Matt Hall of Hill Investment Group has an interesting story to tell. He tells it well in his new book Odds On: The Making of an Evidence-Based Investor. Most investment books, mine included, take a more left-brain approach to exploring investment theory. In contrast Hall uses his personal narrative to make the case for following a low cost, index-centric approach to investing.
Not only does this kind of approach make sense given the voluminous academic research on the topic. But you can see in this excerpt from the book how it can literally change people’s lives for the better by freeing up time (and attention) they previously spent on investing and can focus on their lives. Matt was kind enough to answer some questions I had after reading his book. Below you can see my questions in bold and Matt’s unedited answers to follow.
AR: I am also a fan of Larry Swedroe who is a key “character” in the book. Any lessons learned from him that didn’t make the final draft?
MH: Ahh Larry. He is an incredible person, and I’m grateful to have had my life altered because of his first book and especially thankful for having had the opportunity to learn directly from him. What didn’t make the book is that he has a big heart. He can be combative and sometimes may unintentionally belittle a person he’s trying to help, but he has wonderful intentions. Larry once shared with me the vision of his ideal day, and it didn’t include him being in an office. I remember it starting with him writing in the morning, and then heading outside to read in his hammock, with Molly -his late dog- by his side. We play tennis together from time to time and I get a kick out of his style. He’s a hustler. Comes to the court telling you about his injuries and ailments, only to run like a jackrabbit for the next 2 hours. There is no one else quite like the Swedman (his nickname).
AR: A number of your mentors did not start off in the investment business. Do you see value in having some life/professional experience before getting into investment management?
MH: First, I must admit that I’m an annoyingly curious person and have become good at getting the “why” out of people, no matter whether their background is connected to our industry or not. What’s more, I believe that the curse of knowledge discussed in the Heath brothers’ book Made to Stick is alive and well. The curse means that people overestimate their ability to teach someone else what they already know. Those who know a subject deeply may sometimes fail to remember what it was like to have less knowledge on the subject. So to answer the original question, yes, I absolutely see value in having experiences beyond the investment world before getting into it. It’s my belief that this makes you much more sensitive to the beginner’s mindset and therefore helps you communicate more clearly.
AR: Along those same lines what is your advice to a recent college graduate who feels compelled, like you were, to enter the investment industry?
MH: I love our industry and am humiliated by it (the selfishness and bad behavior) simultaneously. My guidance would be similar to what is in the book. My dad suggested that I not worry about money, but get in the business and assess through experience. Being humble, hungry and curious have been keys to my success. To be exceptional in our industry requires a rare combination of technical and psychological talents, not to mention luck. I’ve been very lucky to be surrounded by brilliant people who were also generous with sharing their own experiences to make me better. Get in this business, get lucky, find good mentors, work hard, ask questions, be someone others can count on, and care more about serving others than you do yourself and the rest will fall into place.
AR: This post forcefully argues that 99% of people should follow an index-centric approach. What are the biggest hurdles standing in their way?
MH: Short answer: boredom. Indexing is a snooze fest. It’s not the shiny object in the room. It wins most of the time, but it does so in a painful fashion. Other options are far more exciting. I would argue that investors should seek excitement in other areas of life.
I’d like to add that while I love the post in the question, I don’t necessarily agree that it’s this simple, nor that the number is that big, but do like the point. My view is that there is good, better and best. Indexing is good. Keep going beyond basic indexing. Readers of Odds On will see that I believe there is a lot of room to extend beyond indexing.
AR: I wrote in my book “Our investments are there to serve our goals, not the other way around. What matters are the opportunities that those investments ultimately provide us to live richer, more fulfilling lives.” You tell some compelling stories about clients who literally changed their lives for the better. Any thoughts on how to accomplish this?
MH: Yes, start talking about money now. Many people I meet are afraid to put money in a less powerful role because they are afraid to talk about it. Their parents didn’t discuss money. They don’t even know how they’ve modeled what money means to them with their own kids. The worst approach is to just keep avoiding the subject. Bring it out in the open, talk about it, put money in the proper place. Can you tell by this answer that a psychotherapist is a good friend of my firm?
AR: Do “funny money” accounts ever work out? That is, accounts that clients trade in at-will. Provided they keep the bulk of their assets in evidence-based portfolios.
MH: They don’t last. In my experience play accounts never work out because the client sees how pointless it is. Have fun or “play” in other areas of life. This is a dangerous and tempting area to speculate. (The richer life we spoke of earlier can’t really mean wasting time, energy and money. It is often best if folks come to this conclusion on their own.)
AR: It is common advice to tell investors to have a personal “investment policy statement.” Before you can do that you need an “investment philosophy.” Why do you think this is so rare in the investment world?
MH: The main reason is that we’re busy humans. We don’t make time for philosophy. We do stuff and don’t contemplate the big questions as much as I think people used to. I’ve heard Michael Lewis give a talk a few times and he tells the story of how he had no approach to investing, only the legacy of where his dad and Granddad went for investment advice. When he got money he didn’t consider an approach, he just went to the broker (I’ll leave the firm unnamed but he didn’t) because that’s what Lewis men did. It was tradition. Familiarity is comfortable and I think a lot of investors go where they go without much thought, and it’s only when there is pain/loss that one considers the alternatives or a philosophy.
AR: There is a great deal of debate about the continued shift toward indexing in the markets. Are you at all concerned that indexing could eventually become deleterious to market efficiency?
MH: I get this question a lot and used to ask it myself. I would be concerned if it was a real possibility, but it isn’t. There is enough room in the world for lots of different perspectives and I’m delighted that the world seems to be coming around to an evidence-based approach. That said, it won’t ever be the only way. Steve Wynn will never run out of gamblers, even if they all know the math going in. We all think we’re special.
AR: Your health scare forced you to give up on the idea of certainty. The recognition that luck plays a big role in the markets, and our lives, is key. How can we all become more at-ease with the fact that we do not have control over our lives?
MH: I learned so much from having a major health scare at 32 and I shared it in the book because it has so many lessons baked into it. How would I deal with trauma? What does the math say my chances are? What if the odds don’t work out for me? The paradox is that the more questions I had the more I needed calm direction. Two brilliant doctors helped me and then unintentionally made me different in how I wanted to work with clients. It was an epiphany for me. I have a real appreciation for time, experiences, and relationships now that is better than it was before my struggles. The bottom line is that I think perspective and flexibility (we say soft knees in our office) are keys to managing difficult/unlucky periods.