The Kill Zone

The Kill Zone

January 27, 2021
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One of my all-time favorite phrases is, “you don’t know what you don’t know”. When directed at an individual, it is meant to highlight their overconfidence on a subject that they are actually quite ignorant about. When I look around at our world today I see many people who simply don’t know what they don’t know in every sphere of life. Anyone can fancy themselves an expert or commentator on any subject. I could go on and on about how this effects politics, business, family and faith but I would likely end up venturing into territory for which I am unequipped to speak on eloquently.

                The world of financial advice and retirement planning has been deeply impacted by this overconfidence and has led to a rise in investing hubris. Online brokerage firms have taken full advantage of this troubling trend and spent millions of dollars on advertising for their “zero fee trading” platforms (find out how well that has gone for Robinhood[i]). However, prideful overconfidence in investing is not a new phenomenon. There is, in fact, an entire industry of economic commentators and forecasters who are paid millions of dollars to spout their claims about the market. Yet, they are completely wrong more often than not.

                Financial advisors are not immune from this disease. There comes a certain point in an advisor’s career where they must be exceptionally careful not to equate experience and success to hard work and diligence. In aviation, they call this the “kill zone”[ii]. It is the range of total flight hours in which the majority of pilot fatalities occur. It is assumed that overconfidence in the pilot’s abilities at a certain level of experience is to blame. I do not care to estimate at what level of “total flight hours” a financial advisor is most at risk but I have observed that the range appears to be quite broad. In my own career, the events of the last year have been a stark reminder to stay vigilant and to never believe that I know everything whether consciously or unconsciously. Individual investors can also fall prey to the “kill zone” when they overestimate their investment knowledge and are enticed by the latest stock tip or investing app. Self-sabotage is perhaps a bigger threat than anything the market could ever throw at you.

                At this point you might be saying to yourself, “this all makes sense but how is a normal investor supposed to guard against overconfidence and keep it from derailing their retirement plan?” The answer is two-fold:

  • Know what you don’t know

It is a humbling first step, but it is necessary to first acknowledge where you lack knowledge. It is

important to note that admitting insufficient understanding is not a sign of stupidity. In fact, it is far to the contrary! Disclosing ineptitude with humility is a long forgotten skill set (and one that we desperately need to bring back!). When equipped with the knowledge of your lack thereof, taking advice and counsel should become much easier and help you to get out of your own way.

 

  • Seek out those willing to listen

 

An important aspect of any healthy relationship is listening to each other. Asking advice from

someone who clearly believes that they already know it all is not a recipe for success. When looking for financial advice, seek someone who is willing to listen. Look for advice from a professional who is knowledgeable, yet humble enough to admit what they don’t know and hungry to learn. Your relationship with your financial advisor should be a collaborative experience not a selling opportunity for the advisor. Working together is the only way to achieve success. The advisor’s mantra should not be the old-school ABC’s (Always Be Selling) but rather “Always be Learning”.

 

 

As always, thanks for taking the time to read my blog today! I enjoy writing it now just as much as I did almost a year ago if not more! Today’s song is my daughter’s current favorite (at least we think so. She is only 7 months old after all)

                                                                                Song

[i] https://www.sec.gov/news/press-release/2020-321

[ii] https://www.sciencedirect.com/science/article/abs/pii/S0001457513003242