Sunday Email: Navel Book / Optimism

Read time: ~6.45 minutes

Happy Sunday!

Every Sunday I offer strategies for the week ahead and a thought to fuel your action.

It was seven years ago.

I was sitting in my car in our office's parking deck. I didn't want to go in. My dream seemed to have shattered into a million pieces. The answers I once felt were clear now seemed fuzzy at best.

At that moment, it felt like time to throw in the towel. I wanted to avoid tackling the next challenge, and I didn't know what shoe would fall next.

In just 2.5 weeks, the third employee had resigned. All three were top-level employees integral to the business's success and 60% of the team.

It was just over two years into my journey of building a technology company. This was my first attempt at creating a technology company, and I did it with a need for more coding knowledge. One of those who resigned was my head engineer.

At the beginning of my journey building a wealth tech company, I was young, naive, and new to this technology world. I'd come from a world where I tended to find success.

As I entered this endeavor, I was, of course, focused on creating something of value and making this experience a huge success (as defined by creating a valuable company). Yet, the thing I was holding so tightly was not the dream but rather the fear. I was so focused on not failing rather than succeeding.

Holding so tightly on this desire not to fail, I had a narrow view of topics and ideas, was a micromanager, and lacked the flexibility to pivot and adjust as necessary.

A focus on not failing spurred these tendencies. Ultimately, things broke.

Fortunately, this was not the end but a wake-up call, allowing me to continue building technology and ultimately pivoting our focus. We eventually created a new segment of wealth tech. We introduced RIAs to a new way of thinking about integration and automation of technology and tasks.

And all these lessons have made me a better leader and innovator. It forced me to see things in myself that I was blind to.

As I read the book The Almanack of Naval Ravikant, this memory kept popping into my mind. Naval's thoughts, insights, and strategies (in his own words) had me nodding and scratching my head about why I didn't know this earlier.

This book contains unique insights that will make us better leaders, better human beings, happier humans, and more fulfilled individuals.

This month, I wanted to provide some of the key takeaways I found valuable and how these impact what we do in wealth management.

Uncomfortable Realities

Our world is on a foundation of contradiction.

From the Constitution to the concept that success and happiness are aligned, the world is a constant and forever contradiction.

Let's start with the Constitution, which states freedom and equality.

This immediately exposes a contradiction. We can't create equality without taking from others. If we must take from others, this minimizes someone's ability for freedom.

Ultimately, we can't have everyone be free and equal because someone will need to have more. In this situation, someone will have more freedom than others to create equality. In a world where someone has more freedom, it would equate to a world with less equality.

Look at success and happiness. We consistently feel that we will be happy when we hit a certain level. But we hit this level and continue to search for our happiness. The truth is that we always want more.

We define happiness as being content or satisfied with what you have. This is why the greatest philosophers constantly refer to happiness as having fewer wants than haves.

And success is driven, at the core, by dissatisfaction. The driver of success comes from being unsatisfied with something, unsatisfied with the status quo, and with our current situation (wanting more). Thus, success and happiness contradict each other.

Another uncomfortable reality highlighted by Naval is one we know very well but are very reticent to accept; change is the only constant in our lives.

Change is one of those things that does not discriminate against race, age, or gender. It's the common link between all of us. The changes that occur may be different, but things constantly change for everyone.

And today, that change may be happening faster than ever before and can be extremely difficult to comprehend.

Technology has expedited the change, both good and bad. But this new form of change has created a need to understand how things change and at the speed of that change.

For example, Many of us could visualize or grasp the idea of Usain Bolt being two times faster than most humans. We can look at him and see him run. We have a visual of how other people run. We can see a difference in front of us.

Yet, we can compare one computer algorithm, call it algo A, to another computer algorithm, call it algo B, and see even more drastic differences. For instance, it is currently possible for algo A to be 1,000 times faster than algo B. Algorithms running 1000x faster than others happen daily in the world of technology. But humans, us, have zero comprehension of this. The scale of that difference is so drastic that our brains have a challenge comprehending it.

So, the uncomfortable realities highlight two things for our industry. Despite our desire to keep our industry the way it has been, the fact is that it has already changed. Technology has been introduced and planted into our industry so that the changes (and speed of those changes) of the past will look like snails relative to what will happen in the future.

Second, those who want to grow, serve more people, and have a more significant impact are battling contradictions in real-time. Growth will come from the evolution and change of our industry. Changes to technologies and business models will strengthen our ability to serve more people.

We can't have it stay the same and want it to grow more.

Success is hard, tough

In the opening of this blog, I shared an experience in which things ultimately broke. They broke in a way that I was working so hard to avoid.

Many of us have had similar experiences: We want something so much that we focus on it profoundly and get frustrated when the outcome doesn't come as we desire. Yet, it happens when we shift to concentrate on something else.

Yet, the world tells us that if we want something so badly, we focus on it and drive toward it. Let it be your North Star.

So, why the contradiction?

It stems from the focus—the outcome or the process. We tend to focus on the outcome so much that it impacts our actions. But when we get lost in the process, we reap an outcome that we had thought about but lost attention to because we were so focused on each activity, individual step, and iteration in a process.

That's the subconscious working. The subconscious knows the outcome you desire, but as you think more about it, you start to hinder your actions. So, success comes from setting a goal but then letting it go and focusing on the present moment. It's a matter of letting your subconscious work and working to mute your conscience.

Many of the hurdles that come our way on our path to success are due to feelings.

Feelings are temporary, yet we tend to make them the focal point of our actions. Having emotions as the focal point causes us to think deeply about our feelings and try to change or act on them to remove them.

Feelings are emotions, and emotions predict the future impact of a current event. Yet, with time, that future impact is muted, and the fear we had at the moment is less and less realized.

Thus, we are falling into the trap of leveraging our consciousness, which we now know keeps us from reaching our desired outcome.

Trying to take action to alleviate an emotion creates an undesirable outcome. The same result occurs when we focus so heavily on the goal and hold it so tight that it ultimately breaks—and not how we want.

Thus, the success of our firms and our client's financial situation hinges on understanding these points. First, many of us and our clients have fears. Fears that the amount of debt we have is too high or that if one party wins the election, we will have a lousy economy, which will be bad for our portfolios. Fear is an emotion. Many act on these emotions, yet the realities don't align with their emotional views. By focusing on these emotional headlines, we find ourselves making financial decisions that are detrimental to us. We hold these concepts so firmly that we act on them. And they tend to be wrong.

This leads to the second point: we and our clients must set a goal and work towards it with our subconscious. Holding tightly to the ways that things were done and the ways things are done today could be better will lead to decisions to the detriment of our firm and our clients. We must loosen the grip, point to a goal, and act with an open and present mind, based on the realities of today.

Final Key: Focus on limiting big mistakes not being right

I saw a stat recently related to golfing.

Golf is hard. If we were to group amateurs, there would be different skill levels. Some people are good; they are called "scratch golfers." Then, other golfers are good but not scratch; we can call those golfers "weekend players."

There are plenty of scratch golfers who only play on weekends but are drastically better than other weekend golfers.

Why is that?

Well, this stat points out that it isn't a matter of time playing the game, access to a specific course, or the number of birdies (taking fewer shots on a hole than suggested). Instead, a significant determinant between these golfers is the elimination of major mistakes, which are referred to as double bogeys (taking two shots more on a hole than suggested).

This stat tells us that we don't have to make more birdies to be better golfers; we must make fewer big mistakes. Scratch golfers make one of those big mistakes every 2 - 3 rounds of 18 holes (so every 36 - 54 holes), while our weekend golfers make those mistakes at least once every 18 holes.

And Naval points this out elegantly in his book with this idea of knowledge and wisdom.

Knowledge is information. Wisdom is knowing the long-term consequences of one's actions (as opposed to the impact of the immediate outcome).

Ultimately, judgment applies wisdom to external problems.

We all have access to much knowledge, more so than ever before. However, as this knowledge and the ability to apply it have become more accessible and prevalent, the more we look at the immediate returns—the instant gratification. Yet, the key is to use the knowledge to identify what may happen in the future if applied.

Because, as advisors, we don't get fired for not winning big enough; we get fired for losing.

Ultimately, we let our ego get in the way. Ego tends to be like trying to move in a dark room wearing dark sunglasses. The moment we put the lights on and use regular glasses, we see things better.

To help make less big mistakes, we need to see the world clearly, without assumptions. Then, apply this knowledge with the long term, not the short term, in mind.

Closing

We can leverage another point from Naval as we look for actionable takeaways.

The answer does not lie in the above blog, the book, or a listicle with tactical steps.

The moment the inputs are clearly defined is when the output is a commodity.

Creativity and uniqueness happen when the inputs are variable and the output is undefined. Our industry can not be minimalized to a set of actions to take.

Each of us individually does the work to gain success. We can't replicate others, as that is impossible given that we need the necessary insight into their experiences to reach their level.

Thus, we must stop looking for the answers and rely on action. Action generates insight, which allows us to iterate and evolve.

Let action drive our insights rather than a tight hold on a vision or current emotions. Reaching a specific level will not generate the happiness we desire.

We find happiness in the process and the moment.

Naval puts it's best:

"{Happiness} It's about the absence of desire, especially the absence of desire for external things. The fewer desires I have, the more I can accept the current state of things, and the less my mind is moving because the mind exists in motion toward the future or the past. The more present I am, the happier and more content I will be. If I latch onto a feeling, say, "Oh, I'm happy now," and I want to stay happy, then I'm going to drop out of that happiness. Now, suddenly, the mind is moving. It's trying to attach to something. It's trying to create a permanent situation out of a temporary situation." - The Almanack of Naval Ravikant)

A Thought To Ponder This Week

In baseball, having a career batting average near .300 is worthy of being in the hall of fame.

Having a batting average below .100 is worthy of getting a pink slip.

As the general manager of a baseball team, my goal is to find as many potential .300 hitters as possible and limit the .100 hitters.

Makes sense.

In the past 50 years, the S&P 500 has declined during the calendar year 11 times. 39 times, the S&P 500 has seen a return greater than 0% in the calendar year.

And of these years that we have seen declines, only 4 of them have been more than 18% (what we saw in 2022), which is a level we all fear drastically (recency bias).

Converting these to percentages, we have the major loss years hitting .080 in the last 50 years, with the positive years batting .780.

Yet, when we construct portfolios, we build a lineup of investments that look towards the .080 hitters, not the .780. We build portfolios with a fear of the rare situation, as opposed to the optimism of the common situation.

Our minds tell us that the information of the present provides rational reasoning for why the trend of the past will not continue.

But it does.

Pessimism is actionable, optimism comes off as hopeful. Yet, optimism has been shown to be rewarded.

As we head into this week, what is one thing that we can do to help shift our mentality a slight bit more optimistic from where it is today? Our clients will thank us long term.

The best is ahead!

-Matt