Lessons Learned After Two Years in the Business

by | Aug 11, 2017 | Investor Behavior, Financial Planning

I started working full-time for Mullooly Asset Management a little over 2 years ago. I graduated college with some basic knowledge about the stock market and was eager to learn more as my career started. As they say, the best way to learn anything is by doing it. I want to take some time to reflect and share some of the most important lessons I’ve learned in my 2+ years at Mullooly Asset Management.

Communication is key

Open and honest communication between client and adviser is the life blood of the relationship. The communication has to work both ways. The adviser has to clearly outline the scope of the relationship, set expectations and often have difficult conversations with the client. It is the client’s job to provide accurate financial documents when the relationship begins, be honest about their goals and be willing to admit when they need help. Something important happens when a client and adviser communicate openly with one another, the formation of trust. 

Filter the noise

Remember the telephone game that you used to play in elementary school? Yeah, that happens out in “the real world” too. So much of the content that is produced by the financial media is twisted and distorted. It really is just like the telephone game, the original message rarely makes it to the end of the line without being messed up or taken out of context. Investors need a way to filter out all that noise and pay attention to the most important topics. I’ve found Abnormal Returns to be an amazing resource for this.

Have reasonable expectations and DO NOT compare yourself to peers

A huge problem in the investing world is the need to compare to others or a benchmark. I get that there has to be some way to measure success. But comparing yourself to someone or something that may have a completely different objective than you is not the way to do it. A better way of measuring success is on an individual basis by asking the question, am I still on track? or, do my goals still have a high probability of being reached? If the answer to either of those questions is yes, than the investments are still successful.

One of the main jobs an investment adviser has is to keep his/her client’s expectations in check. Expectations are the root of all evil.  Not meeting expectations can cause disappointment, anxiety and the feeling of not “keeping up with the Joneses”. These feelings often lead to bad decisions being made and it is the adviser’s job to stop that from happening.

Savings rate > rate of return

Morgan Housel said it best the other day on Twitter. But the problem with this is another lesson I’ve learned, lifestyle change is hard . Saving more money is hard because it forces people to change the way they live their life, and that’s extremely challenging. Instead of doing a reality check and cutting costs, most people look to the market for a quick fix. When people have money invested in the market but don’t have enough saved, problems start to arise. The classic example is taking a loan from a retirement account or draining an investment account to fund some event that should be funded by a savings account. This event can create tax problems, interest payments and it breaks up the process of compounding. Wouldn’t it be easier to just save more?

As you can tell these lessons aren’t really about the stock market at all. They’re about managing investor behavior. Which is the greatest lesson I’ve learned so far. You can have all the investing knowledge and skill in the world but if your behavior is not managed properly the chance of having success in the markets is slim.

Oh yeah! One more quick note, I’ve also come to realize that the learning process is one that never ends. So here’s to many more years of soaking up as much knowledge as I can.

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