Standard Deviations with Dr. Daniel Crosby

With all of the negative stereotypes around Millennials and money, it can be hard to separate fact from fiction. Luckily, Standard Deviations is joined by James Matthews, who is just the man for that job. Listen in to learn: Couples' five most common sources of disagreement about money Why James and Daniel are not fans of budgeting How a deeply felt personal purpose can lead to better financial decisions

Audio of my second TEDx talk, given in Huntsville, Alabama.

This week, Dr. Crosby is joined by John Nolan, who may just be the most interesting man in the world. Mr. Nolan is a Vietnam veteran who then spent 22 years in the CIA before going on to found and sell his own corporate espionage firm. Listen in for fascinating discussion of: The one skill that separates good from great spies The surprising lengths to which companies and countries go to steal secrets How to get complete strangers to share their secrets Learn more about John: https://www.expectlittlemiracleshsv.org/

Audio of my first ever TEDx talk, given in Huntsville, Alabama. I also created a book based on the ideas presented here, which can be found here: https://www.amazon.com/Youre-That-Great-Daniel-Crosby/dp/1595718362

This week on Standard Deviations, the tables are turned as Daniel passes the mic to Dr. Brian Portnoy, author of The Geometry of Wealth. Brian and Daniel discuss Dr. Crosby's new book, The Behavioral Investor, touching on: The four primary types of investor misbehavior What can be done to manage behavioral risk The future of behavioral finance For fans of psychology, personal finance and the elusive search for happiness, this episode is a can't miss. Read Daniel's book: https://www.amazon.com/gp/product/0857196863?pf_rd_p=c2945051-950f-485c-b4df-15aac5223b10&pf_rd_r=64A1MZ20GJNVXJZT6G2Q Read Brian's book: https://www.amazon.com/Geometry-Wealth-Shape-Money-Meaning/dp/0857196715/ref=sr_1_1?s=books&ie=UTF8&qid=1543434923&sr=1-1&keywords=the+geometry+of+wealth

What’s the recipe for a great presentation? This week Jennifer McClure, an entrepreneur, keynote speaker, leadership success coach, and former HR executive who works with business leaders to build their influence, think strategically, and create maximum positive impact at work and in life, provides a masterclass on sharing ideas with the world generally as well as specific advice around common clichés to avoid and for how to create a business around public speaking. Learn more about Jennifer: https://jennifermcclure.net/ https://twitter.com/JenniferMcClure

During the last holiday season, entrepreneurship consultant Tra Williams was feeling especially thankful for his gifts and said so on social media. His gratitude was immediately thrown back in his face by an online troll who suggested that he "go feed his unicorn." Originally taken aback by the rudeness, Tra decided not to let the bully get him down and instead determined he would follow his advice; He WOULD feed his unicorn, thank you very much. Listen to this episode to learn: How to maintain childhood and creativity, all while earning a living Why work and life are equal goods that feed one another, not separate entities to be "balanced" Why you should never let others define success for you Listeners will leave energized and more encouraged than ever to chase that long-ignored dream!

Randy Norton - Applying Value Investing to Real EstateThis week the Standard Deviations is pleased to welcome Randy Norton, Managing Partner and Global Head of Real Estate and Alternative Investments at Green Mesa Capital.Randy provides excellent guidance on how to think about seldom-considered asset classes in a conversation that touches on:How the wisdom of value investing can be applied to real estateThe most common behavioral traps among real estate investorsConsiderations for buying a REIT vs. real propertyLearn more about Randy:https://greenmesacapital.com/home/

Joey Fishman - A Practical Conversation About ESG This week on Standard Deviations, Dr. Crosby speaks with Joey Fishman who heads up the socially responsible investing arm of Ritholtz Wealth Management and oversees their "Portland Portfolio." Their discussion of ESG investing includes: A definition of the differences between SRI, ESG and impact investing How to think about risk and return tradeoffs in values-based portfolios A hard look at whether or not SRI brings about the desired changes Learn more about Joey: https://ritholtzwealth.com/team/joel-joey-fishman/ @joeyfishman

Tyrone Ross is a financial advisor, cryptocurrency enthusiast and Olympic Trials qualifier in the 400 meters. In this week's episode, Tyrone shares intensely personal stories of how his brushes with defeat have made him the success that he is today. Our longest episode to date, you'll understand why we needed all 1.5 hours to have this important conversation! Listen in to learn: How a handful of heartbreaking failures set Tyrone on his current path to success What gave him hope in his darkest hour Why Tyrone is a crypto believer at a time when many others are losing faith Whether crypto is a currency an asset class or something different entirely If the "I like blockchain but not Bitcoin" stance is a sensible one Learn more about Tyrone: https://www.noblebridgewealth.com/team-member-01/tyrone-ross-jr

Our guest this week is Dan Egan, Director of Investing and Personal Finance at Betterment. Dan is an expert at improving decisions through smart technological design and he brings that wisdom to a show that includes talk of: How "centaur" approaches (combining human advisors with tech) are the future of finance Why investors need to have faith in their own approach The future of behavioral finance Whether it is most effective to change the person or the product Learn more about Dan: https://www.dpegan.com/ Dan recommends: https://www.amazon.com/Engine-Not-Camera-Financial-Technology/dp/0262633671/ref=sr_1_1?ie=UTF8&qid=1538390664&sr=8-1&keywords=an+engine+not+a+camera

Dr. Sarah Stanley Fallaw - The Next Millionaire Next Door Standard Deviations welcomes Sarah Stanley Fallaw, Ph.D. the founder and President of DataPoints LLC, a research-based technology company that gives advisors tools to identify and guide better financial behaviors in their clients. Dr. Fallaw is continuing and furthering the important work begun by her father, Thomas Stanley, author of The Millionaire Next Door. In this data-packed episode, Dr. Fallaw shares with us: What to look for in an appropriate measure of risk tolerance The characteristics shown by young people who are likely to become millionaires The steps you can take to become the next millionaire next door Learn more about Dr. Sarah: https://www.datapoints.com/ https://twitter.com/sarahfallaw Sarah's new book: https://www.amazon.com/Next-Millionaire-Door-Enduring-Strategies/dp/1493035355/ref=sr_1_1?ie=UTF8&qid=1538393280&sr=8-1&keywords=sarah+stanley+fallaw

Chris Turchansky - The Financial Advisor of the Future Standard Deviations is pleased this week to welcome Chris Turchansky, President of ATB Investor Services. Chris's role is unique in that he leads a team of investment and financial services professionals with a singular focus on serving the residents of Alberta, Canada. Chris believes that investing is about more than just money and that it is directly tied to things like happiness and family security. Listeners to this week's episode will learn: What the financial services industry can change to better serve clients' interests Why he is optimistic about the future of advice in the face of a great deal of naysaying How the future of advice will look different than it is today How clients can discern between good and bad financial advisors Learn more about Chris: https://www.atb.com/about/Pages/executive-team.aspx https://twitter.com/turchansky?lang=en

Annette Hammortree is the owner of Hammortree Financial Services and the parent of a child with special needs. With a passion born of personal experience, Annette provides us with a detailed look at the unique financial considerations of those who love someone with special needs. Listeners will learn: The biggest misconceptions and misunderstanding around money and children with special needs How living with a special child impacts daily living The financial considerations that are unique to families of children with special needs The three steps necessary to help prepare today for an uncertain tomorrow Follow up with Annette: http://www.hammortreefinancial.com/ Josh Wilson - "Dream Small" ~ https://www.youtube.com/watch?v=dOBaLrItEyc

Neil Bage - Behavioral Finance and FinTech This week, Dr. Crosby is joined by fellow behavioral finance geek Neil Bage, co-founder of the award winning fintech Be-IQ. Neil is passionate about helping people make safe and informed choices and is a specialist on behavioral drivers of financial decisions. In this episode, we explore the intersection of technology and psychology by discussing: How behavioral finance can move from diagnosing bias toward more practical solutions Whether education is sufficiently powerful to constrain bad investor behavior The recent critique of loss aversion in the Journal of Consumer Psychology Learn more about Neil: https://www.beiq.co.uk/ https://twitter.com/neilbage

Kristin Scroggin - Millennials and Money The world "millennial" was recently deemed so loaded and negative that the New York Times struck it from their style book. But are millennials really as entitled as the popular press would have us believe? This week, generational expert Kristin Scroggin joins us to cut through the noise and provide facts and figures around millennials and money. In this stereotype-destroying hour you will learn: How early bad experiences with investing have sensitized young people to volatility The source of Millennials skepticism toward financial experts Truths vs. stereotypes about Millennials and money How best to provide advice to young investors Why socially responsible investing might succeed with this generation To learn more about Kristin: https://www.genwhycommunications.com/

Brian Ford - The Eight Pillars of Financial Wellness This week on Standard Deviations, Dr. Crosby sits down with financial wellness executive Brian Ford to understand the eight pillars of financial readiness. Discussion points include: The behavioral benefits of automation The most ignored source of additional money The psychological and planning benefits of giving money away Learn more about Brian: https://www.momentumonup.com/ Brian's book about the 8 pillars: https://www.amazon.com/8-Pillars-Financial-Greatness/dp/1432737481/ref=sr_1_1?s=books&ie=UTF8&qid=1538055109&sr=1-1&keywords=brian+nelson+ford

October is Retirement Readiness Month and Travis Scribner is ready to tell us what it takes to be prepared. Travis initially worked on Wall Street before discovering his true passion; simplifying the complex world of finance for the benefit of everyday investors. In his current role as Managing Partner of WestPac Wealth Partners he oversees more than 25 financial representatives as well as hosting his own radio show, "Las Vegas Money Resource." My talk with Travis includes: A discussion of whether or not the retirement readiness landscape is as bleak as it is sometimes portrayed Some of the psychological barriers to preparing for an event that is so far away Tips for maintaining a sense of meaning in retirement Follow up with Travis: http://www.westpacwealthpartners.com/team/travis-scribner

Jeff Zentner - How to Write a Book Dr. Crosby is joined this week by Jeff Zentner, author of New York Times Notable Book The Serpent King as well as Goodbye Days. His third book, Rayne & Delilah’s Midnite Matinee is forthcoming in February 2019. He is the winner of the William C. Morris Award, the Amelia Elizabeth Walden Award, the International Literacy Association Award, and the Westchester Fiction Award. His books have been nominated and longlisted for the Carnegie Medal, and he has been a finalist for the Indies Choice Award and the Southern Book Prize, and been named a Publishers Weekly Flying Start. Specifically, Jeff gives advice in this episode that will help listeners accomplish something that 80% of American says is a goal of theirs: to write a book. In this episode, you will learn: Why Jeff chooses to write his books on a phone on a Nashville city bus Where he finds inspiration for his characters How he overcomes the overwhelming cruelty of that first blank page Learn more about Jeff: http://www.jeffzentnerbooks.com/ Jeff's books: https://www.amazon.com/Rayne-Delilahs-Midnite-Matinee-Zentner/dp/1524720208/ref=sr_1_3?ie=UTF8&qid=1538395403&sr=8-3&keywords=jeff+zentner https://www.amazon.com/Serpent-King-Jeff-Zentner/dp/0553524054/ref=pd_sbs_14_3?_encoding=UTF8&pd_rd_i=0553524054&pd_rd_r=04d60b3e-c572-11e8-a709-598374602c47&pd_rd_w=l9hTy&pd_rd_wg=IWLVX&pf_rd_i=desktop-dp-sims&pf_rd_m=ATVPDKIKX0DER&pf_rd_p=0bb14103-7f67-4c21-9b0b-31f42dc047e7&pf_rd_r=EM73JT2DW7TAP9DH5XZ8&pf_rd_s=desktop-dp-sims&pf_rd_t=40701&psc=1&refRID=EM73JT2DW7TAP9DH5XZ8 https://www.amazon.com/gp/product/0553524097/ref=dbs_a_def_rwt_hsch_vapi_taft_p1_i0

Standard Deviations is pleased to welcome Meredith Jones, award-winning author of Women of the Street and an internationally recognized expert on women and investing. She was named one of Inc. magazine’s “17 Inspiring Women To Watch in 2017” and a Distinguished Author by the Securities and Exchange Commission in 2018. She has been a regular columnist for Institutional Investor and is a contributor for Market Watch. In this episode, Meredith tackles Wall Street's diversity problem while making the case for women as the ultimate behavioral investors. Listeners will leave with: A sense of the biopsychosocial roots of women's investment outperformance Insights into the "confidence gap" exhibited by female investors Concrete steps to increase diversity in financial services Learn more about Meredith: http://www.aboutmjones.com/about/ https://www.youtube.com/watch?v=-UR6WvCoNGQ Meredith's book: https://www.amazon.com/Women-Street-Managers-Generate-Returns/dp/1137462892/ref=sr_1_1?ie=UTF8&qid=1538396356&sr=8-1&keywords=women+of+the+street+jones

In this episode of Standard Deviations, Eric McDermott, a Managing Partner at Pacific Advisors, Financial Specialist and marketing guru breaks down the steps investors can take to operate from a “risk first” mentality. Learn fascinating facts about the origins of insurance as an industry and how to overcome overconfidence en route to having candid conversations about risk. Eric’s book recommendation: Man’s Search for Meaning Follow up with Eric: http://www.pacificadvisors.com/team/eric-mcdermott

This week on Standard Deviations, Dr. Crosby speaks with Brian Portnoy, Ph.D., CFA, an expert at simplifying the complex world of money. In his two books, The Investor's Paradox and The Geometry of Wealth, he tackles the challenges of not only making better investment decisions but also how money figures in to a joyful life. He is currently the Director of Investment Education at Virtus Investment Partners and has spent the last 25 years as educator, investor, and strategist. He holds a doctorate from the University of Chicago and currently lives on the north side of Chicago with his wife and three children. Listen in to learn: Why Brian has banished the word busy from his life The difference between experienced and reflective happiness The strengths and limitations of money as it intersects with meaning

In today's episode we run through the six signs of a financial bubble.

In this episode, Dr. Crosby asserts that owning our personal mediocrity is paradoxically the key to personal exceptionalism. Huh? Listen in to hear why owning that you're not that great could be the key to greatness.

Investment diversification is widely-accepted best practice for financial reasons but the psychology of not putting all of your eggs in one basket is at least as powerful. Listen in to understand the psychology of winning by not losing.

A debate rages about the impact of emotion on investment decision-making. Some believe it to be a source of signal where others just see noise. In today's episode, we look at some of the research around investing and emotion and suggest that exciting investing is often bad investing.

In most endeavors, staying informed is a positive. So why is it that people who watch less financial news tend to be outperformed than the truly plugged in when considering investing? Listen in to understand how to consume financial media without being consumed by the hype.

The stock market can be extremely volatile, but with a little understanding of market history and dynamics, you can navigate its ups and downs with greater ease.

On this week's episode we review the evidence around whether or not to hire a financial advisor and offer ten questions for separating great advisors from the not so great.

Investing has been described as simple but not easy. By listening to this podcast, you will understand the 12 steps necessary to create lasting wealth. The implementation? That's up to you.

In this episode, we take on the age old questions: "Do birds of a feather flock together?" or "Do opposites attract?" We also make the bold statement that your friends are lame and are keeping you from being as smart and well-rounded as you ought to be.

Is investing a game of luck or skill? In this episode, we examine the three criteria needed to distinguish a game of luck from skill and find that financial markets land somewhere in the middle. We then discuss the implications of this finding for selecting appropriate investment vehicles.

It's human nature to worry about low probability/high salience things and ignore threats that are far more immediate and pervasive. Tune in to learn why and what to do about it.

Feedback loops exist in relationships, nature and especially in financial markets. In today's episode, we examine how capital markets operate in boom and bust cycles due to our subjective perceptions.

Can you trust your gut? Well...sometimes. Today on the podcast we look at the two conditions that must be met in order for intuition to be useful. Even the best-informed intuition is only as good as the milieu in which it finds itself and environmental cues remain the best predictor of whether or not intuition can be trusted. In the absence of a certain level of predictability and rapid feedback, neither of which are present in financial markets, intuition lacks soil fertile enough to take root. We have reason to trust the intuition of a NICU nurse, a physicist or a mathematician, but very little reason believe the instincts of a therapist or stock picker (sadly, I am both). Such intuitive shortcomings are not the fault of the experts in question but rather the discipline in which they ply their trade. As Murray Gell-Mann correctly noted, “Imagine how hard physics would be if electrons could think.” Intuition is powerful in many domains but ill suited to the vagaries of allocating capital.

Listen in this week to learn: Why positivity brings about more lasting change than negativity How making lists of "not to do" can have a paradoxical effect Why labeling ourselves and others can blind us to the true state of things

It is often assumed that there is a positive, linear relationship between information and market efficiency. It stands to reason, at least to a point, that the more publicly available information we have about a security, the greater our ability to accurately price that security. But is it possible that too much information can be as bad for efficiency as too little? As reported in Scientific American, the amount of data that we produce doubles each year. To put it more concretely, in 2016, humankind produced as much data is in the entire history of the species through 2015. The publication’s best estimate for the future of data is that in the next decade there will be 150 billion networked measuring sensors, 20 for every man, woman and child on Earth. At this point, the amount of data that we produce will double every 12 hours. We are a culture in love with data and tend to take a “more is better” approach when it comes to measuring and reporting on every part of our world. But the glut of information flooding our lives has real consequences, many of them negative.

We’re all familiar with the term “keeping up with the Joneses” but it’s doubtful that we understand just how deeply ingrained this is in our concept of wealth and success. Each year, a Gallup poll asks Americans to determine “What is the smallest amount of money a family of four needs to get along in this community?” Gallup finds that the answers to this question moves up in line with average incomes of the respondents. A recent Princeton study set out to answer the age-old question, “Can money buy happiness?” Their answer? Sort of. Researchers found that making little money did not cause sadness in and of itself but it did tend to heighten and exacerbate existing worries. For instance, among people who were divorced, 51% of those who made less than $1,000/month reported having felt sad or stressed the previous day, whereas that number fell to 24% among those earning more than $3,000/month. Having more money seems to provide those undergoing adversity with greater security and resources for dealing with their troubles. However, the researchers found that this effect (mitigating the impact of difficulty) disappears altogether at $75,000. For those making more than $75,000 individual differences have much more to do with happiness than does money. While the study does not make any specific inferences as to why $75,000 is the magic number, I’d like to take a stab at it. For most families making $75,000/year, they have enough to live in a safe home, attend quality schools and have appropriate leisure time. Once these basic needs are met, quality of life has less to do with buying happiness and more to do with individual attitudes. After all, someone who makes $750,000 can buy a faster car than someone who makes $75,000, but their ability to get from point A to point B is not substantially improved. It would seem that once we have our basic financial needs met, the rest is up to us.

Momentum has existed for hundreds of years and has persisted for two decades post discovery. This sort of staying power in capital markets full of hungry arbitrageurs is always the mark of human psychology. Many experts consider momentum to not just be a factor but THE factor. Fama and French don’t mince words, “The premier market anomaly is momentum. Stocks with low returns over the past year tend to have low returns for the next few months, and stocks with high past returns tend to have high future returns.” As James O’Shaughnessy says, “of all the beliefs on Wall Street, price momentum makes efficient market theorists howl the loudest.” In a perfect world, there would be no good reason to pay more for a business today than yesterday simply because of positive price action. But this isn’t a perfect world, it’s a world ruled by human behaviour and thus exhibits all of the attendant quirks. Like peanut butter and chocolate, momentum and value are wonderful on their own, but even better together. Cliff Asness says it best in his piece, A New Core Equity Paradigm: “Value and momentum remain the two strongest findings of academic and practitioner research of the last 30 years. While academics continually identify new market anomalies, which purport to offer significant risk-adjusted excess returns, and the Street routinely spins new stories to sell them, value and momentum stand head-and-shoulders above the rest-no other styles have performed so well, for so long, and in so many places. Both value and momentum have long histories of providing attractive returns, have performed well across markets and across asset classes, and have persisted for decades after their discoveries. Importantly, the two strategies perform even better when combined.” Value and quality work, independently and in concert, precisely because they exhibit the three hallmarks of an investable factor: empirically evidence, theoretical soundness and a behavioral foundation.

In this episode we look answer: How do financial bubbles form? How likely is a bubble to burst? How can I know a bubble when I see one?

What seldom-uttered phrase can make you wealthier and more likeable? Why did a bank robber use lemonade to commit crimes? Why don't dumb people know how dumb they are?

Your brain is a miracle unrivaled by even the most sophisticated technology, but it is a miracle equipped for a different time and place. After millennia of fighting famine, war and pestilence, we now live in a society of greater and greater ease that is increasingly left to fight psychological battles. Obesity will kill more people this year than hunger. Suicide claims more lives annually than war, terrorism and violent crime combined. Your brain is still fighting a war won eons ago and you must steel it for a new battle that rewards patience and consistency over speed and strength.

Let me ask you a question, “Do you like laugh tracks?” Didn’t think so. If laugh tracks are so universally disliked, why do Hollywood executives continue to include them? These executives understand something that we may not; however irksome canned laughter may be, it provides valuable social cues to viewers. Research has repeatedly shown that laugh tracks cause viewers to laugh longer and harder and to rate the viewing experience as more enjoyable. In fact, laugh tracks have been shown to be most effective at improving the appraisals of jokes that are especially bad! We are programmed to do what others are doing, even when those others only exist on tape. Social mimicry is ubiquitous. Panhandlers often salt their tip jars with money from the day before to show that giving is proper behavior and that other people have deemed them worthy of a handout. A beggar with no money in his cup is perhaps more deserving of a dollar, but also far less likely to get that dollar than the beggar who already has three. One of the most cost effective ways to extinguish a fear in children is to have them observe other children performing the anxiety-inducing behavior. In one study, 67% of children with a fear of dogs were “cured” of this phobia within a week, simply by watching other children pet Fido. Even something as serious as suicide is subject to the effects of social mimicry. Dr. David Phillips of the University of California at San Diego found that “within two months after every front-page suicide story, an average of fifty-eight more people than usual killed themselves.” In laughing and crying, living and dying, it would seem that the behavior of those around is far more contagious than we may have ever supposed. Mirror neurons and other mechanisms of the brain facilitate the precious gift of empathy, an invaluable resource when building relationships and community. Though we may not have experienced exactly the same joys and sorrows, we can vicariously experience each other’s emotions in a way that allows for comfort, support and even shared elation. But, in what is becoming an ever-stronger theme here, the very mechanisms by which we form community and share each others’ burdens make us poor investors and more concerned with keeping up with others than providing for our own needs. As Jason Zweig says, “…investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”

How many decisions would you guess that you make in a given day? Take a second, mentally walk through your day and hazard a guess. Most people I ask this question land somewhere around 100, which is way off – try 35,000. That’s right, you make 35,000 decisions per day. Canonical models of decision-making deal with two types of decisions – certain (i.e., with a known set of alternatives with certain outcomes) and uncertain (just the opposite). In theory, decisions made under conditions of certainty involve ranking the known alternatives and choosing the most preferred option, simple enough. Uncertain decisions operate from a similar theory, with the only kink being that subjective probabilities are assigned to the different outcome likelihoods. Thus, decision makers weigh the desirability of a given option by the chance that it will or won’t occur. These are nice ideas and make a certain amount of sense until you consider the sheer volume of decisions we make each day. When you consider that you make 12,775,000 decisions each year, thinking that each determination is made by weighing its probabilistic utility starts to strain credulity. If making that many decisions sounds exhausting, the research supports that it is, which leads us to disproportionately stick with the familiar.

If bees organize by innate mandate and chimps through tight-knit social interactions, the miracle of human ascendance in the animal kingdom owes to a penchant for behaving in accordance with social narratives. To put it bluntly, we act as if the stories we make up are real. As Harari writes in the magisterial Sapiens, “As far as we know, only Sapiens can talk about entire kinds of entities that they have never seen, touched or smelled.” A monkey can say, “There is a caribou by the river” but could never communicate that, “The caribou by the river is the spiritual guardian of our city.” This ability to communicate about the unreal allows us to create all manner of social structures that help bring about predictable human behavior and that reliably breed trust. The State of Alabama, the Catholic church, the Constitution of the United States of America, the inalienable civil rights of man: none of these things are “real” in the strictest sense, but our shared belief in them and behaving as though they are real brings about orderly civilizations steeped in mutual trust. This ability to form and buy in to collective fictions is why, “…Sapiens rule the world, whereas ants eat our leftovers and chimps are locked up in zoos.” If our dominance as a species is a function of our shared trust in fictions, there is one fiction in particular that reigns supreme: money. Harari pulls no punches, “Money is accordingly a system of mutual trust, and not just any system of mutual trust: money is the most universal and most efficient system of mutual trust ever devised.”

We’re all familiar with the term “keeping up with the Joneses” but it’s doubtful that we understand just how deeply ingrained this is in our concept of success and how the neurological processes we’ve touched on here contribute. Each year, a Gallup poll asks Americans to determine “What is the smallest amount of money a family of four needs to get along in this community?” Gallup finds that the answers to this question moves up in line with average incomes of the respondents. “Enough”, it seems, is a moving target that our flawed neurology won’t quite let us scratch. The amount of money we need to survive is just a little bit more than we have right now. Our brains push us toward comparative notions of financial wellbeing that only provide transitory joy, but understanding our limitations is a first step toward making a different choice. Indeed, the Western tendency toward outward displays of wealth and comparative measurement is not endemic to all developed countries. Switzerland is just one example of a very wealthy country with a diametrically opposed philosophy relative to showy wealth. As opposed to the American mantra of, “If you’ve got it, flaunt it” the Swiss take an “If you’ve got it, hide it” approach so as not to provoke envy in others. The Swiss approach demonstrates that our views are an outcropping of a specific way of viewing wealth rather than something deterministic about human nature. We are not our worst impulses and it is up to us to determine to support each other on the way to balance and true happiness rather than prodding each other toward jealousy and excess. “Daniel Kahneman helmed a Princeton study set out to answer the age-old question, “Can money buy happiness?” Their answer? Sort of. Researchers found that making little money did not cause sadness in and of itself but it did tend to heighten and exacerbate existing worries. For instance, among people who were divorced, 51% of those who made less than $1,000/month reported having felt sad or stressed the previous day, whereas that number fell to 24% among those earning more than $3,000/month. Having more money seems to provide those undergoing adversity with greater security and resources for dealing with their troubles. However, the researchers found that this effect (mitigating the impact of difficulty) disappears altogether at $75,000. For those making more than $75,000 individual differences have much more to do with happiness than does money. While the study does not make any specific inferences as to why $75,000 is the magic number, I’d like to take a stab at it. For most families making $75,000/year, they have enough to live in a safe home, attend quality schools and have appropriate leisure time. Once these basic needs are met, quality of life has less to do with buying happiness and more to do with individual attitudes. After all, someone who makes $750,000 can buy a faster car than someone who makes $75,000, but their ability to get from point A to point B is not substantially improved. It would seem that once we have our basic financial needs met, the rest is up to us.”

How to Avoid Financial Scams Stephen Greenspan is a psychologist and author of the Annals of Gullibility: Why We Get Duped and How to Avoid It. Greenspan’s book outlines notable instances of gullibility including the Trojan Horse, the failure to locate weapons of mass destruction in Iraq and the bad science surrounding cold fusion. Most of the book focuses on anecdotes, but the final chapter sets forth the anatomy of being fooled and attributes it to some combination of the following factors: • Social pressures – Fraud is often committed within “affinity groups” such as people who hail from a similar religious background. • Cognition – At some level, being duped represents a lack of knowledge or clarity of thought (but not necessarily a lack of intelligence). • Personality – A propensity toward belief and difficulty saying “no” may lead people to be taken advantage of. • Emotion – The prospect of some emotional payday (e.g., the thrill of making easy money) often catalyzes questionable decision-making. In a field that is sorely understudied, Stephen Greenspan literally wrote the book on the topic. He is not just an expert on gullibility, he is the expert on gullibility. Which is why it may surprise you that he also lost 30% of his wealth to notorious fraudster Bernie Madoff. In a candid assessment of his own gullibility, Greenspan wrote in the Wall Street Journal: “In my own case, the decision to invest in the Rye fund reflected both my profound ignorance of finance, and my somewhat lazy unwillingness to remedy that ignorance. To get around my lack of financial knowledge and my lazy cognitive style around finance, I had come up with the heuristic (or mental shorthand) of identifying more financially knowledgeable advisers and trusting in their judgment and recommendations. This heuristic had worked for me in the past and I had no reason to doubt that it would work for me in this case. The real mystery in the Madoff story is not how naive individual investors such as myself would think the investment safe, but how the risks and warning signs could have been ignored by so many financially knowledgeable people, including the highly compensated executives who ran the various feeder funds that kept the Madoff ship afloat. The partial answer is that Madoff's investment algorithm (along with other aspects of his organization) was a closely guarded secret that was difficult to penetrate, and it's also likely (as in all cases of gullibility) that strong affective and self-deception processes were at work. In other words, they had too good a thing going to entertain the idea that it might all be about to crumble.” Greenspan has excellent insight into his own decision-making and motivation. He admits that he was relying on a shortcut (“Let other people think about it”) that had worked in the past, without considering why it might not work this time around. Likewise, the professionals in the story had no interest in critically examining a system that was making them look like geniuses! As Francis Bacon said beautifully, “The human understanding when it once adopted an opinion draws all things else to support and agree with it. And though there be a great number and weight of instances to be found on the other side, yet these it either neglects and despises or else by some distinction sets aside and rejects; in order that by this great and pernicious predetermination the authority of its former conclusions may remain inviolate.” Just as Irvin Yalom found it difficult to entreat young lovers to think critically about the potential flaws in their relationship, it is nearly impossible to get someone who is making money to ask, “Why might I be wrong?”

There are three things that intelligent investors must understand if they are to truly inoculate themselves against the fear peddled by the profiteers of peril: corrections and bear markets are a common part of any investment lifetime, they represent a long-term buying opportunity and a systematic process is required to take advantage of them. A “correction” is defined as a 10% drop in stock prices, whereas a “bear market” is defined as a 20% drop. Both definitions are entirely arbitrary, but inasmuch as they are widely watched and impact the behaviour of other investors, they are worth considering. From 1900 to 2013, the US stock market experienced 123 corrections – an average of one per year! The more dramatic losses that are the hallmark of a bear market occur slightly less frequently, averaging one every 3.5 years. Although the media talks about 10% to 20% market losses as though they are the end of the world, they arrive as regularly as spring flowers and have not negated the tendency of markets to dramatically compound wealth over long periods of time. It is incredible to consider that over that 100 plus years, one could expect both double digit annualized returns with attendant double digit percentage losses. This being the case, please repeat after me: “Bear markets are a natural part of the economic cycle and I should expect 15 to 20 in my lifetime.”

We rely on the crowd to do everything from run our governments to help us select a place to eat, but does the wisdom of the crowd apply to the stock market? By examining the anatomy of a good decision set forth by Richard Thaler we arrive at the conclusion that crowds are wise in some respects but can lead us astray in others.

It has been said that "this time is different" is the most expensive phrase in investing but what can be said to be the most profitable words in investing? In this episode, we look at the three tests of an investable idea, providing a tri-part test for discovering enduring alpha.