sure, but I thought it sounded good,” was not the response he was looking for, and knowing 140 characters wouldn’t do it justice, I promised to get back to him with the benefit of more page space.

While money has no power in-and-of itself, we do a remarkable job of giving it power and allowing it to come between us in relationships.  If we elevate money to a position worthy of relationship, our relationships with people don’t stand a chance.  This is because the people in our lives are just like we are—flawed and imperfect.  No matter how much they love us, people inevitably let us down, argue with us and hurt us.  Money can’t.  It promises to give us everything we want if we dedicate ourselves to it, and there’s an entire industry out there working very hard to convince us of that (albeit shrouded in snapshots of gorgeous golf courses, picturesque beach homes, keeling sailboats, leaping whales and charging bulls).

How, then, can we practically differentiate between the life-giving, relationship-infusing, beneficial uses of money and the relationship-destroying, life-draining worship of money?  Well, it’s into the gray we roam, but here are three ways we can test our heart on this matter:

1)     Name your loves – What are the first three, five or seven things that come to mind that really set you on fire.  If a noticeable percentage of your loves are NOT persons, causes, movements, vocations or God, but material objects (animate or inanimate), consider red flag #1 raised.

2)     Ask those you love – Hopefully some of the aforementioned loves are people; if so, consider asking them what THEY think critically of your interaction with the almighty dollar.  This takes guts—to ask the question and to give the answer!  Be prepared for a humbling, and don’t bite back.  If, of course, you don’t have any people on the list of your loves or you’re unwilling to ask them this question, consider red flag #2 raised.

3)     Budget for experiences – Even those who claim not to budget must engage in a modicum of budgeting, at least for the mandatory expenses of life, right?—your mortgage, utilities, auto insurance, 401k…(greens fees and salon appointments).   Well, if the loves of your life are genuine priorities—presumably over your mandatory fixed expenses—shouldn’t budgeting for experiences with them be a non-negotiable?  And I’m not just talking about requisite vacations, but also date nights for spouses or sweethearts (not both), “date nights” with your kids individually, taking your parents on vacation, and going on physical trips to support your causes.

One of my foremost mentors in money and life shared a story with me, a confession of sorts that illustrated he valued money above the foremost relationship in his world.  As one of the most knowledgeable financial planners in the country, he dutifully managed the household budget with a keen eye for discrepancies.  And at repeated intervals, his wife spent more than the mutually determined limit for their credit card that was paid off every month.  Every month, she broke the spending limit and he broke her will for doing so.

Until one day, he felt a deep sense of conviction that he should take 100% of the energy he was dedicating to correcting this egregious wrong and instead pour it into his wife in the form of tangible affirmations and expressions of love.  Several months later, his wife came to him in tears, acknowledging that she realized she had been subconsciously sabotaging their budget.  The reason?  She felt his actions and words proved that money was more important than she, but had seen in recent months that it must not be true.

I do believe with all of my heart that money serves us best when it is a facilitator of relationships, not an end in and of itself, but merely acknowledging, understanding and knowing that does us little good.  It’s in the practical application of this truth that our lives—and the lives of those we love—are changed for the better.