The Alchemist’s Dilemma II

Despite its attraction, becoming rich by turning lead into gold is a flawed idea. Answer the question “If I succeed, then what?” If something scarce becomes common, its price falls. The price of lead and gold would become nearly identical. Lead might even be worth more.

If your goal is to become rich with alchemy, then if you succeed, you will fail.

Few people today view transmutation of base metals to be worthy of study. Nonetheless, the alchemist’s dilemma still exists. Something that is common cannot have value. Yet some believe that information and knowledge are values. Some promote their superior knowledge. Knowledge can have value as long as not many people know. Knowledge has value only when it is scarce, not necessarily when it is true.

Suppose everyone knew the stock market would go up every Monday. People would have cash on Monday morning and buy. Once everyone knows that, it will stop working. The early adapters will start buying on Friday and selling on Monday. Anything everyone knows is not worth knowing, unless you can take advantage of what everyone “knows.”

In the long run, what everyone knows cannot remain true. People will work the system to neutralize the knowledge.

What people need today is not knowledge or information. What people need today is meaning. As a professional adviser, do you tell people facts or do you tell them what the facts mean in the context of their goals?

Since facts are a given in the marketplace today, meaning will become a marketable advantage.

But, it has a price.

  • You will need to know the client’s goals and often they don’t know what they are, should be or could be. Education to do there.
  • The client’s time frames are too short, and thus their risk tolerance is much less than they or you thought.
  • Be careful of expressing a hard number for expected yield. Once they express their goal of earning 6%, that becomes a fact emotionally. What you will see is not misstated risk tolerance. It is their inability to tolerate disappointment. It can help if you deal, in the short term, with a range of outcome rather than average returns.
  • It is difficult to assess what the available information means. Some is easy to dismiss as not relevant to the client, other information is relevant and has multiple possible outcomes. Maybe you should wait for more clarity. A friend of my father’s once told me that you don’t necessarily want to be first. “A pioneer is a guy with an arrow in his belly.”

Best advice. Keep in touch with your clients and ask them to keep in touch with you. Share what you know and explain how it fits with their plan. Together you can travel through the time tunnel to the future.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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