A while back I was thinking about advice for younger professionals so I read a few networking books. (I thought I had read them a long time ago, but apparently I picked up the essence without ever actually reading the books. I corrected that.) Anyway, I highly recommend, Give and Take. A related book is The Heart and Art of NetWeaving which is similar to Give and Take, but not as good. However, it does have a few very good questions that can be used in business networking situations to get past superficiality and see how you can really help someone (my paraphrases/versions of the questions):

1. Some version of, “How do you make money?” We all tend to ask people what they do, but if you can get to how they actually get paid it’s much more insightful.
2. “What’s your biggest problem/obstacle/need/opportunity?” As I envision a networking situation, I might ask, “What’s the hardest thing about what you do?”
3. “What’s your strategic/comparative/differential advantage (aka USP)?” Again, as I envision this, I would probably ask, “What makes you different from your competitors?”

He also throws in a personal one which is perfect for a financial planning discussion with clients or prospects: “If you weren’t doing what you are today, and money were no object, what would you be doing (and why)?” This is a more concrete version of, “What’s your passion?”

Both of those books reflect our approach to business: Be helpful to folks and you will be successful. I didn’t say be helpful to be successful. This isn’t mercenary or strictly reciprocal. But I think if you just try to maximize total societal outcomes it works. Let me see if I can explain that better. Some people see the pie size as fixed (and sometimes it is): if your portion is bigger, then mine is necessarily smaller. But often you can increase the size of the pie and everyone can win. I go a small step further and will have my piece a little smaller if it makes the whole pie much larger. Let me give a few examples:

• Fixed-pie situation: I can help someone, but they can help themselves/do it themselves as easily as I can (and we are equally busy, etc.). I’m not doing that. There is no net win. I lose, they win by exactly the same amount.
• Grow-the-pie situation: I can help someone easily and they can help me easily. We help each other and both win. This might be undefined. I might help a co-worker right now and then they sort of informally owe me a favor to be used later. This is usually really loose, but assuming conscientious folks, it works out fine. Outside the workplace this is just being neighborly.

No one is “keeping score” (at least I’m not) on any of that, but it probably all comes out at least even, but I think in aggregate everyone probably wins.

• Grow-the-pie with karma situation: I can easily help someone a lot but they almost certainly can’t do anything at all for me. I probably help anyway. Examples:
  • Pro-bono advice for people with low incomes and trivial net worth, no connections to any prospective clients, etc.
  • Coffee with young people needing career advice or connections, etc.

We’re pretty happy to help with all of that even though there is a small cost (primarily time) to us. The help to them is (hopefully) very large so the total pie is still bigger (our slice is a little smaller, but theirs is so much bigger it’s larger at the aggregate level).

Regarding, the fixed-pie vs. variable-pie views above, Paul Graham also wrote an excellent piece on this topic years ago. I highly recommend that motivated young people read this and internalize the key factors of leverage and measurement.

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Winter 2024

I touched on this previously, but I want to address it again.

There is widespread belief in what is sometimes called “time diversification.”

The question is really: is there mean reversion in the equity risk premium (ERP) over time? If so, if you have a bad ERP experience early it reverses later so that if you have enough time you capture that and get back to (better-than) even over a more conservative allocation. There is some evidence of that but it’s pretty small. Your risk does not decrease with time. Samuelson made this point 60 years ago, but for some reason most people still think it works.

That paper was the first time (I think) the “myth of time diversification” was debunked. I.e. stocks do not get less risky with more time. The probability of loss decreases, but the magnitude of shortfall grows proportionally. (Again, there is an argument that longer-term stock returns are somewhat mean reverting so that the volatility/risk does not increase quite as much as theory would predict – i.e. with the square root of time. I would actually tend to agree with that.) Most people misunderstand the concept because they confuse “very unlikely to happen” with “can’t (or won’t) happen.” Mark Kritzman wrote a clearer explanation on this topic here, but you may not have access. It’s also in his wonderful book which I highly recommend.

The point Samuelson and Kritzman are both making is that diversification only works cross-sectionally, not serially. If you invest all of your funds simultaneously in 100 risky ventures (1/100th in each) of which most have decent returns, a few have spectacular returns, but a few also become worthless then you win. However, if you invest all your funds in 100 risky ventures one-at-a-time, rolling gains into the next venture, if any one has a negative 100% return then you are wiped out.

I’ve written about portfolio risks, insurable risks, silly risks, etc., but I thought I’d spend a few minutes here on a few other things you can do to reduce other types of risk.

Here are a few things that all of us here at Financial Architects do personally that we think many (most?) people probably don’t:

1. Freeze your credit. At a minimum you should check your credit reports every year or so to make sure nothing is awry, but we think it is worth going to the next level and actually freezing your credit. Here’s how.
2. Use a password manager. At a minimum you should be using strong passwords and not reusing them between sites. That’s pretty difficult do without using a password manager. Here’s a list of the top ones. In addition, for key sites such as financial institutions, we use two-factor authentication.
3. Use a VPN. When out of your secure environment (your office, home, etc.) it is best to use a VPN when connecting to an unknown WiFi network. This risk has been decreasing as most sites now use secure connections (“https” rather than the old “http”). More here.
4. Install updates. Always keep current versions of software not only on your phones and computers, but also on your routers and other internet connected devices (there are a lot these days). The updates include patches that fix security issues that have been uncovered. If you don’t update your software you are undoubtedly using tools with known security issues. More here.
5. Wipe electronic devices before donating or discarding. It is amazing how many people and organizations donate or discard computers and phones with personal information still on them.
6. Call organizations back on a public number. It is almost always a good idea to turn an incoming call into an outgoing call. When you get a call from “your bank” or “the IRS” the easiest way to know it is legitimate is to get the person’s name and extension and call them back on a number that you know is legitimate. In other words, don’t get the number from the caller!

There are many, many other things you could do but those six are those that we do ourselves yet we think most people don’t do. (I.e., you know to shred things by now so that isn’t on the list, and using disposable or multiple email addresses for security seems like overkill so we don’t do that.)

Let’s be careful out there!

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Fall 2023