What I’ve learned in 10 years

This week while I was out on the bike I realized that I’ve been in a client-facing financial role for over 10 years as of last November. A little hard for me to believe, but that’s what the numbers say. When I took a job working for a dually registered broker a year out of college it’s amazing just how little I knew about what I was getting into. I like to think that I’ve learned a thing or two since then, so I thought I’d share.

1. Liquidity above all else.
   If you don’t read the rest of this post, take this piece with you. Liquidity matters. It matters for you personally, and it matters for your investments. You need to be liquid. That means you should have some cash. Not cash “substitutes” like floating rate bonds or whatever garbage your broker sold you, but actual money in the bank. It should help you sleep at night and it should be there for your regardless of the economic environment. It’s not money you take risk with and for that you give up some return. Deal with it. You DO NOT want to be the one blowing out a long term portfolio because you had an immediate need for funds and you didn’t have any cash. And your investments need liquidity. It’s okay if you want to own a rental property or two if you want to go in on a deal with your brother-in-law’s new company but FIRST you need to have sufficient liquid investments. I don’t believe there are any golden ratios here but you need to have real liquid, available, publicly traded assets before you start tinkering with stuff you can’t sell quickly. You should also beware any illiquid investment brought to your attention by a third party. If broker tells you about a great REIT with a huge yield but no secondary market, run. Valuable investments have a market. Your investments should have a market.
2. Be skeptical.
   There’s a lot of junk out there. One of the best lessons I got in my MBA was from Vitaliy Katsenelson who said “always look for a reason to say no.” You don’t need to say yes to any investments. You aren’t pressured into doing something. Approach any investment opportunity with your guard up a little bit. Recognize sales tactics. Be skeptical of backtests and carefully watch time periods when reviewing historical performance. Ask what could have gone wrong.
3. But listen.
   You aren’t the smartest person around. If you are, change your surroundings. The world is full of people who have better ideas, better experiences, better insights and better perspectives than you. People who have read books you haven’t yet and learned under brilliant elders you’ve never heard of. Listen to them. Ask hard questions. Ask easy questions and make sure you understand. Discuss, don’t debate. Debate is pointless. Discussion is fruitful.
4. Nobody knows what comes next.
   We can’t help but listen, and they can’t help but say it. Predictions are in our very nature. We are pattern-seeking creatures in search of an answer of why the recent past unfolded and how the future will reveal itself. Traders, advisors, economists, pundits, journalists, portfolio managers. Everybody has something to say about what comes next, and nobody has a clue. In hindsight there is always someone who was right. Most likely that person is a broken record, the stopped clock. If you predict a bear market every year for a decade, you’ll be right at least once. Maybe twice! A 20% batting average, congratulations. The more your investment strategy is based on narrow, specific forecasts, the less likely you will be to find success. Don’t assume you can know what comes next, or the guy with the column in today’s Journal knows.
5. People with something to say don’t need to be loud.
   Every day CNBC looks for the loudest people they can get to say the most outrageous thing about today’s market on live TV. (If you have any doubts about this, consider the fact that somehow Rick Santelli continues to get airtime.) Thoughtful people don’t often yell. They aren’t 100% confident in what they say, they recognize that the world and the economy is a wildly complex place, and they hedge their own conclusions. They can calmly discuss both sides. They don’t need to make dramatic superlative announcements on the state of the world or the markets. Look for the quiet ones, the ones who say less and listen more.
6. The more I learn, the less I know.
   The sum total of the world’s knowledge surpasses any figure you can imagine. Pick a field of study, dive within a discipline in that field. Thousands of brilliant minds. Go deeper still and realize that every day the capital stock of our collective knowledge grows larger and larger. You cannot keep up. Learn what you can, create your latticework, maintain humility in your understanding of the world. It is bigger than you can likely imagine. Very, very little is certain.