Celebrate the Small Wins

We have a unique relationship with our clients. In contrast to other professions, our promises and good work pay off slowly over many decades. This creates a valuable incentive for us but requires trust and loyalty from our clients — a worthy exchange for which we are awarded fairly.

Guiding clients over many decades is a weighty responsibility. We have to understand the emotional journey a client will go on over the course of an investment lifetime, and we prepare them upfront through various educational engagements designed to make our job easier and to increase their likelihood of success.

While it’s easy to say, “Invest and stick with the financial plan”, we know that the pitfalls that await them are many, often coming at inconvenient times. The nature of the investing journey is such that a new challenge comes along when the client is still worn down by the most recent assault on their discipline.

We know that we’ll be by their side, but there’s one disaster none of us can recover from, the fateful day when a client encounters the “big decline” and forgets that this is part of the process. These are the roughly five-in-a-lifetime declines that all investors will face when no light can be seen at the end of the tunnel, and their worst inclinations are met with the most dangerous combination of external forces: terrible world and economic news, negative media sentiment, and nefarious predictions from conflicted experts.

Many will succumb to the temptation to bail and abandon the plan on this day. Many are called, but few are chosen. It’s a rite of passage, and not all will make it. Luckily, not many of our clients will fall into this most unfortunate group. With our guidance, they are likely to stand the test of time, as they have on previous occasions. But we need to understand that some under our care may indeed falter.

This could be because we neglected our duty during the onboarding process, as times were good. It could be that we underestimated their propensity to panic and made assumptions we shouldn’t have made. Or it may just be that this is their first “big one”, and its force is too much for them to bear. A surfer accustomed to a 3-foot wave does not keep their head when a 10-foot swell approaches. Fear does funny things to the mind.

We need to reflect on our role in these events. Over the course of our relationship, have we neglected to reinforce the lessons our clients needed to hear regularly? Have we tired of our advice, forgetting that these principles do not come naturally to those outside of our small group of esteemed advisers?

The big lesson is this. While our clients may have once understood, there is a big difference between understanding something in theory and feeling something in practice.

We correctly caution our clients against following the markets too closely. We know that what happens during the next 30 days has no bearing on their success over the next 30 years. We know that watching the markets when the media smells blood in the water is not likely to help their emotions.

But there’s a paradox: Good behaviour relies on awareness of our past victories, the times we successfully encountered a decline will have increased our ability to deal with future challenges. The small victories strengthen their resolve and make tangible the theory they’ve understood theoretically. Our clients internalise the lessons we’ve communicated, slowly becoming financially literate over their lifetime.

How do we encourage these observations and learnings? By filling the space left after they’ve ignored the media. As their trusted advisers, we have earned the right to communicate our knowledge in the hope that it becomes their own over time.

While some of us hope that our clients didn’t notice the most recent small decline, would it help to point it out and summarise the lessons? Does it make sense to congratulate them on their excellent behaviour and remind them that there will be more to come, or are we scared that they will react with surprise that the advance hasn’t happened in a straight line? We cannot babysit our clients to investment success. We can only lead them there as truth-telling confident advisers.

I encourage you to find a practice that works for your business that will help to break the pattern of negative news your clients may be exposed to. Eliminate the fatigue and fill the space with positive feedback. We need to consciously introduce a practice of congratulating our clients on traversing the last valley of fear, thereby equipping them to continue their advance up the continuous wall of worry we are leading them up.

You do not want them to face the “big one” without knowing that they have successfully survived challenges before. It’s astonishing to think that the greatest skill a long term investor possesses is sloth and the courage to ‘do nothing’. Investing is the only pursuit that I know of where the less you do, the more you get.

Here’s to the celebrations of previously doing nothing when the world wanted you to act, and hindsight proves that it would have been the wrong thing to do. Onwards to the next one.

📰 Articles & Blogs

Don't Call It Financial Planning [4 minutes]. Identify the primary jobs your clients want to get done.

Lessons from the 2021 Berkshire Letter [4 minutes]. More timeless wisdom.

Becoming a better listener - 5 steps financial planners can take [4 minutes]. You can practice in your very next conversation.

10 Things You Should Know About Bear Markets [5 minutes]. All the facts you'll need.

The Next 30 Years [10 minutes]. Reflections on retirement and planning.

Some Thoughts on Bear Markets [4 minutes]. Putting the recent decline in context.

How Advisors Can Close More Prospects In A 30-Minute Meeting [25 minutes]. More than anything, they want to know whether you can solve their problem.

🎧 Podcasts

Defining "Enough" And "Off The Balance Sheet" Conversations [105 minutes]. A great example of choosing to optimise for satisfaction rather than revenue.

Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor [187 minutes]. Drop everything and listen to this.

📚 Book Recommendations

Too Soon Old, Too Late Smart by Gordon Livingston. A great read for advisers and clients, this profound book of collected wisdoms and deceptively simple truths will encourage anyone to recognise the best in their life.

🖼️ Visuals

The Science of Nuclear Weapons

A Decade of Elon Musk's Tweets, Visualized

Visualizing Ukraine's Top Trading Partners and Products

🍿 Videos

Fundsmith Annual Shareholders' Meeting. Another 90 minutes of investment wisdom delivered by the straight talking Terry Smith and his trusted sidekick Julian Robins. Terry Smith is a category of one in the fund manager world, enjoy.