Think Rightly
- Created on Sunday, 05 October 2014 19:00
By Jim Whiddon
Today I’d like to take a look at some important concepts contained within Daniel Pink’s bestselling book, A Whole New Mind. His focus on the ascendance of right-brain thinking fits squarely into our continuing conversation about ways to best train our youth to meet the financial, educational and career challenges facing the Millennial generation. My goal is to help students, and their parents, better understand how to prepare for the ever shifting economic landscape.
As I mentioned in our recent discussion of Geoffery Colvin’s Talent is Overrated, one key to success in the Information Age is to avoid the commoditization of your expertise and skills. This may be the greatest career challenge our children face because Big Data may soon end up replacing many jobs with algorithms. According to Pink, developing the right side of the brain is a key component for success in the 21st century. Considering this, let me ask you a question:
Of these four general areas of study, which one is the most important for a student to master in order to provide the greatest opportunity for significant career achievement?
- History
- English
- Science
- Math
The obvious answer – based on the emphasis currently dominant throughout academia – is certainly either science or math. But the correct answer is unquestionably English. Whywould this be the case?
First of all, we must realize that college is only a start in the education process. Remember what Colvin taught us? It takes 10,000 hours, or ten years, to become an expert in any field. The ability to analyze arguments, and formulate your own, is the skill most valuable in any field of endeavor. This skillset is frequently best learned in the English and literature (liberal arts) learning experience. These subjects provide a broader perspective. That, in turn, allows doctors to be healers instead of mere technicians, professors to be mentors instead of just lecturers, and engineers to build interpersonal bridges, not just those for automobiles.
Secondly, if you can speak and write, you can do anything. Science and math are clearly indispensable skills, and they’re needed for our overall economy to function. But individuals with proficiency in the spoken word and written language typically direct the engineers and scientists in their work. From the standpoint of the sheer number of career opportunities, English and the humanities are the trump card. The good news is that, with a little work, you can be balanced and have both left-brain and right-brain skills.
Pink notes that according to the latest research, IQ accounts for only 4 to 10 percent of career success. In addition, he explains that good leaders are not only organized and disciplined (left-brain), but they tend to be funny. Yes, funny. He writes: “The most effective leaders had their charges laughing three times more often than their managerial counterparts.” Humor is heavily dependent on the right-brain.
Furthermore, leaders are great storytellers. Much of our experience, knowledge and the way we think is organized via story. This is how we remember things, because technology today makes facts so widely available and instantly accessible that each one becomes less valuable to retain. Context is what really matters. Stories provide context. And where are stories best told and interpreted? In English Lit class, and by reading good books on your own. English class is a good start, but a life-long dedication to reading is really the key to success.
Readers are leaders. It’s said of Winston Churchill that he read so much, he “became his own university.” Abraham Lincoln read every book he could buy or borrow. And the perhaps the most famous historical figure, at least in terms of voracious reading, was president Theodore Roosevelt, who averaged reading one book per day.
My own reading pales in comparison, but I have taken the time to chart my progress over the last five years by hanging a chart on my office wall. It contains the books (well, their covers) that I have read. So far I’m at 394 and counting.
A final reason that an emphasis on right-brain instruction is just as important as left-brain comes from research by Nicholas Negroponte of MIT. Pink cites Negroponte, who writes:
“Perspective is more important than IQ. The ability to make big leaps of thought is a common denominator among originators of breakthrough ideas. Usually this ability resides in people with very wide backgrounds, multidisciplinary minds, and a broad spectrum of experiences.”
So you see, like great portfolios, great minds are most often distinguished by diversification. But in this case, diversification comes in the form of a broad-based bed of knowledge in areas outside of your field of study or expertise, in addition to knowledge from inside it.
Our brains – both the left side and the right – have extraordinary capacities. Just make sure your children develop, and continually nurture, both halves. Doing so will allow them to become the most they can be.
Copyright © 2014, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.
Talking Dollars Makes Sense
- Created on Sunday, 28 September 2014 19:00
By Carl Richards
It's not easy having conversations about money. Carl Richards, director of investor education for the BAM ALLIANCE, says they can "leave us feeling confused, misunderstood, and even angry." That doesn't mean you are better off not having these talks. In his book, "The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money," Carl writes about the value that can come from having honest, clear conversations about your important financial decisions.
When someone says, "It's only money," they're usually wrong. Our feelings about money run deep, and they are often very complicated - and sometimes quite confusing. No wonder things can get pretty intense when the subject of money comes up. It breaks up marriages, families, friendships, communities - even countries.
Money conversations are also complicated by the fact that few people know much about personal finance or investing. Choosing a mortgage or even a credit card is a complex process these days - few of us are really qualified to decide between the products out there. The same goes for investments.
It's all pretty daunting, and we have a natural tendency to avoid things we don't understand. We are wired to either fly or fight in confusing situations. So we avoid the topic of money - or we fight about it.
Money is too important a topic to avoid - and fighting doesn't help. We need to develop a deeper understanding of what we talk about when we talk about money. And we need simpler language. We need to develop more straightforward ways of representing concepts and principles so that we can understand each other when we do have these conversations.
There is a growing recognition that great conversations about money are really great conversations about life. This recognition includes acknowledging that the traditional approach of the financial services industries can lead to poor decision-making. Saving, budgeting, investing, tax planning, insurance, and estate planning should be related to the larger context of your life, your goals, and your values.
I believe one of the most important things I can do when faced with a financial decision is to talk to someone I trust: a friend, a family member, or a paid professional.
Start talking to people you trust about questions that matter to you.
What role does money play in your life? What needs to happen in the next few years for you to feel like you are making good progress? What money mistakes have you made in the past that you want to avoid in the future?
Too many of our financial conversations are about finding the best investment or best life insurance.
Try to talk about what matters to you.
- Excerpts from Carl Richards' book, The Behavior Gap.
Overview of Mortgage Backed Securities
- Created on Sunday, 21 September 2014 19:00
Q: What are mortgage-backed securities?
A: Investors of mortgage-backed securities (MBS) own an undivided interest in a pool of mortgages that serves as the underlying asset for the security, and these investors then receive a share of the resulting cash flows. A nationwide network of lenders — such as mortgage bankers, savings-and-loan associations and commercial banks — originates the loans backing the MBS. These lenders submit groups of similar mortgage loans to an issuer for securitization. The issuer converts the loans — or securitizes them — into tradable MBS instruments, which the dealers then sell to institutional and individual investors. The vast majority are issued by Ginnie Mae, Fannie Mae and Freddie Mac.
The presence of risk: Ginnie Mae obligations are backed by the full faith and credit of the U.S. government. Fannie Mae and Freddie Mac have an implied backing, but the market perceives it as an implicit backing given the government’s intervention in 2008 and its continued support. Both interest rate risk and duration risk remain in MBS instruments. U.S government bonds have “positive convexity” — if interest rates rise, bond prices fall, and vice versa. MBS do not experience positive convexity. Instead, the expected maturity of an MBS heavily depends on the level of interest rates.
Example of an MBS at work: Assume an investor purchases a newly issued Ginnie Mae MBS with a coupon of 7 percent and an average duration of seven years (which assumes some underlying mortgages will prepay sooner and some will last longer, depending on how interest rates behave). Next, assume a Treasury bond with seven years left to maturity is yielding 6.5 percent. The MBS investor is thus receiving a risk premium of a half percent. If interest rates fall 1 percent, the average expected life of the 7 percent Ginnie Mae can be expected to shorten, as principal repayments unexpectedly accelerate. This happens as other investors take advantage of lower rates to purchase new homes or refinance existing loans. Now, let’s say rates increase to 9 percent. While the prices of both are expected to fall, the price of the Ginnie Mae is expected to fall even further. The Treasury bond’s maturity is the same, but the expected maturity of the Ginnie Mae increases because higher mortgage rates tend to cause investors to postpone purchasing new homes or refinancing. The longer the maturity, the greater the price volatility for any changes in interest rate levels, so an increase in expected maturity adds risk. The only way MBS investors actually collect the expected risk premium is if rates stay within a relatively narrow band. Otherwise, when rates change, they are holding an investment whose duration is lengthening or shortening, respectively, at the wrong time. This effectively results in a “double whammy” to an overall portfolio. Just when investors need fixed income assets to protect their portfolio, the MBS is falling in value and becoming more risky as its maturity lengthens.
Bottom line: Considering the price, reinvestment risks and correlation to equities, MBS instruments are not preferred options for building a portfolio.
Copyright © 2014, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.