One_best_-_freeThink Spending™ is dedicated to helping you see things a little more clearly when it comes to your money.

The focal point of our process is the Household Balance Sheet™ which is a simple two page document that allows you to visualize your financial picture in the context of the picture on the right.

Investing doesn't have to be complicated.

In fact, once we've determined together what your goals and dreams are, allocating your resources to meet those goals is relatively easy.

How to Carve an Elephant

Michelangelo was once asked how he would carve (sculpt) an elephant.  He replied "I would take a
large piece of stone and take away everything that was not the elephant." Bernini.elephant.1

How can we apply this to our decision-making process?

In our relationships: There is little dispute that the majority of things we fight about are not the real issue.  Once one thing ticks us off, a bunch of other little things are more than happy to jump on the dogpile.

In a perfect world, two things would happen.  

First, we'd find a way to gently ask our mate "Is that the elephant?"

Second, before we blurt out something we're likely to regret, we'd ask ourselves the same question and avoid adding fuel to a fire we're trying to put out.

It seems blindingly simple to at least do the latter.

In business: Whether we are part of a team working on a project, a salesperson, a customer service rep, an executive, or a waiter in a restaurant, differences arise largely based on assumptions.  Someone says (or doesn't say) something and we make assumptions that lead to conflict.

How many of these assumptions would simply go away if we could just quickly ask ourselves, our customers, colleagues,  co-workers, and even our competitors "Is that the elephant?"

For your portfolio: It is imperative to understand that what qualifies as news these days, be it the weather, economics, politics, or market forecasts, is really just opinions.  If you're a journalist or commentator these days, you don't make money by agreeing with everyone and being bland.  The money is made in taking a stance, right or wrong, and building a following.

Too often, we are inundated with so much information regarding politics, economics, and markets, that we have no idea what we should do, only the feeling that we should be doing something.

Confidence in a plotted course is blurred by a tsunami of stuff that is, in fact, "not the elephant".

Remember this: "Elephant rhymes with relevant"


What Stories Do You Like to Tell?

Yesterday, the S&P 500 closed at a new all-time high of 1569.19.  That's awesome if you're looking at the short term.  What about the long term?  The ten-year annualized return for the S&P, as of yesterday, was 3.2% per year.  Hardly anything to write home about.  Right?  Trouble is that we are all subject to confirmation bias.  The non-technical, short-version definition of confirmation bias is that "we look for evidence to prove we're a genius, even if we're not".

Here is a very timely guest post from my friend, Carl Richards at describing how this works:


"What Stories Do You Like to Tell?"DriveAPrius

"We love to tell ourselves stories. And when it comes to money, we’ve gotten really good at it. Those stories then lead us to do things that we wish, in hindsight, we hadn't.You know the stories. You may have even told them to yourself a time or two. You know when you hear them that somebody (maybe even you) is about to do something dumb with his or her money.Things like:
  • I just can’t take it anymore. I’m going to sit out of the market until things settle down.
  • It’s a perfect opportunity. I need to get in while I still can.
  • Look at what the market’s doing. I can’t afford to do nothing.
When we get into storytelling mode, we often fall into the trap of confirmation bias. We start “discovering” all the reasons why we must be right and ignore the things that show we might be wrong.For instance, when you’ve taken the time to build a solid financial plan, you’ve probably added a rebalancing trigger. Let’s pretend that stocks shoot up and your portfolio’s overall value is suddenly 80 percent stocks.Now your plan calls for a 70/30 split between stocks and bonds. Because you’ve included rebalancing in your plan, you already know what to do---sell off some stocks and buy more bonds. But then you decide to tell a story.You take a look at the news. You take a look at your portfolio balance. Then you say, “Look at what the market’s doing. I don’t need to rebalance.” And just like that you’ve told a story that in hindsight is going to make you wish you’d stuck with your plan. It will be particularly painful if it reaches a point where you decide it’s time to tell another story: “I just can’t take it anymore.”And that’s the point. Once we start telling stories, it can be really hard to break the cycle. Then the longer it takes to break the cycle, the more mistakes we’re likely to make and the more we’ll have to regret. So while I love a good story as much as the next person, maybe we can’t afford to keep telling stories that distract us from our plans."



Political "Fact Checking" and Adviser Checklists

HSVIs there such a thing as an unbiased source of information these days?  I'm going out on a limb here but, I have my doubts.

As voters are bombarded by political ads where the source is somewhat obscure, many may turn to so-called fact-checking websites such as Politifact,, or the Washington Post Fact Checker.  While these sites, in all fairness, may try to maintain a certain level of integrity and objectivity, the source of their funding or their reader base may (read "does") have some impact, maybe not on what conclusions they draw so much as what facts they even choose to check in the first place.  Don't bite the hand that feeds you (too hard)

We are all human beings and, as such, subject, consciously or unconsciously to our own bias and opinions.

Switching gears now to the second topic - advisor checklists, there is an endless array of posts out there "7 Questions to Ask Your Financial Advisor",  "10 Things Investors Should Know", etc.

Now, think about it for a minute.  Where do these lists come from?  

If they are from an adviser, wouldn't it make sense for him or her to publish a list of questions they feel that they are better prepared than anyone else to answer.

If it's in a magazine or newspaper, who are the main advertisers?  How is their bread getting buttered?

That "adviser checklist" probably shouldn't be counted on as a definitive guide to choosing an adviser.  If I were to publish one here, it'd be a definitive guide to picking me.  It'd be about as objective as a home-schooled, only child being crowned valedictorian.  

Why do we procrastinate?

Why is it so difficult sometimes to take action?

A lot of times, I find myself approaching Sunday morning when my weekly newsletter comes out and I haven't written a dang thing all week.

OverloadI can honestly say that it is almost never a case of writer's block but, usually a log jam of ideas that I haven't taken the time to sort thru and pick a couple good ones.

So, this week, it's happened again and I'm up against the deadline.  So, I decided to write about exactly that.

Even ten or twenty years ago, investors really had to dig to get any kind of information at all.  Today, there is such a flood of information that the challenge has become sorting thru and making sense of all of the noise.

We put off making important decisions today because of an abundance of information instead of the scarcity of it.

...or maybe we're just afraid of being wrong.


Three Bulls, Two Bears, and The "Cy-Hawk" Series.

Going back to the first game on October 1, 1894, Iowa has dominated the rivalry between the two schools, 39-20.  Over the last 15 years tho, Iowa State is up 8-7...almost an even match.

Since 1900, the stock market has averaged about 9.4%, an old idea that too many advisors are still holding onto.  Taking a look at the last 15 years however, we can see that thru 3 bull markets and two bear markets, if you drew a straight line from start to finish and annualize the return for the S&P 500, you'd end up with a pretty unimpressive 4%.

S&P Q2-2012
So, if we're talking football, it's definitely OK to "be true to your school and let her colors fly" (Beach Boys, 1963).  Investing, on the other hand, requires acknowledging that the game has potentially changed and maybe it's time to let go of outdated ideas and adjust your strategy.