Meaningful Returns

When I started my career in public accounting, I had an obsessive tendency to believe that THE thing that would make me a better staff accountant would be to know more than other staff accountants. If I grasped the convoluted concepts in the Internal Revenue Code more quickly and more effectively than my peers, then surely I would be successful and climb through the ranks of the firm in no time at all.

But you know what? That’s all wrong. Or at least mostly wrong. Knowledge is important, and I’d like to think my commitment to learn new things made me better than I would have otherwise been, but I found that the key to outperforming, the key to getting better at my job, was to focus on doing less stupid things.

Now, what I’m not saying is, “focus on not failing” or “focus on never messing up.” Those things are natural products of taking calculated risks, and you would be foolish to avoid them. No, what I mean is, avoid the avoidable pitfalls, stop shooting yourself in the foot, stop making easily preventable dumb errors. For me at the time it was, don’t hand in work with calculation errors, ever. Take your time with research that adds value for the person you’re handing it to. Don’t waste people’s time. Don’t repeat mistakes.

Because when you do less stupid things, you have more time, more confidence, and a better process for doing more new, awesome things.

In his book, Winning the Loser’s Game, Charles Ellis borrows from the work of a PhD named Simon Ramo to draw a parallel between investing and the game of tennis. Ramo had observed that tennis is really two different games: The game played by professionals was one where points were actually won, while the game played by the rest of us was one where points were not lost. It’s a subtle and gigantic distinction. And Ellis makes the case that investing–and indeed the entire sphere of personal finance–is the very same. For the overwhelming majority of us, it’s not about making that one amazing decision that sets you up for life, but rather about avoiding the series of easily avoidable, unnecessary errors that we so often make with our money during a lifetime.

Here are some common errors that I think would fall into that category:

• Not having an emergency fund. Have three to six months expenses in cash. This is deadly serious.
• Not having a simple term life insurance policy (if you have dependents). This stuff is so cheap, and so useful, that it’s almost hard to be over-insured. Ask a professional who doesn’t sell insurance to help you calculate your need.
• Investment procrastination.  $50 a month is better than no dollars a month. START WHEN YOU’RE YOUNG.
• Flipping houses. You will most likely lose your shirt and all your money. Step away from the HGTV, and find a simple, low-cost index investing strategy that fits your needs. This is the equivalent of trying to hit a forehand winner up the line against Roger Federer in his prime. There’s a tiny, barely-worth-recognizing chance that you execute it, and a huge chance you’ll tear your rotator cuff while missing the ball completely.
• A mortgage you can’t afford. I mean, you’re not missing payments, but you can’t afford to afford it. It’s eating up such a large chunk of your monthly cash flow that you’re not able to save enough OR spend enough on other things and experiences you really enjoy.
• Investing in something you don’t understand. A professional should be able to explain an investment to you very clearly. If he or she can’t, don’t buy it, especially if they get an up front commission to sell it to you and never have to provide a minute of service afterward.
• Making financial decisions based on someone claiming they know what will happen in the future. Making sound financial decisions is hard enough, what with all the crazy emotions and feelings that money conjures and the people who depend on those decisions, but when we essentially leave our decision up to a glorified psychic fraud, then we’re really shooting ourselves in the foot.