One play at a time - The Time Value of Money & Football

Welcome to the second edition of Interlinked presented by Jon Cornish

Today we'll delve into the cognitive biases that can hinder financial progress, like hyperbolic discounting (HD) and the fear of missing out (FOMO), and how understanding these can reshape our approach to saving and investing. We'll explore the role of visualization in achieving success, both on the field and in our financial lives, and how a disciplined, strategic approach, can keep us on track towards our long-term goals.

There are some incredible parallels between the discipline of sports and wealth management – And applying these lessons can lead to a fulfilling and prosperous 2024.

• The Lure of Immediate Gratification
• Visualization in Action: Lessons from the Field
• FOMO in Capital Markets
• Realistic Expectations and Strategic Patience
• Becoming a Long-Term Thinker and Goal Achiever
• The Role of Coaching in Achieving Long-Term Goals
• Service as a Catalyst for Success
• Becoming future focused

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The Lure of Immediate Gratification

People are increasingly used to getting things immediately. Reddit, TikTok, Amazon have thrived because they give people that drip of gratification nearly instantly. The bias of “Hyperbolic Discounting” is rooted in our natural tendency to prioritize immediate satisfaction. According to Wikipedia, “the most important consequence of hyperbolic discounting is that it creates temporary preferences for small rewards that occur sooner over larger, later ones.” Should I study now or play video games? Should I put this bonus into my RSP or buy a new car?

It's the reason why, despite knowing the benefits of saving for retirement or a vacation home, many choose to spend now rather than save for the future. HD can lead to poor saving habits, underestimating the power of compounded growth, and a weaker expectation of personal future wealth. Sure, you could be paid more, but the reality is those that make the most save the most. If you want to be rich, spending to look like you are will most definitely have the opposite effect.

If a person is given two similar rewards, we’ll show a preference for one that arrives sooner rather than later. As people with children or parents might know, people want satisfaction NOW but this is where visualization can help.

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Visualization in Action: Lessons from the Field

As a former professional athlete, I've experienced firsthand the power of visualization in achieving success, in fact, I largely credit my visualization exercises for my success; a crucial part of my preparation. Before each game, I would mentally rehearse every play, envisioning how I would execute with precision. This not only prepared me for the expected but also for the unexpected. When faced with unforeseen challenges during a game, my ability to quickly adapt while staying true to the overall strategy was key.

With a decade in the wealth management business, I’ve found this approach is remarkably like financial planning. Just as in sports, where an athlete must adapt to changing circumstances without losing sight of the game plan, in wealth management, we must remain flexible yet focused on our long-term strategy. The multitude of investment options is overwhelming for most, and market volatility can be akin to those unexpected moments in a game - FUMBLE!

However, by visualizing our financial goals with planning software or Excel and sticking to a well-thought-out saving and investment strategy, adjusting as necessary, we can navigate through these challenges and realize the outcomes we've envisioned, for ourselves and our families. This is why dollar cost averaging, investing periodically money every month, or even every paycheque, is so popular with folks who save. Market crash? You’re buying on sale. Market going up? You’re buying future economic growth. A commonly heard phrase on the field I put to use everyday, "The only play that matters, is the next one."

Ask anyone in sports, business, finance, anywhere - Success often comes down to how well you can stick to the strategy while adapting to the game's ever-changing dynamics. Visualization not only prepares us for what we expect to happen but also equips us to handle the unexpected, turning potential obstacles into steppingstones towards our goals.

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FOMO in Capital Markets

The Fear of Missing Out (FOMO) can often cloud our judgment, leading to unrealistic expectations. The constant influx of news about market highs, stories of overnight successes, or the latest speculative investment trends (NFTs, Tulips, SPACs, Cannabis, etc.) can make investors feel like they're missing out on key opportunities. On the website Reddit, a subreddit called WallStreetBets serves as a library for these situations, documenting multi million dollar wins for some investors, and many heartbreaking, devastating losses for others. Recently a redditor who bought Facebook (Meta) call options on Monday, only to sell them at a loss on Tuesday, and getting to see those options he sold, skyrocket in value by Friday. He entered the position with $36,000, sold for $20,000. He would have made $140,000 had he stuck to his guns till Friday. Seeing situations like this can almost mimetically drive impulsive decisions in anyone (I’m smarter than them), chasing those super high-risk investments or constantly switching strategies in hopes of quick gains. Such incredible destruction of money has Reddit users posting screenshots of their pain online, leading to the creation of the term "Loss Porn."

So, it's crucial to recognize that capital markets move in cycles and what seems like a 'sure thing' may not align with your long-term financial goals or risk tolerance. Like HD, FOMO can lead to an overemphasis on short-term gains at the expense of a well-structured, long-term investment strategy. Approaching investing with a short-term mindset overlooks the fundamental principle of investing – that returns are a function of informed decisions and patience, not just recent market trends.

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Realistic Expectations and Strategic Patience

To counteract HD & FOMO, it's important to set realistic expectations based on capital market projections and personal financial goals. This involves understanding historical market performance, recognizing the normalcy of market fluctuations, and aligning your investment strategy with your long-term objectives. Just as a well-practiced play on the football field doesn't guarantee a touchdown every time, a sound investment strategy doesn't promise immediate or constant wins. However, it does set the stage for achieving your financial goals over time.

Incorporating a disciplined approach to investing, much like the discipline required in sports, helps in managing the emotional aspects of investing, particularly the fear of missing out. By focusing on your personalized investment strategy, developing an understanding of your own biases, and resisting the urge to react to every market trend, you can build a portfolio that is not only resilient but also aligned with your vision of future wealth.

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Becoming a Long-Term Thinker and Goal Achiever

The journey to becoming a long-term thinker and goal achiever often starts with a moment of inspiration. For me, that moment came at 12 years old when I watched Donovan Bailey, record breaker of the 1996 Olympics 100m, go on to win Canada’s Lou Marsh Trophy. That achievement sparked a dream in me, eventually realized at the age of 28. 16 years? Oddly like the typical amount of time before retirement people start to think about retirement. 16 years is a long time to anyone, but that journey from a young age taught me the importance of setting long-term goals and that by diligently working towards them, they are achievable, despite the challenges and distractions that may arise.

Applying this lesson to wealth management, it's just as important to set clear, long-term financial goals. Your wealth management team plays a key role in this process, helping you to define these goals and develop a strategy to achieve them. Regular service interactions ensure that your plan remains aligned with your evolving aspirations, like Coach Huff’s suggestion to me that I wasn’t going to be a star unless I learned how to block, and even Coach Dickenson’s suggestion I learn how to catch a football if I wanted to play – I wasn’t always good but I wanted to be, so I made sacrifices necessary to do so.

In life, the harder path, requiring greater sacrifice, is often the better one. My favorite coaching quote? “You’re either getting better or you’re getting worse, no in between.”

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The Role of Coaching in Achieving Long-Term Goals

In crafting a future-focused financial strategy, the role of consistent, quality service from your wealth management team cannot be overstated. In society, a coach or mentor, someone who is there to help you be your best, simply aren’t utilized as much as they should be. I’m where I am today, because of my mentors and coaches. These conversations and check-ins were pivotal my growth as an athlete, in my transition from athlete to advisor, and, in a reversed role, these conversations are pivotal in keeping my client’s financial plans on track.

Regular touchpoints ensure that your strategy evolves in tandem with changes in your life, the market, and your goals. Like my coaches, your wealth management team should provide the expertise and support to help you navigate the financial world. The days of the disengaged financial advisor are gone. If you haven’t heard from your advisor in the last ninety days, well… no wonder you’re reading this newsletter!

Service as a Catalyst for Success

In our business we understand service is more than just a periodic review of your portfolio; it's a continuous dialogue that keeps you engaged and informed. It's about understanding your unique financial situation, adapting to changes, and providing the right guidance at the right time. This level of service fosters a mindset of long-term thinking and goal achievement. What is the value of an investment advisor? Difficult for some to understand but for others, a vital member of their team. As the old African proverb goes, if you want to go fast, go alone. If you want to go far, travel with others.

I like to think I’m the ultimate team player, having built an investment team with my wife Kiran, whom I survived a pandemic with while working and living together in the same house. She does a great job of reminding me of my goals and aspirations, the same way my coaches did, and my mentors do. And we are there to remind our clients of their goals, keeping them focused on long-term strategy, and the best part for us, celebrating their and their families’ successes along the way.

Becoming future focused

As we wrap up this discussion, it's clear that a future-focused financial strategy, much like a well-planned athletic journey, requires more than just setting goals and having a to-do list. It demands regular engagement, adaptability, and a dedicated support system. Just as my aspiration to achieve greatness, sparked by Donovan Bailey's triumph, was realized through years of focused effort and guidance from my supporters, your financial goals too can be achieved with the right strategy and support along the way.

Overcoming biases like hyperbolic discounting and FOMO, setting realistic expectations based on capital market & economic data, and maintaining a disciplined approach to investing are all integral parts of this journey. And the journey to financial success is a steady march down the field, only rarely based off one play.

By staying committed to your future-focused strategy, with patience, persistence, and support, you can navigate the complexities of the financial world and achieve the future wealth you envision.

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