I’ve lately found myself repeating a number of the same philosophical points over coffee with clients, prospective clients, friends and relatives.
When I find myself getting repetitious in this way (hopefully in an entertaining and/or educational manner) it’s normally a sign that I should write an article. The article-writing process helps me to both crystallise my thoughts on a topic, and to create some material I can more efficiently share in future (“Ah yes… that topic: I have just the URL for that!”). So, that’s the simple backstory to this article, and I’m going to use it as a convenient (and possibly evolving) list of truisms that I may well add to in future, as inspiration strikes.
At the time of writing, it is just over two years since I made the unusual move from a relatively stable career in Investment Banking Technology to become a Financial Adviser for a firm with which I started a relationship as a client quite a few years before. I like to think (and hopefully at least a few of my colleagues would agree) that I usefully brought with me a few principles/attitudes which I believe formed during my long Technology career, and which I have attempted to apply in my new environment. I’d also like to think that these principles are fundamental enough to apply to any industry, activity, or situation and hence to life in general.
I will present my favourites now in no particular order, as potentially useful lenses through which to view the world.
1) Avoid the Root Cause: don’t spend forever fixing the symptoms
The technology-related source of this revelation for me was the variety of applications I developed and/or supported over the years. The painfulness or otherwise of the support was directly correlated to whether the application had been properly analysed, designed, written and tested to be fit-for-purpose and easily maintainable in future, or cobbled together in a rush and then supported through an endless series of crises.
I recall, with no fondness, many applications that were rushed into service with inelegant and inflexible designs and which, inevitably had what I would call “string and chewing gum” elements added over many subsequent years, eventually resembling a large bowl of logical (but unappetising) spaghetti, and behaving like an enormous, towering jenga puzzle (remove one tiny wooden block and watch the whole thing crash!).
From a “Financial Advice” point of view, one of many applications of this principle is to focus on creating portfolios for clients which are designed to be fit for purpose in the long term; removing the ego from allocation decisions (which in turn reduces the doomed tendency to try to time the markets).
From a “Life” point of view, I tend to look at the popularity of medication such as statins (designed to reduce cholesterol, whilst producing an endless income stream for the pharmaceutical company) and wonder if people might be better focussed on eating the foods which don’t contribute to bad cholesterol in the first place.
2) Be aware of the “Cycle of Human Stupidity”
Everything moves in cycles. Everything. I’m convinced of it. And there are a couple of reasons, I think, why:
- The intrinsic attractiveness of “change” vs. the status quo. We forget the value of “not fixing something if it’s not broken” and tend instead to seek opportunities for “change”, whether warranted or not. How many elections are fought with “Time for change!” as the key campaign slogan?
- The senior management revolving door and ego trap. How many of us have seen CEO after CEO hovering into place at our organisations? These CEOs inevitably arrive at their new environment with a large compensation package and a burning desire to establish their name (and justify, somewhat, their compensation package) via some new initiative, whether needed or not.
In Investment Banking Technology I saw several oscillations of two cycles in particular.
The first was a repeating business expansion/contraction (partially correlated to global economic cycles) in which we built the equity business, then sold the equity business, then build the equity business, then sold the equity business.
The second was related to outsourcing initiatives, by which it suddenly seemed like a great idea to discount the sense of goodwill, urgency and service-orientation the organisation gained from a captive workforce (all of this very difficult to quantify, of course) vs. the short term cost saving and headcount reduction (very easy to quantify) that the organisation gained from a non-captive 3rd party workforce. This second cycle I’ve seen oscillate several times in the financial industry; firms moving repeatedly between outsourcing and insourcing, as the true costs and benefits of each extreme become apparent, and then forgotten, repeatedly.
In Financial Advice, there’s one very clear example of this behaviour; the tendency to “Buy High” and “Sell Low”; an innate human tendency which it is the Financial Adviser’s responsibility to guard against. For more on the potential reasons for this self-defeating behaviour, please see my article on Asset Type Diversification; specifically the two charts sourced from JP Morgan.
In life, I like to attribute this principle to changes in fashion over the decades; trouser design, for example, oscillating between flares, drainpipes, flares, drainpipes, ad infinitum. Each of the extremes has its costs and its benefits, of course. Which leads me to my next point…
3) Everything can be argued equally and oppositely either way
Returning to the topic of Technology: an organisation may find itself with many regional versions of what is ostensibly the same application and then, possibly under the guidance of a new CEO (see point #2 above!), embark upon a large transformation project to consolidate those many systems into one global system. All good, you might say; there are obvious cost-savings and efficiencies from just having the one system.
However, there is at least one clear counterargument to consolidation: resilience. The one global system failing may cause a global outage where previously only individual regions would be affected by an outage of their separate systems.
Similarly, operating in the age of rapidly-expanding regulation, regulators in different jurisdictions increasingly demand region-specific functionality and maybe even physical hosting of data in their own region (rather than the location that the organisation has settled on to host the “global” application e.g. London). How to square that circle? Well, these predictable changes in requirements, generally not anticipated or quantified in the rush to create the global model (see points #1 and #2 above!) may well result in some inelegant functional compromises being cobbled together.
In the realm of Financial Advice, this principle might well be applied to the topic of diversification. On the one hand we could assert that we cannot possibly predict the “winners” of the Stock Market “horse race” with any great reliability, so should simply bet on all of the horses finishing; effectively “buying the index”. On the other hand, we could say that some of the metaphorical “horses”, based on simple criteria (e.g. having an overweight jockey; the horse equivalent of a very high level of corporate debt, for example) are likely to fare worse, so are not worthy of our investment. Both active and passive strategies have some part to play in portfolio construction; the key is to fully discuss the positives and negatives of each, and agree on the right balance.
The lesson to be applied for life in general is to attempt to fully explore both sides of any proposal, so as to properly quantify the costs and benefits of each, now and in the future.
We do, of course, hit the issue ultimately that Donald Rumsfeld once famously (and I think, quite profoundly) referred to as the “unknown unknowns”, and the need to make a decision with those “unknown unknowns” in play. However, we can at least acknowledge them, and move forward.
Conclusion
I hope you’ve enjoyed reading about some of these; my favourite principles to be applied to everything! I may well document more here, in future updates. Or I may not. You can be sure that I will fully consider the pros and cons of each option, before committing!
