056 | The Psychology of Investing: Jonathan Blau on Navigating Market Ups and Downs with Jonathan Blau

Have you ever wondered why, despite having all the right information, your investment decisions sometimes feel like a rollercoaster ride? I’m Patrick Lonergan, and welcome back to the Vital Wealth Strategies Podcast. Today I’m thrilled to introduce our special guest, Jonathan Blau, the owner and CEO of Fusion Family Wealth.
Jonathan is a leading expert in behavioral finance, specializing in helping advisors guide their clients to understand how our behavior influences our business. Our investment choices in this episode, Jonathan shares invaluable insights on why embracing market ups and downs can lead to better returns and how to foster a mindset that prioritizes long term goals over short term performance.
Whether you’re an investor looking to make more rational decisions or financial advisors seeking to better educate your clients, you won’t want to miss the strategies and wisdom Jonathan brings to the table. Stay tuned as we unpack the secrets to becoming not just resilient, but anti fragile in your financial journey.
Let’s get started. Jonathan, I appreciate you joining us here today on the show. We’ve got Jonathan Blau, the owner and CEO of fusion family. Well, he is the advisor to advisors when it comes to helping clients understand the impact of how our, uh, behavior affects our outcomes, uh, when it comes to investing.
So thank you for joining us here today.
That was my pleasure. Thank you for inviting me to, uh, talk with you and address your audience.
Yeah, thank you. So Jonathan, if it’s okay, can we just start off and, and sort of lay the foundation for what behavioral finance is and what, what, uh, what that really means to, uh, our, our clients?
Cause it, you know, on, on one hand, I think we would pretend that we’re awfully logical in how we make our decision making, but, uh, at the end of the day, uh, that’s, that’s not always the case.
No, of course. Well, I guess a good place to start is that the leading, um, assumption in economics, uh, throughout most of our history has been that we are, uh, what are called homo economicus.
We’re perfectly rational when we make decisions, um, economic decisions and, What behavioral finance and the study of behavioral finance found out is not only is that not true, but we’re, we’re innately programmed to make systematic errors, predictable errors, repeated errors, time and time again. So not only aren’t we perfectly rational, we’re imperfectly and consistently irrational.
And so behavioral finance, uh, takes a whole other look at how we actually make decisions as opposed to how we’ve always, it’s always been assumed that we make decisions. And so, for example, um, one of the things that’s been proven, uh, in terms of how we make decisions about not just money, but, but anything in life that might be, um, something we’re planning to have.
A benefit from in the future is that we, we put a lot more weight on the potential for loss when we make a decision than on the same potential for Dean. So it’s called loss aversion bias. The pain of a loss to us is felt two times more than the pleasure of a gain is felt pleasurable. So if we’re looking to make a decision and say, Hey, I’m 55, I’m going to retire in five years.
And I’m going to hopefully live 30 years after that. I’ve got to invest in things that are going to attack and help me control my biggest threat, which is the erosion of my purchasing power over a 30 year period of a trend line, 3 percent or more in healthcare and et cetera, uh, inflation, which is arguably the disease of money.
Right. And the things that cure that disease are things that cause your, your dollars to grow over time. And those are investments in companies as a stockholder. Bond investments cause your dollar to freeze in the face of the, of the 3 percent compound inflation. And, and so, uh, so because of loss aversion bias, we don’t seek out strategies like stock investing that can maximize our long term wealth.
Instead, we seek out strategies that minimize the chance that we have at experiencing a short term loss. And those strategies, cash, bonds, et cetera, are the opposite of the strategies we actually need to help. Secure the value of our dollars over the next 30 years. So that’s just one example of how we don’t think about it rationally at all.
Yeah, no, I love that. And I think it was Richard Thaler. I, I, I read a book, uh, it might’ve been, uh, Jack can’t remember exactly which one, but, uh, uh, and it could have been somebody else altogether, but it talked about investors. They get monthly statements versus annual statements. And the annual statements people outperform the monthly statement people.
And it was like, wait a minute, this doesn’t make any sense. But what happens is, and you can, you can opine on this, but like. You know, the people that give monthly statements, they go, Oh, the market did something, I better go fix it. Right. I better, you know, I’m scared of loss. So I better, I better adjust this thing versus, uh, the annual statement people look at and go, Oh, I’ve got more money than I had last year.
Great. You know, and they don’t change anything. So, yeah, it just seems like it’s a, it’s an interesting phenomenon.
The study showed, and there might’ve been more than one study because, uh, The study I’m thinking about showed that generally the more often investors look at their portfolio, the actually the worst they do.
And the reason to your point is because whether it’s responding in a good or bad way, they’re responding frequently to the news they’re getting or the performance they’re seeing up or down by reflecting the thought about that in the short run, uh, by changing the portfolio. Yeah. And in response to what they see and ignoring completely what’s good for the long run, and usually interrupting their compounding, which Warren Buffett’s partner, Charlie Munger said is the first sin, basically investing and never interrupt your compounding unnecessarily, but that’s why.
So that is true that that’s, that’s, uh, it is, it’s a, it’s a, it’s a real, um, empirical studying. And, and that’s the reason why the other thing is, as I mentioned, is when people look at their portfolio frequently, We, we are much more sensitive, um, to the change in the value of our wealth than to the overall value of our wealth.
So I have 10 million feels good, but I’ve been used to that. Doesn’t doesn’t impact when I look at it every day, but when it’s down 300, 000, that, that changed, that’s what moves me. And, and the same, what moves me is not that I have 10 million, but if I make another 300, that moves me. So we’re much more sensitive to the short term.
Uh, moves in terms of the change and to losses in particular. So that’s a very powerful, uh, loss aversion bias, as well as our sensitivity to change as opposed to overall value is very powerful in terms of what motivates us to make decisions.
I love it. So I think one thing we’re talking about here is volatility and how that can sort of get the, the.
The average investor, uh, in an unhealthy mindset. And, and I think you argue that, uh, I think rightfully so that volatility is our friend, right? Like when we’re seeing those ups and downs and we’re seeing, you know, we’ve got a 10 million portfolio, 300, 000 in change. Uh, it’s like, that’s feel scary to me. I should probably go fix it.
But can you talk about how that volatility can be our, be our friend?
Sure. So in my simplest way of thinking about it is. We have about a hundred year history almost for the S and P 500. And for most of that period, the average return has been something north of 10 percent a year compounded, but then we have inflation, which has been about 3 percent a year for that period.
10 percent a year that, that, uh, S and P 500 owners, owners of the greatest companies, arguably in America and the world best manage a best financed, what they’ve made after inflation is the 10, roughly minus the three or seven. Yeah, man. An equivalent, not the exact same, but portfolio over that same period of time of, of companies that are just like the same companies in the S& P, always exactly the same, but same industry and so forth.
Um, uh, bonds where you loan money to the companies, that portfolio over the period of time that we’re talking about has made 6 percent a year. After inflation, that’s roughly three. So stocks after inflation seven, bonds after inflation three. So why would one rationally look to give up two and a half times more return that’s been available for the last 100 years on average in stocks to buy bonds?
And the reason is, is because they’re afraid of the, um, the ambiguity involved with the returns from stocks. Meaning we don’t know the timing and the magnitude of the ups and the downs that we’re going to experience, even though it’s made 10 percent a year. Uh, whereas in the bonds, we kind of know, even if we’re willing to take less than half.
That we’re going to be sure about what we’re going to get. And oftentimes investors are much more comfortable taking something that’s sure, even if the probability of the outcome is, is going to be a much worse one, it’s high probability, much worse one, they’d rather take the sure worst possible potential outcome than, than the, than the one that’s most likely to be a high probability of being better outcome, but with much more ambiguity, we have an ambiguity bias.
Now, why I say volatility is our friend. What’s crazy to me is, is the reason. That we get two and a half times more return in, in, as owning great companies versus learning for them is simply because those of us who are willing to put up with the temporary, often sharp, always unpredictable in timing and magnitude, uh, temporary declines.
So just to be able to put up with that, just to be able to behave, I’m going to get two and a half times, likely history, all of history, more money over one period of time. I want to do that, right? But, but left to our own devices, human nature can’t do it because the impulse to run away from the potential of.
Uh, of danger, not just actual danger is, is, is, it’s autonomic. We, we can’t control it. It’s a physical response from the organs in the base of our brain. These, these, these nut shaped organs, uh, that are called the amygdala. And so, so volatility is our friend because it gives us that great opportunity simply to stand by and say, I’m going to be okay.
And I’m leaving my investments to compound. And for that, uh, approach. I’m going to get a huge reward, at least historically, I’ve always been given a huge reward for that, for doing that.
Yeah, I love it. And you had a quote earlier that you said something to the effect of, you know, our brains can’t tell the difference between a bear chasing us and a bear market, right?
A bear in
the woods and a bear market, right, exactly.
And so it feels, both of those things feel dangerous to us. And so I think one of the questions I have is like, how do you help people overcome those emotions? Right? Like, cause both of those are relatively scary. What does the client education look like to say, Hey, okay.
Um, this looks like a scary thing, but at the end of the day, it’s not. And here’s why it’s in your best interest to stay, stay the course.
Yeah. So, so I think, you know, it’s a good question and, and it’s, it’s, it’s got a, it’s, it’s got a combination of, of, uh, variables that go to address it. So I’ll, I’ll try and just tell you how we do it, you know, how we, how we address it.
So, um, The first thing we do at it’s very basic level is to not approach the client, the investor, who really when they come to someone like me or like you, um, they’re looking for, I always say one thing, they’re looking for certainty about their financial future as much as they can get. And the trouble I tell them right away is most of our industry, the big firms, the Merrill Lynch’s, the Goldman’s, not all of the people there, but as a culture, the way they address that need for uncertainty is generally by handing you back the illusion of certainty.
So they tell you how many analysts they have in each industry, and they’re going to tell you which industries are going to do better than the others and when, and they, how many economists they have. So they can tell you when we’ll go into recession and recovery and get you in and out of the markets based on that.
And so I tell them nobody can do those things consistently. So we’re not embarrassed to tell you we don’t do any of those things because nobody can do this. But more importantly, um, rather than hand your back the illusion of certainty with. Parading these things around, outperforming the market, all that, what we do is we teach you how to make rational decisions when we are always under a constant state of uncertainty, not just as it relates to investing, by the way, I tell them, but in certainty doesn’t exist anywhere as a condition in nature.
Right. So take it there. Um, but, but in turn, in terms of now, how do you, how do you survive as an investor, right? So the first thing we tell them is understand that for every, every year, roughly since 1980, according to JP Morgan’s quarterly guide to the markets that they put out every, every three months, um, the S and P is declined almost 15 percent every year for any or no reason.
Uh, and, and one year in five or six. Declines more than twice that average about 33%. So if you can’t watch your stock portfolio appear to disappear each and every year to the tune of 15 percent and watch it appear to disappear two times or more that amount one year and five don’t invest in equity, he’ll never make it.
That’s the first thing we do, right? The second thing we do is you try to, you know, there’s, there’s the, the idea of resiliency, right? You want to make, so investing to us successfully doesn’t require finding what the best investment is going to be for the next three years, three months, whatever it requires finding, what is the likely investment you can find with the return that you could sustain?
Average return for the longest period. That’s compounding. Compounding is returned to the power of time, where time is what’s doing the heavy lifting, not finding the hot thing in and out. And, and so when we, when we go over that, the key then to success is endurance and longevity. Don’t go on leverage cause you’ll never have the, the endurance and then you’ll never have the longevity to benefit from the compounding.
So. The concept of resilience is to say, gee, if I can try to help my clients get through whatever crisis, uh, is, is next, right, whatever the car or current, um, and they get through it, but they get through it the same way they went into it, meaning they don’t feel any better. The next time there’s a crisis, they’ll kind of get through it.
They’ll cringe with that’s resiliency. But what we want is what Nassim Tlaib wrote about, which is anti fragility.
We want to
say you come out anti fragile means you don’t just come out squirm and you’re going to do to say now you’re coming, I say, ah, I’ve been through this before. I want to leverage my, my house now with this opportunity and buy more.
I’m anti fragile. I don’t care. So the, the, the, and the key to all of this is educating clients. I think that. We don’t own the stock market as, as my mentor, Nick Murray always says, that’s, we have a vision when we talk about stock market of this, this writhing, um, slithering bag of snakes somehow. Right. Um, and, and what we own is we own great companies, right?
Arguably the best companies through the S and P as an example in America and the world. And, and when we get into a crisis where the market’s down on average in a bear market, 33%, there’s always a real crisis. But what is it that clients always say? What’s the four word statement they make when they want to bail out during a crisis?
What do they tell us? Um, I don’t know. I call it the four word death song of the American investor. Okay. This time. Is different. Is different. Right. So they’re not concerned and afraid of the nature of the crisis or the number of the crises. They’re just concerned about the difference. And the fact that it’s different is irrelevant.
1987, one day drop of almost a quarter of a 25% Percent was different than the dot com implosion was different from nine 11 and was different from COVID and the thing they all have in common is, is that, um, by the time the market’s down, I don’t know if that’s my opinion, 30 percent or so. Every, every point of decline beyond that is no longer discounting the crisis that they’re worried about it’s discounting all of the insanity of all of the participants in the stock market.
And at that point, it’s going to rubber band back like it did after March, February to March of 2020 COVID, right? Went back up again. Something like 80 percent in the six months after that decline, it always has worked that way. And so if you can train them to not think of themselves as investors in the stock market, which they’re not, because when, when we get to those extreme declines, the value long term enduring values of great companies.
Goes off in a totally different and opposite direction than the current price the market’s putting on it. And investors can’t hold those two things together. They’re either going to focus on the long term enduring value or the current price. And we’ve got to train them to focus on those values and let them know that’s what you own is these great companies who go into crises, not as victims.
But as, as, as opportunists, right? So when Marriott kind of shuttered their whole operation in the face of COVID, they couldn’t have any employees. They went and bought other less successful firms who couldn’t deal with the crisis at deep discounts came out much stronger, right? So that, that’s in a nutshell, what we try to do.
I love it. I love it. And I think there’s also a. It’s hard to quantify the value of an advisor in that situation, right? Because the individual investor left to their own devices is going to go trade that portfolio, however, their emotions are driving them to. Right. Where, when they call their advisor and go, Hey, this time is different.
Uh, we need to change it. Let’s, let’s go fix it. We can go, Hey, all right, let’s educate you on the things that have happened in the past. And here’s why we’re going to stay the course. And, and we’re a believer in having an investment policy statement that just says, Hey. I, I really like Morgan Hausel. He’s written a couple books.
Uh, he’s great. first. Yep. Psychology of Money and as ever. And his podcast is
great.
Yeah, I I really like Morgan Hausel and we’ll have, um, uh, links to all of his stuff in the show notes. But, uh, Morgan does a great job and one saying that I I love from him is volatility is the price of return. Yes. Like if we want to get, volatility
is a fee, not a fine , right?
Yes. And so. You get a benefit for
it. You’re not paying a penalty for it. Absolutely. So it’s like, you know, if we want to get, you know, there’s, there’s You know, better than bond returns. We’re going to have to have some volatility with that along the way. And we can help coach our clients. That’s right. We can’t
steal those good returns, right?
We have to pay something and it’s not the currency is volatility, right? That’s the best way, but people want to get it for free. That’s it. That’s timing the market. I want to, I don’t want the only way to garner. Anywhere close to the fullness of those 10 percent returns over the last hundred years was to be willing completely to, to, to be able to take in every bit of volatility that came along with it.
And, um, and so it’s important that, that investors, uh, understand that, right? There is no shortcut to that
successful path. Yeah. I love it. This is, this is great. So I’m, I’m just wondering, uh, when we’re looking at, uh, it seems like oftentimes though firms will sort of,
by the way, I want to step back cause I’d be remiss.
I, I remembered I wanted to make a point and I forgot what it was about, but when you said sometimes hard for us to quantify our value from my perspective, a behavioral investment counselor, which was what I consider what? People who I do practice, it’s couldn’t be easier. Right? So if I say to someone, someone, someone who is questioning, um, your fee, by the way, they’re not, they’re really questioning your value, right?
So you’ve got to be able to demonstrate it. So I say to somebody, if I, if, if, if, if during COVID or during the old eight or oh nine, you know, financial crisis. You had 5 million invested in equities. I’m making it up. And without me, you would have sold some or all of it. Let’s just say a million dollars worth it.
Um, at the bottom, uh, in COVID, right? So, so COVID’s bottom was 2000 on the S and P or 2200. Now we’re at 6, 000. So three times. So if I got you not to sell a million, which you’re probably still would be out of, cause you never had a chance to get back to it. It happened so quickly. So I did that for you that million today, right?
It has gone up three times, it’s 3 million. I don’t think I could charge you a fee high enough to reflect the value of what I did for you in that one instance of saving you from a big mistake, uh, of which we’re prone to make many of over a multi decade lifetime of fears and fears that we’re going to face.
I couldn’t charge you enough for my grandchildren to justify the value that we provided there, right? Um, that that’s right. So if you’re paying someone roughly 1 percent to manage. Um, 55 million, it’s 50, 000 in fees, that one thing, 50, 000 in fees over 30 years, a million and a half, that one thing saved him 3 million.
And how many of those things do investors face? Not even over decades, but even sometimes entry year. So that’s, that’s the value. So I look at it as Nick Murray says, it, think of it as big mistake insurance is that You’re paying me roughly a penny on the dollar to, to, to help you from avoiding, to help you avoid those big mistakes.
You don’t have to die to collect my fee. . Yeah.
I love it. I love it. And, and I think one thing you also highlighted that, uh, EB also. Uh, points out in his books is the, we’ll call it the expert fallacy. You know, the, the expert is actually really bad at making predictions as to what’s going to happen in the future.
And so it’s like, you know, we, we go to these huge investment firms and they’ve got all of the analysts that are going to tell you what’s going to happen in the market. And
I told you, right. The illusion of certainty, they give me the illusion
of certain. Absolutely. So it’s like, you should almost like, When, when somebody says, Hey, I’m an expert in this, you’re, you’re like radar should be up.
Like I shouldn’t trust anything. This person says, uh, you know, they’re more likely to be wrong.
I forget who, like you said earlier, forget who did the study with the looking it off in the front, but, but it’s a real study where they, they, there was a study that showed. Um, expert forecast are right at 49 percent of the time.
So it’s the equivalent of a coin toss, but what they also said, which is interesting is that the experts who come across the best and are the most believable when you look at them on TV, they’re the ones who are the least, um, accurate. So, so those are the ones you’re most likely to follow. So, yes, I agree with you.
Expert forecast is out the window. Look, uh, Mike Wilson from Morgan Stanley, uh, going into 20, Three said, Oh, we’re going to go down and test new lows. It’s doubled from where he said we’d be at new lows. Um, the same guy, I forget his name was the head of JPMorgan’s, uh, investment committee and David Costin from Goldman, who seems to flip flop all the time, but they will all, you know, be, Oh, you got to protect yourself.
And they were, couldn’t have all been wronger than they were. Right recently.
And, you know, yeah. And, and I think the, a little bit of the challenge there, these guys are probably going, Hey, we know what the history of markets looks like where maybe if you don’t count the COVID sort of dip and quick recovery, you know, we might be overdue for recession.
So, you know, I’m just going to guess that this year is the year for, uh, the recession, but, but the problem with that is. It sort of leads your clients down a bad path. They get out of the market or they get more conservative. They’re missing all this upside. They’re frustrated by that. Then they get back to you.
And then the market drops off. It’s like, no, think about it.
Think, think about what you just said. Cause you’re right. What you just said is here. You have clients who are looking from my perspective for one thing, certainty. Here you have an industry that satisfies that need by giving them the illusion of certainty.
And the more often they give them the illusion by coming up with forecasts, which is a version of the illusion of certainty, they’re doing the opposite of what we’re trying to do. We’re trying to say, always act on your plan. All successful investors are goal focused and planning driven. All failed investors are market focused and performance driven.
We want you to get away from that. But what the industry is doing is they’re the carrier of that disease by constantly coming out and igniting these biases that are, don’t need much. Fuel thrown on them. They’re throwing the fuel all day and all week long on CNBC or any way you look 24 seven. And so that’s, that’s one of the things that from my, the way I practice is, is a friend to me because that’s given me the ability to add the value I had.
Otherwise, if they got on TV and said what Nick Murray says, it says, um, He said, look, what you have to do is you have to come up with a date specific and dollar specific plan. You have to always act on the plan and never react to short term market moves, current events or economic and geopolitical news.
If they said that every day, they’d go over to business. No one would advertise. No one click on story. So,
yeah. Yes. Thank you. Because one thing that people don’t realize, and this is every media, not just the, you But what they, what they, their job is to create some outrage. So you’ll tune in tomorrow so they can sell more advertising.
If they don’t create the outrage, you’re not going to tune in. You’re going to be like, okay, I heard the same message over and over again. I I’ve got it. So I think people need to be aware of that because, you know, the. They don’t know the purpose, right?
They don’t realize that the purpose of the media in this case, financial CNBC is not to be able to give you good investment advice at all.
They’re not qualified. Most of these people, what it is, is to be able to get you to click on their stories more and more so they can increase their ad rates and increase their revenues. Now, wait, when you understand that the old line in, in, in the media that I always quote is, you know, If it bleeds, it leads and that’s, you know, that’s what attracts people.
Right. When they tell us that a plane, unfortunately just crashed, um, we think, oh my God, I’m not going to fly tomorrow because the plane just crashed. But had they told you the hundreds of planes or more all week that went up and down without event, you would be having a much better contextual framework to think about it rationally.
Okay.
Yeah. I love it. All right, Jonathan. Now I’d like to shift focus just a little bit, cause I’m thinking about the mindset for most of our entrepreneurs. They have the exact opposite of what you’re talking about. And I’ll explain this here in just a second, but they, they have a concentrated position owning their business.
They have millions of dollars of net worth tied up in this. Uh, oftentimes they’re using leverage to sort of get that business to grow rapidly. And so like this thinking got them to a certain point that most people can’t get to. Okay. Um, there’s also a bunch of people that don’t become clients that never made it and they went broke, right?
Uh, trying to, to start a business. Statistically speaking, you should, you shouldn’t do it. Go get a W 2 job and you’ll be, you’ll be better off.
Statistically speaking, the latter group you talked about is more populist than the former group.
That’s right. Absolutely. So. The thing that I think we have a little bit of a challenge with is, you know, our clients are sharp people.
They’ve made tremendous wealth taking risk. And now I’m trying to shift their mindset to go, Hey. Okay, we, we’ve like, we’ve done that now let’s preserve our wealth over here in this, this bucket. We don’t need to own, you know, a hundred percent of NVIDIA stock or Amazon or Tesla or Bitcoin, you know, like we need, we need some diversity and we need to like not have to leverage.
So can you just talk us through maybe both of those different mindsets and how, um, You know, really the one, if we want to have certainty in our financial outcomes, we, we need to take a more diversified approach.
Right. Well, I think the first thing to do with people and that, that is the mindset of an entrepreneur and oftentimes successful executive to similar, um, is, is they do suffer from.
And I’m in that cam because I’m an entrepreneur. We suffer from something called, uh, overconfidence bias, right? So it just means that because we’ve been so successful in an endeavor that we took or some endeavors that we took that, that, that we leveraged and put all our resources into this one or two things and we succeeded against all odds.
There’s a couple of things there. One is there’s, there’s this, um, The thought that the causal relationship between skill and the successorship is all there is. They don’t attribute anything to outside influences that, uh, that, that, um, Change the outcome to be even more positive. We call that luck, right?
When they fail, they, they, they look as Morgan houses says, they’ll look at risk and say, well, the reason I failed is because of these outside influences that change the outcome. We call that risk. It’s the same thing. Luck and risk on two different sides. Um, but, but so we get overconfident because of that.
And when we get overconfident, what happens is as successful as we are, there is this, uh, there is this kind of reflexive association between wealth and wisdom. If someone’s wealthy and successful, we think they’re wise in all areas. And that’s, I found that to be not at all true when it comes to investing.
Uh, when someone has success somewhere else, uh, but they do get overconfident. And the problem is we’re all the same, whether I’m a successful entrepreneur, have a PhD, never finished high school, uh, any of it. We’re all prone to the same human nature, um, uh, issues that are innate in terms of the decision making problems we all have.
Uh, when we’re faced with uncertainty, they don’t admit that to themselves because of their success. So now the, the overconfidence bias is like a big magnifying glass. Over all of these biases that they have, like the rest of us. So it just magnifies the mistakes they’re going to make by sometimes a factor of 10.
And, and so that’s, that’s one of the, that’s one of the, uh, one of the problems, the, the other problem is something called family familiarity bias deals with how, when we’re making a decision about, you know, over concentrating in something or not in this case, um, we don’t look at the rationality saying, you know.
I’ve made it right. I’ve made it. I’ve got everything I’ve need. Does it make rational sense to take what I need now and risk it on something I don’t need, which is to now multiply hopefully by 10 more times, but risk what I already have a need? No, of course it doesn’t. Right. But the problem is when we, when we have an investment in something that we’re familiar with my company, uh, uh, something I created, um, we think that it’ll help us more and hurt us less always than something I’m not familiar with.
So we no longer look at that as concentration risk, even though it is, we have all our money in the one thing, whether we know it or not, we don’t know what the future holds for it.
Yeah, no, I love that. This is this is great. So I’m just thinking through, we’ve covered a lot of ground on decision making and how we should approach these things.
You know, you’ve worked both. Excuse me. You’ve worked extensively in both tax planning and wealth management piece. And are there any lessons out there? That you wish people understood that we haven’t talked about yet.
Yeah, I, I wish, um, we didn’t really talk about it directly, but I wish people would, um, would start to be a little bit more introspective about what’s important to them as they endeavor to protect, build and grow their wealth.
In other words, what’s important to us from an emotional behavioral standpoint. Is not maximizing our opportunity and being happy with what we achieve. It’s always a relative concept. Am I doing better than this person or that person? And so I wish people would take this one simple equation when they’re making the kinds of decisions we’re talking about, about improving their life or what they’re able or wanting to achieve is the, the, the one measure of wealth that’s, that’s not uncommon is what you have minus what you want.
And if that is not a positive number, if, uh, based on that measure, there’s many poor billionaires out there, right? There are, absolutely. And so, so I think that’s the biggest thing I could tell you is just, um, stop moving the goalposts and, and start, uh, taking a step back and saying, There’s always the Warren Buffett’s partner again said, there’s always going to be somebody richer than you.
And that’s not a tragedy.
Yeah, absolutely. Yeah, no, that’s, that’s an interesting point. And one thing that I did, um, on that point was I took a year and I said, I’m not going to buy any more material stuff. I’m just going to see if I can find some satisfaction in, you know, all of the things that I currently own.
I’m fine buying necessities, but you know, the, the thing that kicked me over is I. This shirt I’m wearing now is sort of the shirt that I wear every day. I have 21 of them in different colors, but, uh, you know, it was like, I probably don’t need any more of these. I probably don’t need any more pants. I don’t need any more shoes.
Like, let’s just take a pause for a minute and see if we can find some satisfaction in the things that we currently own. And, uh, it was just interesting to go, wow. All right. Um, you know, I, I, I don’t need, cause you talk about the billionaires, uh, and how they’re, they’re dissatisfied and, you know, they have a 300 foot yacht and then they go buy the 320 foot yacht because their friend got a 310 foot yacht.
And so I don’t think that’s going to contribute to your happiness, you know? Well, it doesn’t,
you know, you know why, by the way, um, and maybe we could end on this, you know, and, and wrap it up. But, but the, the reason is a couple of reasons. One is, Um, that we’re not, you know, the person with the 300 foot yacht doesn’t really care about the 350 foot yacht.
They care about the dopamine rush from the anticipation of getting the 350 foot yacht and then the 400 foot yacht. So that’s why you’re never happy because the brain isn’t craving the new yacht or the bigger house, but it’s craving the dopamine rush. So it’s like a drug, you’re always going to want more.
So you can’t, so those things can’t buy the happiness for that reason. But the other thing is this guy, and this is from Morgan Housley, he talked about this, uh, This renaissance man, uh, Montesquieu, you know, I don’t know if it was in the 1700s, 1800s, but the quote was something like, um, if all we wanted was to be happy, it would be, it would be easy to accomplish.
But what we really want is to be happier than other people, which is almost always difficult because we deem the other people to be happier than they are.
Yeah. Yeah. Yeah. No. And that’s, that’s a great point. I think that’s a great place to stop. And I think it also maybe highlights a little bit of our, our social media world we live in.
You know, I, I don’t think it’s, uh, helped us when we, you know, just had this constant feed of, you know, smiling, happy people doing amazing things on our, No, I call that
the Facebook reality, right? Why is everybody else always so happy and I’m not always so happy.
Yeah, absolutely. All right, Jonathan, this was a wonderful conversation about, you know, how behavioral finance can really impact our.
Uh, our lives to the positive, uh, you know, over my shoulder, it says make life great. And, and our whole point with helping clients, uh, build wealth is to live a great life, not to have a bigger bank account. And so, uh, the things we talked about today were, uh, absolutely essential in, in being able to do this.
thing. So I appreciate all your wisdom and insight.
No. And I, I enjoyed talking to you. I’ll leave you with the last thing that Morgan Housel says about that, because I think it’s so wonderful. Um, he says that the wealth is not measured by an absolute number. It’s measured by the idea that you can now do what you want, when you want with whomever you want for as long as you want.
And when you reach that point, whatever that means for you, you are one of the wealthiest people out there.
I love it. I love it. All right. Wonderful. Thanks so much, Jonathan. Great. Great to
meet you. Great to talk.
Okay. Thank you. Bye bye. Thanks again, Jonathan, and to all our listeners. Remember, managing wealth isn’t just about numbers.
It’s about making grounded decisions that align with what truly matters. As we head into year end, I’ll be sharing some essential tax planning resources to help you finish the year strong and set the stage for a prosperous year ahead. To access the resources that can help you create a tax strategy, head over to vitalstrategies.
com forward slash cornerstones. If you’re one of the first 100 people to register, we’ll give you free access to the tools that our clients have paid tens of thousands of dollars for. These tools are designed to help you pay less tax, build more wealth and live a great life. Again, that’s vital strategies.
com forward slash cornerstones. Remember these dollars are better used in your hands than in the government bureaucracy. Thank you for listening and for being a vital entrepreneur. You’re vital because you’re the backbone of our economy, creating opportunities for your employees and driving growth.
You’re vital to your family, fostering abundance in all aspects of life. And you’re vital to me because you strive to build wealth, make an impact through your business and live a great life until next time. I’m Patrick Lonergan, and you’ve been listening to the vital wealth strategies podcast.