Back in 2002 I had the pleasure of working with my first editor. He knew I had never written a book before and was patient enough to edit more book than he asked for and along the way, give me some insights on the reading public. Online and in the short form of articles and essays, his advice on lists, the one-through-ten or eight-steps-to-succeed or 30-ways-to-leave-your-lover, whatever compilation we choose, it would appeal to the reader. But I wonder if when faced with such lists, if you actually follow through.
After reading this past Sunday’s article in the New York Times Magazine penned by Guy Deutscher, I’m not so sure that the language of lists and numbers has done what everyone assumes it should have. His profile about how language shapes the way you think offers a look into the way our brains sift through information and come to conclusions. Looking back 70 years to an article in M.I.T.’s Technology Review, Deutscher found the turning point in a debate that has continued ever since the publication of a piece simly titles “Science and Linguistics”. Benjamin Lee Whorf was at the time, a chemical engineer who worked for an insurance company and moonlighted as an anthropology lecturer at Yale University. “His stirring prose,” according to Deutscher, ”seduced a whole generation into believing that our mother tongue restricts what we are able to think.”
Perhaps this is why some of us invest and others simple through darts at ideas, creating a hodgepodge of concepts that have no direction, no focus and because we are often left with no results, not much in the way of confidence. And even more oddly, we don’t blame ourselves for this; we blame the markets, the bankers, the politicians, the black cat crossing our path, anyone who happens to be within our field of vision. Perhaps it is what we hear, how we list our priorities or how we try and take the randomness out of the markets that gives us the real trouble. We want order where there is chaos. So we try to lend order through lists.
Consider a recent list on the popular New York Times blog called Bucks. Jennifer Schultz offers a list of the 10 investment mistakes to avoid based on the book “Asset Allocation for Dummies” by Jerry Miccolis. (I haven’t read it nor have I read any book that assumes I am dumb; the search for knowledge in my opinion is a quest for enhancement.) The object of the piece is to see how big the list can grow, when Ms. Schultz prompts readers to offer their items to the list.
Right away, the first item is asset allocation. Wonderfully alliterate and catchy, it has the ability to jive with the concept of “he who has the most toys wins”. But without a deeply rooted knowledge of the language of investing, you know little about allocating what you may not even have. Mr. Miccolis suggests that this first step is really important and if done correctly, is the building block of a successful plan.
The second item chastises you for the first mistake when it throughs another twenty-five cent word into the investment fray: diversification. He suggests that we confuse asset allocation with diversification. Which is true. Think of asset allocation as the division of any number of different types of items into separate containers; diversification simply suggests that those items should be different.
Keep in mind that even financial advisers/brokers/planners intertwine these two terms in a language dance designed to confuse. If you are looking for advice, you have to look in a lot of different places, compare a lot of different opinions and make a choice. But we often go with the advice that seems most knowledgeable. So when we are asked about our current asset allocation (and we say we don’t know what it is) and are questioned about our knowledge of diversification (and we think we know because we entertain lost of different view points), the next item on his list, a mistake you shouldn’t make is failing to rebalance.
Having different containers (asset allocation of different assets such as stocks and bonds although you will probably have an empty container to begin with) and different stuff in each (empty containers, once labeled can be filled with all sorts of stuff from the assets we have chosen), we must learn to balance them. This is a language play on the old “eggs in one basket” concept suggesting that too many of one thing in one container is just not a good idea. The trouble with rebalancing when it comes to investments that are different assets and diversified as well is that to rebalance, you simply can’t take something from one container and put it in another. You have to sell it.
Which makes the next step in Mr. Miccolis’ list of avoidable mistakes seem counterintuitive. If you are supposed to think long-term, why then are we selling in the short-term to meet some arbitrary balance? You can see where the language falters with the explanation and in doing so, leaves us more confused than before. So to shift the blame, the next five of six suggests in his list are all your fault.
You are emotional, subject to information that catches your attention by thinking a little knowledge will go further than it should all the while believing that the goal is to perform better than the person in the next cubicle and if you can, you will have outsmarted the markets. You are, as the lists suggests, your own worst enemy.
Deutscher does suggest that there is little evidence “that any language forbids its speakers to think anything, [so] we must look in an entirely different direction to discover how our mother tongue really does shape our experience of the world.” This means more than simply trying to learn what it all means but instead why it means anything at all. We can talk about starting young all day long but the concept is lost of you don’t enter that phase already speaking the language of investing.
Then we find out sometime later, that we should have started when we were younger and wonder if we can ever regain those important, missed years. By that time, our investment abilities is allocated alright: between guilt, catch-up, and volatility, between following when we think we should lead, between formulating a plan at a time when we think we should be well on our way.
Some languages have no words for direction, assign female and male attributes to inanimate objects and some have little sense of when something happened. But when it comes to investing for retirement, the great mixmaster of terminology could be reduced to a couple of simple concepts. Something is better than nothing and what you need cannot be determined by another. You jst have to figure out what “something”, “nothing” and “need” are and these are well within your ability to communicate.
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