The Financial Advice I Wish I'd Known Then

Posted by Carlos Sera on Jan 6, 2016 8:30:00 AM

One of my favorite musicians is Bob Seger. I saw him perform live while in college and he left a lasting impression. The first time I heard the song “Against the Wind” I was living in Seger’s hometown of Detroit, and the song only elevated his status. I think it is brilliant; containing one of the most poetic and philosophical lines of any song: “Wish I didn’t know now what I didn’t know then.”  As soon as I heard it, I knew it would be part of my permanent collection of things to ponder.  While he wrote it as mid-thirties musician reflecting on his teenage years, it is applicable at any age looking backwards.     

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Topics: finance, Behavioral Tales

The Rip Van Winkle Approach: An Action Tale

Posted by Carlos Sera on Sep 3, 2015 1:15:00 PM

One of the best investors I ever met was a former broker at Legg Mason.  I estimate that he amassed a personal fortune in excess of 50 million dollars before he died.  I’ll call him Tom for purposes of this tale.  By the time I met Tom he was in his 70s and had been a broker for over 40 years.  He taught me a lot.  His investment approach at the time was so simple he could explain it in minutes.  He had a list of 20 stocks that were his total universe of potential stocks that he could buy for his clients and he had developed a way to identify which were the best to own at any given time.  He compiled the list himself.  He called these 20 stocks Rip Van Winkle Stocks because as he liked to tell the story, Rip Van Winkle fell asleep for 20 years and when he woke up the world had changed.  Tom felt that he should only invest in companies for his clients that they could hold for 20 years and so he focused the list down to the 20 that he felt would exist 20 years from now.

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Topics: Tales, Behavioral Tales

An Absolute Tale: The Wealth Inflection Point (WIP)

Posted by Carlos Sera on Sep 2, 2015 11:01:00 AM
I wrote this tale due to a particular event.  It made me stop and reflect on what matters when it comes to managing money.  It changed the way I managed portfolios for most people.  It happened in October 2002.  This tale primarily provides us with insight on human behavior under financial adversity.  It also touches on something you have to experience to understand.  I call it the WIP or wealth inflection point.  It is the point at which an investor stops looking at their money in terms of rate of return or percentages and starts looking at it in absolute terms or dollars.  This is also a behavioral tale because once again it shows the difficulty that people have dealing with their money when under financial stress.  This difficulty ultimately leads to their inability to make smart decisions under pressure and is where the unfortunately profound phrase most people buy high and sell low comes from.  If I were a sports announcer, I would say these people choke under pressure.
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Topics: Tales, Behavioral Tales

How Do I Allocate My Money Once I start Saving? A Tale of Two Titans

Posted by Carlos Sera on Aug 31, 2015 3:17:00 PM

A question that always comes up, regardless of age, is how do I allocate my money once I start a savings program? The question soon morphs into how do I allocate my money after I have been saving for some time? I believe in simplicity. The combination of simplicity with mathematical elegance leads to a powerful solution that is within the grasp of most investors and most importantly, because it is comprehensible has a high likelihood of sustainability. This simply means that if you design a savings plan that is too complex, I doubt it will work. You can read  for an example of a simple elegant solution. So when asked, how to allocate money at the start of a savings plan I always answer, the same way you would allocate money towards the middle or the end of a savings plan. This implies that selecting the initial allocation must be very important. It isn’t. As we learned in , initially the most important thing is to start a savings program, regardless of how you allocate the money. However, your allocation takes on importance soon thereafter so it doesn’t hurt to give it some thought at the onset of a savings plan.

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Topics: Tales, Behavioral Tales

A Tale of Hindsight: "It's Not 20/20"

Posted by Carlos Sera on Aug 30, 2015 3:45:00 PM

17381680_sThey say that hindsight is 20/20.  This means that you can see perfectly when looking backwards.  If looking backwards made you wealthy then historians would be the richest people in the world.  They’re not.  To create wealth you must look forward.  I like to think that the past is like reading the rulebook for the game you are playing which in this case is the investing game.  It’s not necessary, you can just jump right in and learn along the way, but if you learn the past it can save you from making a lot of costly mistakes and it establishes accurate expectations.  Establishing accurate expectations is important or else you will have unrealistic expectations that can lead to bad behavior.  By bad behavior I mean unrealistic expectations can lead you to change an approach that is working or about to work for something that probably won’t.  The grass is not always greener.

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Topics: Tales, Behavioral Tales

A Two Timing Tale: "The No Man"

Posted by Carlos Sera on Aug 24, 2015 3:38:00 PM

One of the first lessons I learned when I first started investing is the focus of this tale.  A wise and successful investor taught me that investing is not like normal work.  You don’t get paid by the hour, by the piece or for your efforts.  You get paid to succeed.  You succeed by making money not by taking action.  So he would say “When you walk into the office in the morning, if nothing needs to be done that day, your job is to do nothing.  If you do something that day then you are not doing your job.”  This wise and successful zen master taught me many lessons but this was primary in his arsenal.  Other tales will focus on when to do something but this tale has deep undertones that support doing nothing vs. doing something.

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Topics: Tales, Behavioral Tales

A Tale of Destruction: "Success Breeds Failure - The Plight of The Successful Money Manager"

Posted by Carlos Sera on Aug 14, 2015 2:14:00 PM

This tale is a Behavioral Tale because primarily it demonstrates the pitfalls of what behaviorists call the group mentality or the herd mentality. It also teaches that past performance is not an indication of future performance and investors must know how it is your  or  generates the types of returns they do. To succeed investors must understand the risks that each investment in their portfolio represents.

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Topics: Tales, Behavioral Tales

Why Behavioral Finance Matters: A Party Tale

Posted by Carlos Sera on Aug 14, 2015 2:07:00 PM

One of my favorite life lessons centers around President Franklin Delano Roosevelt, also known as FDR.  FDR had many strengths but I think his greatest was his ability to recognize that things are not always black and white.  I think his ability to see the big picture as well as discern the subtleties of a situation is what made him such an effective leader and brought out the best in others.

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Topics: Tales, Behavioral Tales

Dunbar's Number and Advisory Relationships: A Monkey Tale

Posted by Carlos Sera on May 7, 2015 11:03:00 AM
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Topics: Behavioral Tales

A 500 Point Tale

Posted by Carlos Sera on Aug 11, 2011 6:29:00 AM

"We interrupt our regularly scheduled release with a breaking news Tale bulletin. Due to the recent events I think you might gain some perspective from this tale."

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Topics: Investing, Financial Literacy, money, Behavioral economics, Promoting Financial Literacy, Behavioral Tales

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