Set out to be more self reliant

Dealing with our finances is just one more area of life where too many people became too alienated from reality, I believe. We rely more - and more importantly, sometimes in a rather childish way - on outside experts than we used to, or really need to, in so many areas of life. Think of the simplest, most basic things like our everyday nutrition and health, body care and exercise, our personal relationships, child rearing, our pets, our homes, … anything. Even a few decades ago, most people used hardly any outside paid experts in these areas, … they learnt how to conduct their life from various sources, and had the self-confidence to do it, often by exploration, resourcefulness, trial and error. Yes, I did notice that we live in a different world now, and I know that the big move toward outside experts and paid services is to some extent warranted and has its positive aspects as well. Still, I believe that we went way too far, and that it creates a lot of avoidable stress, dependence, and misery. Basically, I think, we should strive to live life, a less commercialized one, instead of trying to buy it piece by piece (or worse, pre-packaged, in shrink-wrap). The guy is proffering and proselytizing about too much again, you may think now, so let me relate all these to finances:

I think many people are overly reliant on financial services of dubious value. The reasons why it is so, if it really is, have probably a lot to do with a mix of ignorance or inadequate financial literacy, the influence of aggressive and sometimes directly misleading marketing, and media noise. Our alleged constant busyness that is said to prevent taking charge is too often merely a lame excuse, a matter of choice, and of psychological blockages or obstacles. We often tend to over complicate our lives and simplify our minds, instead of complexifying our minds and simplifying our lives. Indirectly, this state of affairs is related to certain blind spots in knowing ourselves and the world, and to unexamined values and goals even, I believe. More specifically, and as a result, I can refer to unnecessarily high costs of financial services (the importance of which is not even recognized by many), and more anxiety than necessary due to being utterly unclear about where we are financially.

Regarding financial planning, I’d start with an easy-to-read book (with some tilt towards investments) by Warren Mackenzie, The Unbiased Advisor: 101 Ways to Avoid Costly Investment Mistakes, Make More Money and Achieve Financial Health. His company’s website, secondopinions.ca is a good place to spend some time too.

Another unusual voice in the financial services industry is that of John De Goey. His The Professional Financial Advisor, II: How the financial services industry hides the ugly truth (2006) is not simply a brave and honest critique of the state of the financial services, but provides also a good foundation for learning the basics of investing and what to expect/demand from service providers. His webpage is also a good starting point, and his articles (e.g. in the very worthwhile Canadian MoneySaver magazine) and presentations are worth spending time with.

Rob Carrick’s book, How to Pay Less and Save More For Yourself: The Essential Consumer Guide to Canadian Banking and Investing is another easy to read and very practical book, useful especially for Do It Yourself (DIY) investors. Most of Carrick’s regular articles in the Globe and Mail are useful as well. In this short interview on the Business News Network he speaks about crucial aspects of investing: fees and cost saving opportunities. There is an ongoing series of short educational conversations as well, where he is the interviewer, that is worth watching. You can get into it via this link, … or by looking for the Let’s Talk Investing series on the very useful investored.ca website.

I have recommended a few other books in old newsletters, and want to add only one more to the list in this post, … at least in the field of purely financial matters. It’s a small and very readable book again, The Little Book of Common Sense Investing: The only way to guarantee your fair share of stock market returns, by John Bogle, founder of the famous Vanguard Funds that brought index investing into the mainstream. Here is an interesting interview (embellished by itemized transcript) with this widely respected giant of investing. He offers a lot of wisdom and high levels of service ethic, … and demonstrates also - at least this is how I see it - that even the best can get biased, in this case probably because of emotional attachment to his own brain-child, capitalization-weighted index mutual funds. I’m talking about his blanket criticism of the next levels of passive money management, ETFs and fundamental indexing. Don’t take everything at face value what he says in this regard; he has some valid points, but I’d say read first how the creators of this latter method respond, for example (in The Fundamental Index: A Better Way to Invest, by Arnott, Hsu & West), or read more widely about ETFs, e.g. in The New Investment Frontier III, by H. Atkinson & D. Green.

If you want to understand better how we got into the current worrisome situation, I suggest you watch the cute and sharp, informative video here …

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

… or devote more time to going into the broader background and more details at the chrismartenson.com site, where watching the 20-part crash course will be an eye opener in some (or more likely: many) respects to probably most viewers.

Reading How Doctors Think, by Jerome Groopman, is an eye-opener too, … and you will more readily excuse your own mistakes after reading it. Jason Zweig’s Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich is interesting as well.

In this last video clip, Daniel Kahneman speaks about quality control of decision-making processes in groups and organizations, that may seem perhaps irrelevant topics to you first. I think if you watch the interview, you’ll change your mind on that.

Via this link you can get to a page with an interesting debate between too bright young authors, (Dan Ariely, author of Predictably Irrational: The Hidden Forces That Shape Our Decisions, and Tim Harford, author of The Logic of Life: The Rational Economics of an Irrational World) representing contrasting views on how we think and behave; like with many things in science and life, there is no clear-cut winner and unassailable _The_Truth_ finally revealed here, … you can benefit from listening to both sides.

More Than You Know: Finding financial wisdom in unconventional places, by M. J. Mauboussin, is also a joy to read, and very insightful. Similar things could be said about The Drunkard’s Walk: How randomness rules our life, by L. Mlodinow, which can be read on-line as well, via the Toronto Public Library system.

As you may remember, I claimed not just that good thinking skills are vital, but also that a particular kind, namely systems thinking is especially helpful to have and hone. I’m sure not everyone believes it, but there is serious substance behind that term. Thinking this way is the only chance to understand complex systems, and dealing with the future (forecasting, planning) will certainly qualify as such. Most likely you will not want to take university courses in systems theory or read many (or any!) books about complexity, chaos, and related topics (if you wanted, I’d suggest the Summer 2008 special issue of the Futures Research Quarterly to start with), but you can still benefit from at least exploring the World Future Society’s website. If you go there, make sure you ask for the free, ten-lesson futuring course, Fundamentals of Foresight, delivered to you by email. It can help you to better prepare for a changing world.
Another excellent short introduction is Fritjof Capra’s downloadable slide presentation, Systems Thinking and the State of the World: Knowing How to Connect the Dots, (with accompanying 9 page lecture notes) from here. In case you need arguments to support why these seemingly non-personal studies and methods are important for individuals, becasue you think when you do your own plans, it’s about solving problems and looking ahead (by focussing, and hopefully with 20/20 vision), instead of all these wanderings around in exotic fields, let me just throw in two quotes from that 2008 special issue just mentioned above:
“The way forward is paradoxically to look not ahead but around.” (John Seely-Brown)
“There are fundamental differences between seeking-to-solve and seeking-to-understand. We are strongly biased toward seeking-to-solve on a number of dimensions. As a result, we are increasingly at risk in a world that is becoming increasingly complex and fast paced.” (Jonathan B. King)

My final external link in this post is to an interview with Martin Wolf, highly regarded chief economics commentator at the Financial Times, done in Dec 2008 and titled Repairing the World’s Financial System, in which he says a few interesting things about both predictions in general, and the short and mid-term prospects of the economy and markets.

If you do a site search for either Milevsky, or Korten, or Nickerson, or Trahair, or Cornish, you will find a few of my old, and still valid, recommendations that I simply don’t want to repeat here. All these books, together with the ones by Taleb and the websites that I mentioned earlier, are useful if you try to become more self-aware and conscientious or simply a better thinker and decision maker. I wouldn’t claim that I’ve finished reading all these sources from cover to cover, and wouldn’t expect that even if I did I’d be a perfect thinker, decision-maker, or financial expert, … but it would and will surely take me further down the road toward the ideal, and reading any of them would take you too closer to a more successful and self-reliant investor and person.

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After weeks of brooding, post was finally published on March 8, 2009