Simple, not easy

Are you ready to dominate your financial course?

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Welcome to the only newsletter that’s one part #golf, all parts #money.

I’m super happy you’re here.

You want confidence and clarity over your financial future. I’m here to help guide you there. Think of me as your financial caddie.

Together, we can align your money with your life.

That's finding your financial swing.

So, if you’re feeling loose, let’s tee one up on…

Simple

Extreme Ownership is one of the best books I read last year.? Leif Babin and Jocko Willink are two former Navy SEALS turned consultants who parlay their battlefield experiences into real world leadership lessons.?

The true gem of the book are their four laws of combat:

Cover and Move, Simple, Prioritize and Execute, and Decentralized Command

Each has their application to business and life, but probably none so much as "Simple."

As a species, we tend to overcomplicate things.? We have a bias towards complexity.? When faced with two competing hypotheses, we generally favor the more complex.? This has been demonstrated in empirical research.?

The problem with complexity is that it requires more effort to sustain consistent results.

• Equations with more variables produce a wider array of results than equations with less.
• Processes with more decision points produce more outcomes than processes with less.?
• Systems with more components break down more frequently than systems with less.

“Life is really simple, but we insist on making it complicated.” – Confucius

Complexity in golf

Homer Kelly’s Golfing Machine lays out 24 different components of the golf swing – a process we execute in less than three seconds.? What could possibly go wrong?

Mastering your golf swing is complex, and it’s something we as amateurs will probably struggle to accomplish our entire lives.?

However, decision making on the golf course is entirely within our control and it’s probably something we could all benefit from by simplifying.?

It’s at the intersection of these two systems – the physical game and mental game – where complexity bias shows up and can cost you strokes.?

For example, consider this scenario: ??

Your drive has left you in the fairway with 120 yards remaining to the center of the green, and you’re thinking birdie.

It’s 109 to the front of the green and 137 to the back.? The pin is 8 paces from the left side of the green, sitting 111 yards from your ball.

The front of the green is guarded by a slope that feeds into a holding pond – you need 105 to carry it.? There’s deep rough to the left of the green and a bunker to the right.?

There is a light left-to-right breeze.?

After accounting for all those variables - Where are you aiming?

Before you answer, let’s take a step back and approach this in a simpler fashion.?

“You’re thinking birdie,” but is that a good place to start?

In order to have a realistic chance to make birdie on this hole, your approach shot needs to land close enough to give you a 50/50 shot at making the putt.? How close is that?

25 feet?

20 feet?

10 feet?

Try closer.?

Scratch golfers miss two out of three putts from outside 10 feet.

Even pros only make 50% of their putts from 8 feet out.

What are the chances you, as an amateur golfer with a handicap somewhere between 0 and 20, will be able to stick your approach shot within the 10 feet required for a marginal chance at birdie?

They’re not good.?

During the 2022-2023 PGA Tour season, the proximity to the hole for the average tour player from 100-125 yards was 20 feet, 2 inches.? That’s more than double your 10-foot target zone from someone with exponentially more skill.

Our brains favor the complexity of concocting the perfect strategy, combined with the perfect shot, when in reality its more likely that we’ll execute one, two, or 12 of the 24 components of our swing less than perfectly.?

Instead of planning for a strategy that requires perfect execution, we should be acknowledging our limitations and build a strategy that accounts for those variables.?

Keeping things simple and minimizing mistakes is a more effective strategy than playing for perfection.?

But simple is not always easy to do.?

Complexity in business

Complexity bias showed up in a recent conversation I was having with a client.?

This client is an entrepreneur.? Over the past decade she’s worked to grow her business and this year she’s projected to cross over $1,000,000 in revenue.? It’s a huge accomplishment for her.?

Of course, as any good entrepreneur would be, she’s focused on what’s next.? We spent some time discussing two opportunities she saw:

One was to make one, potentially two, key hires that would free up her time and allow her to continue to grow the business as she had been.

The second was to create a second revenue stream by licensing her intellectual property to owners of businesses similar to hers.

She was torn between the two options, and only had the bandwidth to focus on one over the next 12 months.?

She was very keen on the idea of licensing her IP.? It was a novel approach in her industry, and it had the potential to produce unlimited revenue with very little overhead cost beyond some initial legal and small ongoing marketing costs.?

However, the path to success by taking this route was much more complicated:

• She would need to obtain a patent, which would require her to prove that her IP was truly unique in her marketplace – not a sure thing.
• She would need to conduct a valuation and assess the market demand for such a product.
• She would need to define her licensing terms, including scope, duration, and royalties she would receive.
• She would need to market her new product to other business owners in her niche.
• She would need to conduct due diligence on each potential licensee to ensure they had the capabilities to execute on their end of the agreement.
• She would need to enforce and monitor each license to be sure they were meeting the requirements set forth by the license agreement.

After talking through all the variables that needed to go right for this approach to be successful over the next 12 months, it was evident that hiring additional staff was the simpler route to her continued success.

Licensing her IP is still on the table, but it’s a long-term goal, not a short-term one.?

Ways we can over-complicate finances

There are a number of ways you can over-complicate your finances.? These are the most frequent I’ve come across:

Too many accounts …

You probably don’t need any more than three investment accounts:

• A traditional IRA
• A Roth IRA
• A regular brokerage account

You might also have a workplace retirement plan and bonus points if you have accumulated enough money in your Health Savings Account (HSA) to invest the funds, but that’s five at the most.? I’ve come across individuals with 10, 12, even 15 or more accounts.?

Why?

• They fail to rollover old 401(k)’s from their former employers.
• They like the tech on this platform but the investment options on another.
• They inherited an account when someone passed away and left it there.

The barrier to opening a new account is low.? Banks and brokerage companies want to make it as easy as possible for you to get into their ecosystem.? However, the work required to maintain these accounts is high.?

Managing your finances is hard enough, you don’t need to make it harder on yourself.? Keeping your account structure simple is one of the easiest things you can do to simplify your balance sheet and avoid mistakes.?

Too many holdings …

This is another big one I see.?

• They’ll hold multiple index funds that all track the same index.
• They’ll hold investments with conflicting objectives.
• They’ll invest in the “flavor of the week” and not monitor it.
• They can’t decide between two ETFs, so they “sprinkle a little” into both.

The end result is a portfolio that looks like the back of a lot of refrigerators – a bunch of sauces and pickles that looked good on the shelf at the grocery store, but they’ve long been forgotten and are way overdue to be tossed.?

Too impatient …

Warren Buffet has a net worth of 127 Billion dollars.

99% of that was accumulated after his 50th birthday.

Granted, the Oracle of Omaha will turn 94 in August of this year, so he’s had four decades to 127x his first billion, but he did it by maintaining a long-term focus.?

“The stock market is a device for transferring money from the impatient to the patient.”

Buffett is an above average investor, but even average investing with a long-term focus can produce significant wealth.?

Simple isn’t always easy …

But it’s smart. What are you doing to simplify your finances?

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