The most overlooked trait of investing success

Read? The most overlooked trait of investing success

I once asked a doctor: What’s the hardest part of your job?

It wasn’t the stress or responsibility. It was so basic. “Getting my patients to do what I ask of them,” she said.

I didn’t understand at first, but it made sense when she explained.

“You have an appointment with a patient and you say, ‘I need you to get this lab done, see this specialist, pick up this medicine.’ And they come back a month later and they haven’t done any of it,” the doctor said.

They either couldn’t afford it, or it was too intimidating, or they didn’t have time.

She explained that becoming a better doctor meant spending more time managing her patients rather than managing those patients’ illnesses. There is a huge difference, she said, between an expert in medicine and an expert in healthcare.

An expert in medicine knows all the right answers out of the textbook. They can diagnose with precision and are up to date on all the latest treatments. (CW8888: "Gurus" often do this)

An expert in healthcare understands that medicine from the patient’s view is intimidating, confusing, expensive, and time-consuming. Nothing you diagnose or prescribe matters until you’ve addressed that reality with patients, because even a perfect solution makes no difference to the patient who doesn’t follow it. (CW8888 : Why Bei kamping often failed no matter under which "Gurus"? Why? "Gurus" can't train each and everyone individually. Where got time and energy for everyone?)

I love parallels between investing and other industries, and this one may be the clearest.

There is a huge difference between being a great investor and running a great investment firm. The difference is the latter realizes that no amount of good advice or strong performance matters to the client who doesn’t follow it, or stick around long enough to benefit from it.

Those who run great investment firms bridge this gap with a simple trick: Clear and honest communication that ensures clients know what you’re doing, what to expect, and addresses the psychological barriers that pushe them away from adhering to good advice.

Financial professionals as a whole don’t have a great reputation. Advisors have a reputation of being salespeople, and money managers have a reputation for being not very good at what they do, fixated on the short term and beholden to whacky strategies they profess will outperform.

But there’s a chicken-and-egg problem here. I’d argue the main reason so many financial professionals stray towards short-termism is because it’s the only way to run a viable business in an industry where customers flee at the first sign of trouble. But the reason customers flee at the first sign of trouble is often because the advisor has done such a poor job communicating how investing actually works, what their strategy is, what they should expect as an investor, and how they deal with inevitable bouts of volatility and cyclicality. The advisor will blame the client, who he sees as shifty and performance-chasing. But many clients are never educated by their advisors to behave differently.

Put yourself in the client’s shoes. They’re trying to pick a good advisor or investment manager from a sea of thousands of options. They don’t have that much information to judge you on. Sure, there’s past performance. But that can be driven by luck and broader market returns. When a client has something as important as their life savings on the line and limited information to judge you on, can you blame them for bailing at the first sign of trouble?

Unless you’ve held their hand, told them your story, been utterly honest with them and explained what they should expect, it’s hard for them to distinguish between run-of-the-mill volatility and a manager who lacks skill. So they leave, unwilling to take a flyer on something that’s so important to them. Bailing out after a decline is self-destructive behavior. But if you’re a client who’s just thrown a prospectus and been told, “Good luck, hang on tight!” I can’t blame you for doing it.

The most overlooked trait of investing success is communicating to your clients the softer and emotional side of investing. A knowledge of market history. An acceptance of volatility as a normal part of investing. That you can be wrong on half your investments and still do well over time. (CW8888: So I am doing it right! Hee Hee)