Millionaires expect our team to provide wisdom and expertise to guide the most important financial choice of their next decade. That’s why I seek to develop wisdom and perspective to help adults make great choices about wealth and legacy.
Karen Firestone spent 22 years at Fidelity Investments before she co-founded Aureus Asset Management. She wrote Even the Odds: Sensible Risk Taking in Business, Investing, and Life to help readers improve decision-making and avoid disasters. Here are some things you can take away from Even the Odds.
Firestone describes four tenets of sensible risk-taking and describes each in detail. Here they are.
* Right-size your risk
* Right-time your risk
* Rely on knowledge, skill, and expertise
* Maintain a healthy skepticism
Firestone spends most of the book on how you can apply those four principles. She devotes three chapters each to business, investing, and life. Here’s my analysis of three of Karen Firestone’s principles and how they relate to income property investing.
At work Firestone investigates investments which may have superior returns but declines 80% of those options. Likewise, our clients act on less than 20% of the opportunities that we surface and research.
Right Sizing the Risk
Firestone’s prime example involved when to dispose of petroleum investments. A major client wanted to exit that investment space within a year. She estimated the odds and impacts of the stocks going up or down. She estimated the potential consequences of holding assets longer, making money or losing money, and more.
Because they correctly weighted their decision criteria, they chose to act immediately to do what the clients wanted. In effect, she analyzed the range of the range of options, the cost, and the payoff. Some people would not recognize a rational, systematic framework as a profound first concept, yet it is. That’s why our team follows a proven analysis framework to improve the odds for our clients.
Rely on Knowledge, Skills, and Experience
An expert knows what can go wrong and what the clues are for a fake or fluke. Firestone’s lead example involves clients interested in trading unusually large jewels. There are relatively few international players. Her clients had made the strategic choice to become hyperactive in the specialized niche. She tells the story because investors were clear about their risks and their capacity. And, oh-by-the-way, the strategy worked.
Unfortunately, many millionaires confuse repeating platitudes such as “find a value-add asset” with understanding market reality. Our team has successfully guided 200+ millionaire clients through 1000+ pivotal choices.
In San Diego County 10,000 owners hold 15,000 rental properties worth above $1million. About 300 buildings trade annually. Most owners don’t trade even once a decade. Fewer than 20 owners routinely capture the best values in some of the hottest submarkets. Our team has helped clients develop superior strategies and tactics to win greater share of the few high value escrows.
Maintain Appropriate Skepticism
Be brave enough to raise question, draw conclusions carefully, and walk away when you’re not comfortable with the response. If it seems too good to be true, be unusually skeptical. Firestone advocates granular level analysis and champion mindset due diligence in preparation. My wisest client does exceptionally well, more because of his caution than his hyperactivity.
Brave, effective experts understand why investments principles work. They understand the subtle and sometimes taken-for-granted assumptions behind the rules of thumb.
Like most books on expertise and outstanding success, the author emphasizes that:
* trust is hard to earn and easy to lose and
* expertise is revealed when significant players have different perceptions. In deep uncertainty there is the potential for both huge gains and immense losses.
Even the Odds is a quick read. Life has more than enough risks. It would be a prudent investment of your time to spend a few hours understanding how one expert routinely achieved superior performance in business, investing, and life.
Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.”