How the Next Generation in

Finance Can Succeed

Millennial Headlines
Lack of Trust in Wall Street
Why I’m Bullish on the
Next Gen in Finance
More evidence-based

Understand technology better

Do things their own way

Care about their clients

Want to change the culture
My Books

Organizational A Wealth of
Alpha Common Sense

CreateSpace, 2017 John Wiley & Sons,
A manual for
institutional How simplifying the
investors to improve investment process
decisions and add can improve long-
value through term investment
intelligent planning results by avoiding
and organizational complexity

Big Ideas We Believe In

Investors are compensated for the risks they
bear & some risks pay better than others

While the future is unknowable, the past is a
decent guide and you have to always
understand the present

Asset Management has to be tied to goals to
work effectively

Less is more, costs & taxes matter, forecasting
is unreliable & performance is mean-reverting

Client fit is everything

Behavior will determine client success or failure
Successful Financial Advisors…

…manage investors more than investments.

…understand that the long-term is the only time
horizon that matters but people don’t live life in the

...obsess about their clients, not their competitors.

…speak in plain English to help their clients
understand what’s going on with their money.

…help clients focus on those things that they control
and ignore everything else.
My 3 Favorite Words in Finance
Where will the S&P 500 finish at year end?

Which direction are interest rates heading

after the Fed meeting?

What’s going to be the best-performing

asset class this year?
Are You Rational?
Your Brain on Money
The brain activity of a person making $ on their
investments is indistinguishable from a person
high on cocaine or morphine

Financial losses are processed in the same area
of the brain that responds to mortal danger

Our brains automatically & unconsciously expect a
3rd repetition after it sees 2 in-a-row

The anticipation of a gain evokes a much larger
response than actually receiving the gain

The bigger the potential gain the greedier you feel
(regardless of how poor the odds might be)
Everyone Loves a Good Story

We prefer emotional narratives to accurate data

Stories stick with us not statistics
How Restaurants Get You
to Spend More $

Fish eggs or caviar?

Snails or escargot?

Duck liver or foie gras?

Squid or calamari?
The Penalty Shot
Using a default starting point can
influence our conclusions.

Example: I’m not selling that stock until I make all my
money back and breakeven.
Loss Aversion
Losses loom larger than gains by a factor of 2-to-1.

Example: “A win doesn’t feel as good as a loss feels bad,
and the good feeling doesn’t last as long as the bad. Not
even close.” – Andre Agassi talking about Wimbledon
Dunning-Kruger Effect
We have a hard time admitting our own ignorance.

Know Thyself
“The first principle is that you must not fool yourself - and
you are the easiest person to fool.” – Richard Feynman
Gambler’s Fallacy

We see patterns where none exist with random events.

Example: I guessed that coin toss right 3 times in a
row so I know it’s going to be heads on the next flip.
Hindsight Bias

We assume the past was easier to predict than it actually was.

Example: Of course the stock market was going to
rise after Trump won the presidency.
Availability Heuristic
Frequently mentioned topics populate the mind.

Example: What is more likely to kill you:
your dog or your couch?

30x more likely to die from falling off furniture in your own house than from a dog bite.
Cognitive Dissonance

We alter our beliefs when we feel mental discomfort.

Sunk Cost Fallacy
The more you invest in something the harder is it to abandon it.

Example: You accidentally purchase 2 ski trips:
(1) $50 in Wisconsin (where you’ll have more fun)
(2) $100 in Michigan (not as fun).

More than 50% of respondents go with the $100 trip even though it’s not as fun.
Confirmation Bias
We interpret new evidence to confirm existing beliefs.

Example: The other presidential candidate is a lying crook but
my presidential candidate can do no wrong.
We draw different conclusions depending on
how information is presented.

Example: Doctor A: You have a 90% chance of survival
Doctor B: You have a 10% chance of death.
Why Simple Beats Complex
“Simple can be harder than complex: You have to work hard to get your
thinking clean to make it simple. But it’s worth it in the end because once
you get there, you can move mountains.” – Steve Jobs

“The business schools reward difficult complex behavior more than
simple behavior, but simple behavior is more effective.” – Warren Buffett

“The five ascending levels of intelligence: smart, intelligent, brilliant,
genius, simple.” – Albert Einstein

“It is remarkable how much long-term advantage people like
us have gotten by trying to be consistently not stupid, instead of
trying to be intelligent.” – Charlie Munger
What is Organizational Culture?

"Character is who you are when no one else is looking."

How everyone in your organization behaves

An accumulation of your firm's decisions

What you value and why
Organizational Alpha

Client education & improved communication efforts
Behavioral management & modification
Effective forms of communication
Setting realistic expectations
Ensuring alignment of mission & portfolio
Documenting the investment process
Saying ‘no’ over and over again
Honesty, transparency and the ability to say “we don’t know”
Providing reminders about time horizons & long-term goals
What’s Your Philosophy?
10 Questions to Ask Yourself
1. What are your core investment beliefs?
2. Do you understand your philosophy and why you believe in it?
3. Do you know the potential risks?
4. Does it suit your personality and individual circumstances?
5. Will your philosophy help you follow the strategy you choose?
6. What constraints will turn your philosophy into a portfolio?
7. What will you own and why will you own it?
8. What will cause you to buy or sell?
9. What will cause you to make changes to your portfolio over time?
10. Which types of investments or strategies will you avoid?
“Invert, always invert”
Negative Knowledge: How to
Become a Terrible Investor

1. Try to get rich in a hurry
2. Don’t put a plan in place
3. Don’t think for yourself – just go with the herd
4. Focus exclusively on the short-term
5. Pay attention to things that are out of your control
6. Take the markets personally
7. Don’t admit your own limitations
Attributes of Successful Investors

Analytical firepower
Math skills
The correct temperament
A deep understanding of human psychology
The right amount of self-doubt
A high level of emotional intelligence
The ability to think in terms of probabilities
The discipline to follow a well-thought-out process
Perform a Pre-Mortem
“The only guarantee, ever, is that things will go
wrong. The only thing we can use to mitigate this
is anticipation.” – Ryan Holiday

Envision what could go wrong in advance

Have a back-up plan in place

You can’t predict but you can prepare
Process > Outcomes

Diagnose before prescribing solutions
Try not to fall in love with your own ideas
Think in terms of systems, not goals or tactics
Make high probability bets
Understand you will be wrong at times
Think holistically when making decisions
Uncertainty is always high
Remain humble
Write it Down
“Checklists catch mental flaws inherent in all of us – flaws of
memory and attention and thoroughness. And because they do,
they raise wide, unexpected possibilities.” – Dr. Atul Gawande

1. READ-DO Checklist: Follow like a recipe

2. DO-CONFIRM Checklist: Do your job but
have checkpoints along the way
Make it a Habit
“Willpower becomes habit by choosing a certain behavior
ahead of time, and then following that routine when an
inflection point arrives.” – Tony Dungy
The Two Types of Knowledge
Knowledge Alone is Not Enough
to Change Behavior
• In the 1960s just over 13% of Americans qualified as obese

• In the 1980s & 1990s obesity numbers exploded to 30%

• Today more than 2/3 of Americans are either overweight or

• Between 1989 and 2012, Americans collectively spent more
than $1 trillion on weight loss and dieting but in that time
obesity grew by more than 50% and extreme obesity doubled

Source: The Doritos Effect
Regret Minimization
“The framework I found, which made the decision incredibly
easy, was what I called — which only a nerd would call — a
“regret minimization framework.” So I wanted to project
myself forward to age 80 and say, “Okay, now I’m looking back
on my life. I want to have minimized the number of regrets I
have.” I knew that when I was 80 I was not going to regret
having tried this. I was not going to regret trying to participate in
this thing called the Internet that I thought was going to be a
really big deal. I knew that if I failed I wouldn’t regret that, but I
knew the one thing I might regret is not ever having tried. I knew
that that would haunt me every day, and so, when I thought
about it that way it was an incredibly easy decision.”
– Jeff Bezos
3 Ways to Make Money

1. Physically Exhausting: Work harder
than the competition

2. Mentally Exhausting: Be more
intelligent than the competition

3. Emotionally Exhausting: Remain
more rational than the competition
over the long-term
Emotional Intelligence

1. Self-Awareness
2. Self-Regulation
3. Motivation
4. Empathy
5. Social Skills
Everyone is in Sales
“The most important skill in
finance is salesmanship.”

1. Help the unaware

2. Inspire the interested

3. Reassure those who
have formed intent
Common Sense Communication

“If you can’t explain it to six-year-old, you
don’t understand it yourself.”
Fly Me To the Moon
Pay Attention to Your
Personal Finances

Compound interest is magical

Automate & enjoy yourself

Saving more is one of the best investments you’ll make

Time is your greatest asset