Why do we wait for the day we get a health scare like a heart attack or cancer before we decide to change our lifestyle? Why do we push to the point of burnout before we scale back a bit? Why do we wait until our 60th birthday before we decide to start planning for retirement?
When the oil magnate John D Rockefeller’s doctor was asked to comment on how he lived to the age of 97 he revealed a skill many of us can envy: “[he] gets up from the table while still a little hungry”.
There is more than one reason why we don’t act. The procrastination tendency is one for sure. What are the reasons we procrastinate? Might it be because we do not know when an event will happen?
If you knew without doubt that the next unhealthy meal would be the last before a heart attack struck, would you consume it? If an F1 driver knows that if he keeps on pushing, his tyres will fail and he will be out of the race during the next lap, will he keep on pushing? If we know that markets will come crashing down after a big rally, would we leverage up and buy more?
Incrementalism is a philosophy we should all have as part of our arsenal.
Deep down inside I would desperately like to think that all of us would answer a resounding “no” to the questions posed, I am not sure that will always be the case.
Even if we know something will happen, if we have not experienced it before, even if we have read it, it is the exceptional self-disciplined that will act rather than react and reach for more.
Another reason why we do not act when it is so clear we need to, doesn’t come down to, “I just didn’t have time to get to it today.” It simply comes down to priorities.
In essence, what you are saying when you are “so busy, that I just do not have the time,” is “this is not a priority at this point of my day or life, I will get to it later when it is”. But, alas, we rarely do.
If we redefine the consequences of not prioritising, we might be able to change the way we think about the future and hopefully aid us in our decision-making process of when to act.
Grant Statham is an avalanche forecaster at Parks Canada. His title is descriptive in that his job is to try to predict when, and the severity of, avalanches in the park. Statham has a definition of risk that is worth contemplating. He describes risk as “the likelihood of something happening times the consequence of that event”. He goes on to ask, “Are you skiing a large, open slope or a short, narrow one? Are you skiing in the trees or out in the open? How exposed are you if an avalanche occurs?”
What are the avalanches you or your clients should heed more attention to?
Will the avalanche of having no life insurance cause a family to be in enormous financial difficulty if it does happen? Small likelihood on any given day, but large consequence.
Will you be in trouble at age 60 if you have not spent any time, up until then, on planning for the future? High likelihood, large consequence.
Will your investment portfolio suffer destructive consequences if it is well diversified, and another Enron or Steinhoff event happens? Low likelihood, low consequence.
One of the world organisations (not named here out of the respect of the great work they do we), has a “top priority list” of more than 100 priorities it aims to focus on. Having 100 focus points is not a priority list, it is not even a shopping list, it is more like a wish list.
What if we started to focus, but really focus our priorities when it comes to dealing with clients?
What if we focus a particular year on just making sure the family will be looked after if something happens with the primary breadwinner? A laser focus. Will the probability that this task is completed at the end of the year increase or decrease?
What if we make sure, this year, that our primary focus is on making sure that the asset allocation of our investments reflects our objective and ability to tolerate volatility? If that is our primary focus, how likely is it to be “sorted” at the end of the year?
Incrementalism is a philosophy we should all have as part of our arsenal.
The basis of incrementalism is to improve, even if it is only by a small measure, during a particular period, and that this small improvement will lead to big changes over time. What would your outcome be if you could increase returns, through cost savings or a better return, by something small as 5bps a year, that is 0.05%?
If you invest R100 at 8% per year for 40 years, your investment would be worth R2 172.45 at the end of the period. If, however, you earned 8% in the first year, 8.05% in the second, 8.1% in the third, etc, your investment would be worth R3 110.51 at the end of the investment horizon. A 43% higher outcome by improving net returns by a minute 5bps each year. (Given, nothing goes up in a straight line, except Bernie Madoff’s fund, this is however to prove a point.)
The five-basis point analogy is not restricted to investments and can be applied to various aspects of life. If you sharpen your focus, concentrate on the top priority for today perhaps even this year, you will not need a crisis before starting to improve. Even if it is only 0.05% this year.
