A Wealth of Common Sense. Carlson Ben

      Perspective is so important because, without it, even the most intelligent of investors can be ruined from a lack of self-awareness in their own abilities. Investors that fail to put the news or market moves into the proper context in regards to their own personal circumstances are fighting an uphill battle. And how you frame the world around you determines how certain events will affect your reactions to outside factors that can impact your financial decisions. Combining a lack of context with a misinformed view of the way the world works is a sure path to failure with a portfolio of investments in the financial markets. A proper perspective can give the investor the right frame of mind to be able to ignore news headlines and avoid acting on the damaging emotions that can hurt the decision-making process.

      I'm not here to sell you a pot of gold at the end of a rainbow. I can't offer you a secret get-rich-quick formula for making millions of dollars overnight. The real secret is that there is no secret to be able to make millions of dollars overnight. It only happens over a period of time. Building wealth takes patience. You can't be in a hurry. Fred Schwed, a financial writer who worked on Wall Street during the Great Depression, once said, “Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little.”

      The financial markets are like any other marketplace that brings together buyers and sellers looking to find and create value. If you understand how the markets work, and more importantly how the human brain works, the results over time can be impressive. The process does not have to be based on degree of difficulty. The goal is to gain financial independence, pay for your child's college education, go on more vacations, have more time to do what you love, or whatever your needs and desires may be. Remember, the markets are not just about building wealth and making money. They're a tool for your desires about creating freedom, time, memories, and peace of mind. These things are all attainable, as long as you have a plan in place and are able to get out of your own way.

      Complexity tends to be the default option that gets used to persuade investors to buy unnecessary investment products while the vast majority of people really just need to understand more conventional options to succeed. Working with the most sophisticated portfolio strategies over the past decade has given me the ability to interpret the issues that investors should actually pay attention to as opposed to those that are used as an illusion of intelligence and control.

      Noise

      The information available to everyone on the planet is growing at an exponential rate. Anyone with a smartphone today has better mobile phone capabilities than the president of the United States did 25 years ago. We have better access to information than the president had 15 years ago.4 We now have an unprecedented amount of information at our fingertips anytime we want it. There's up-to-the-minute, 24-hour news coverage. We can communicate with anyone we want no matter where they live through e-mail or social media at the click of a button. Every financial market from around the globe can be followed on a tick-by-tick basis. We can now trade stocks on our smartphones. There's no way to escape the deluge of news and financial information that the media throws at you.

      Nobel Prize–winning psychologist Daniel Kahneman showed in his research that because of a bias called the affect heuristic, the human brain is very quick to make judgments and decisions based on intuitive feelings that require little thought or deliberation. The sheer amount of information available today makes it easier than ever to use these quick hunches to tell us how to act. There are times when this type of response can work in your favor, but investing is not one of them. Kahneman also found that there is another part of the brain that is much more effective in using a logical and deliberate process to think things through. This is the part of the brain that should be used for thoughtful, deliberate financial decisions. Kahneman says, “If there is time to reflect, slowing down is likely to be a good idea.”5

      Information flow will only continue to speed up in the future, so we have ourselves a conundrum. It will become more and more important to separate the meaningful from the meaningless as most people will be continuously trying to drink from the fire hose of information instead of focusing on the truly important areas that they can control. This illusion of control is more likely when many choices are available, there is a large amount of information available, and you have a personal stake in the outcome of the choice.6 This is basically a description of the portfolio management process. We all like to think that more choices must be better, but as the number of choices grows, so, too, do the number of decisions and the likelihood of making a mistake.

      For example, there are now over 77,000 mutual funds to choose from worldwide.7 As the number of investment options available to investors continues to increase there is the assumption that complex approaches must be better. In fact, I will show that less is always more and trying to implement a more interesting or clever portfolio strategy is akin to threading the needle. Sure, it can work, but trying harder and increasing the number of decisions you make only increases the odds that you'll make a mistake.

      The financial markets are a messy, complex system that is constantly evolving. But the answer to a complex system isn't necessarily a complex investment portfolio that requires constant activity. On the contrary, the best response to the complexities inherent in the markets is a portfolio management process that relies heavily on simplicity, transparency, and reduced levels of activity. One of the ultimate status symbols in the financial world is to consider yourself a sophisticated investor. This word invokes feelings of superiority and privilege. Sophistication is defined as having a great deal of experience, wisdom, and the ability to interpret complex issues. But sophistication does not mean that you have to utilize complexity, just that you understand it. Nassim Taleb explains this dynamic in his book Antifragile:

      In his classic book, Winning the Loser's Game, investor and author Charles Ellis shares the tale of his two best friends. Both were at the peak of their careers in the medical field, each with a distinguished track record. The two friends agreed that there were two discoveries in the field of medicine that were far and away the most important breakthroughs in enhancing people's health and longevity – penicillin and having doctors and nurses wash their hands. Ellis concluded this story by sharing the lesson that advice doesn't have to be complicated to be good.

      How Hard Can It Be?

      Over the course of my career I've invested in, advised on, or performed due diligence on nearly every investment strategy, asset class, security, or product type that you could think of. You name it; I've been involved with it in some fashion. I've worked with high-net-worth individuals, low-net-worth individuals, and million- and billion-dollar institutional portfolios. One thing I can say for certain through this experience in the markets is that it is not easy being an extraordinary investor. It's quite rare and extremely difficult.

      How difficult? Neurologist-turned-investor and author William Bernstein says that there are four basic abilities that all investors must possess in order to be successful: (1) An interest in the investing process, (2) math skills, (3) a firm grasp of financial history, and (4) the emotional discipline to see a plan through. Bernstein doesn't have much faith in the prospect of most investors in the pursuit of excellence; he states, “I expect no more than 10 percent of the population passes muster on each of the above counts. This suggests that as few as one person in ten thousand

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