Sunday, August 05, 2007

Smart Advice No One Wants to Hear

I've been taking step lately to rectify my god-awful money management skills lately and, after interviewing a handful of money-management types I realized that, even though I build muscles and they build portfolios, we essentially speak the same language.

As I sat there listening to the third guy I'd seen chatter on about risk tolerance, global funds, 529K's and ROTH IRA's, my mind drifted to a much more pressing question: how is fitness training like managing money? Maybe I signed a couple of documents while I was daydreaming away, and one or two of them might have said something like "I relinquish sole ownership of all funds to the money manager listed below," but who cares? I came up with the following really neat-o list!

1) THINK LONG TERM. Like high-risk hedge funds, short-term diets and super-intense exercise programs may work in the short term, but will eventually crash and burn. You'll fall off your no-carb diet, you'll miss that third aerobic session of the day, you'll injure yourself and have to lay up and gain more weight while you recover, just as sure as the cash you make with a high-roller broker on a hot streak will eventually take a nosedive. Invest prudently in your health and fitness: slow, steady gains, consistent investing, eyes on the big picture.

2) BEWARE OF THAT WHICH APPEARS TOO GOOD TO BE TRUE. Now and then I get emails that promise some amazing tip on some obscure stock and guarantees of huge returns. There's always a moment of "Should I?" followed by a more cautious voice that says, no way. Look, if anyone had the solution -- the real solution -- to either long-term weight control OR consistently trouncing the market, the "Fitness" and "Investment" section of your local Barnes and Noble would consist of exactly one book each. And those two people would be very, very rich, and swimming in Nobel Prizes.

3) DIVERSIFY. If you had every dollar you earned in Enron in the early 90's, you would have been rich one day and then, suddenly... not so much. If two percent of your investment money was in Enron, and the rest in a variety of other securities and funds, you wouldn't have lost all that much. Same with fitness: running will get you fitter for awhile. Then, eventually, your gains will stall, you might even hurt yourself. Stave off injury and stalled progress by adding some stretching, some swimming, some weight training. There's no reason to be a one-trick pony in your fitness pursuits. Even if -- maybe especially if -- you're a competitive athlete, mixing it up is crucial.

4) THE TRUTH IS SIMPLE -- IT'S JUST NOT SEXY. If I wrote a fitness or investment book with the title "hard work, moderation, prudence and patience," I don't even think my mother would buy it -- but that's the key both to getting in shape and growing a nest egg. And we all sort of know that, don't we? But instead of knuckling down and getting to work, we'd rather scour the internet for articles on "Instant Wealth!" and "3% Bodyfat in Seven Seconds a Decade!" My clever little analogy breaks down a little bit here, because I doubt there's a gene for smart investing. But the point is that there are outliers in every field: people who have the good fortune to have hit jackpots either of the low-bodyfat or cash-accumulating varieties. Such people usually write books and articles, and create inspirational DVD's about their experience claiming that what they achieved over a weekend is easily attainable by many, many others! I've got news for you: if you're reading those articles and buying those DVD's, You Aren't One of Them. It's NOT going to be easy for you. All of Cindy Crawford's beauty secrets are sum-up-able in the following words: choose the right parents. For the rest of us, it's a matter of applying those tedious and virtually unmarketable four phrases above.

5) FINALLY, A TIP FOR TRAINERS: PROMISE LESS, DELIVER MORE. A few times early on, I've made the mistake of saying to a new client who has a weight-loss goal something like this: "You'll lose 75 pounds in six months!" This is a mistake because although I like to think I can influence my clients' behavior outside the gym, it's really a crap shoot. They might be ready to address their drinking or eating habits, they might not be. My three hours a week with them might be all they have to give. And that's okay. What's NOT okay is me ASSUMING that they will get with the program 100%, that no job or family issues will distract them one iota from their all-important diet and exercise program, and promising them a given result based on those assumptions. Recently a broker came to me as a new fitness client and asked if he could he get down to 9% body fat in a couple of months. When I told him it depended on his adherence to the diet and exercise program, and that his genetics would play a big role in how easy or hard it would be for him, and that his sleep habits, stress levels, travel plans and other factors would all influence the outcome of his efforts, he laughed and said that I was saying a version of what he told HIS new clients: you can't predict future outcome based on past performance, and you can't control peoples' spending and saving habits.

The money guys I saw this week all carefully talked around my questions about how much I could expect to make and how soon. So I've learned my lesson: my new strategy with clients is that I promise less and try to deliver more. I'll tell a client they can lose a pound every two weeks; then if they lose two pounds in a week it's a miracle and I'm some kind of magician.

So maybe, just maybe, I can apply all these things that I've learned about fitness to the investment world.

Then again, I've been looking to get a squat rack for my garage gym. And I played "Guitar Hero" on my friend's XBox the other day and started thinking how much fun it would be to have one of those...

1 comment:

Galina Talkington said...

Great article, I especially like : the truth is simple - just not sexy" part. I feel that as trainers it's also often our job to "break the bad news" when someone comes with unrealistic expectations, very much reminds me of what an investment broker would tell you about just how much you can expect from a fund...oh I read this and I read that about it...well, sorry pall, it's my job to bring you back to earth:)