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WE LEARN EARLY ON whether we’re stronger, faster or have better hand-eye coordination than other kids. We might initially harbor dreams that we’ll get better. But after a while, it’s hard to ignore the mounting evidence of our athletic mediocrity.
If only life were always so simple.
I’ve heard parents say, “You don’t have to tell your kids that they aren’t good at something, because the world will do it for you.” That’s true—except there’s an additional step involved: Your kids have to listen. And they have to keep listening throughout their life.
I’m not quite sure when I fell in love with the idea of running marathons, but fall in love I did. For many years, running 26.2 miles was just something I daydreamed about. But then, in spring 1995, I was in Pittsburgh visiting my then-wife’s family and I went on a 10-mile run with my brother-in-law, who was training for the Pittsburgh Marathon.
That inspired me to start training for the following year’s Pittsburgh Marathon. As I recounted in a 1996 Wall Street Journal article (subscription required), I achieved my goal of finishing in under three hours—2:59:36, to be precise—and so emptied myself that I ended up in the medical tent.
I trained for another five marathons. Two got derailed by injuries, but I ran the other three and my times were respectable. But on each occasion, it was the same excruciating experience. I’d hit the wall around mile 20 and spend the final six miles staggering through hell.
Failing to hear. My body was telling me that the full marathon wasn’t my distance. In fact, it was screaming that truth at the top of its voice. I just wasn’t listening. It took me half-a-dozen years to realize that, while I might be a half-decent runner, the marathon simply wasn’t my distance. Indeed, I had a lot more success—and a lot more fun—running races that were half-marathons and shorter.
In an article in September, I mentioned that it can be fun occasionally to do things that we aren’t particularly good at. Still, that’s not how we should spend the bulk of our time. Instead, if we’re to have a happy life, we should devote most of our days to activities that we think are important, we find challenging, we’re passionate about—and which we think we’re good at.
But there’s that gnarly little word: think. What if we think we’re good at something—and we’re wrong?
Measurement could potentially save us from our overconfidence and allow us to get a better handle on how we stack up. In athletic endeavors, we quickly realize who’s faster, stronger and more skillful. But much of the time, it’s tricky or impossible to assess how we’re doing, and others won’t necessarily put us straight.
Two decades ago, I was approached at a party by a man who knew I was The Wall Street Journal’s personal finance columnist. He proceeded to tell me about a host of investments he owned and his various half-baked reasons for owning them. It was clear he was looking for validation rather than a critical assessment, so I just smiled, nodded my head and escaped the conversation as soon as I could. I later heard that he’d taken my silence as a full-throated endorsement of his investment genius.
Similarly, when I worked at Citigroup, a colleague came to the office one day dressed in an outfit that bore some resemblance to a sailor’s uniform. The outfit might have looked okay on a child, but it seemed absurd for a grown woman. The entire office was talking about it—and, yes, I realize that men typically aren’t subject to the same sartorial commentary. Still, the outfit was truly awful. Did anybody tell the poor woman? Of course not. Instead, when folks ran into her, they couldn’t help but stare, and then—to cover up their staring—would blurt out, “I love your outfit.”
Struggling to measure. Do you have terrible dress sense? It’s hard to know for sure, though I’ve noticed the standard HumbleDollar office attire of shorts, ratty T-shirt and old sneakers tends to elicit pained looks from across the breakfast table. In fact, there are numerous areas of our life where we may never know how good or bad we really are.
For instance, at the office, we might rub folks the wrong way, and yet not realize it. We might have a reputation for failing to pull our weight or for making mistakes, and yet have no clue. Instead, we might spend our careers befuddled by the promotions we never got and the pay raises that didn’t happen, never grasping why—unless we ask colleagues or supervisors for their brutally honest assessment. And, let’s face it, while we might say we want honest feedback, most of us really don’t—and those we know, whether out of kindness or lack of courage, probably won’t give it to us.
Meanwhile, even if we’d like to know the truth about our real-estate dealings and our investments, it’s hard to gauge how we’re really doing. Yes, we might have sold our home for more than we paid. But what about the costs to buy and sell, as well as all the expenses incurred along the way, including maintenance, repairs, remodeling, mortgage interest, homeowner’s insurance and property taxes?
If folks have attempted to account for all of this in an elaborate spreadsheet, I might—with an emphasis on “might”—believe they have a decent handle on how they’ve fared with homeownership. But failing that, my response to their boasts will be to smile noncommittally and assume they’ve cooked up some story to bolster their fragile ego.
Ditto for investing. It’s extraordinarily hard to accurately assess how we’ve done with our investments, especially once we account for buys and sells, savings added to the portfolio and money withdrawn, and the risk taken.
Still, I think it’s worth trying. You might keep an eye on one of Vanguard Group’s target-date or LifeStrategy funds and use its performance as a benchmark against which to measure your portfolio’s performance. And if your favored financial company calculates your portfolio’s dollar-weighted return, perhaps labeling it your “personal rate of return,” and you can compare that to a similarly allocated target-date or LifeStrategy fund, that’s even better.
What if the comparison proves unflattering? The temptation is to explain it away, rather than changing behavior. But think back to elementary school, when you were left far behind by the other kids when sprinting across the gymnasium floor, and it dawned on you that you were no latter-day Jesse Owens. When it comes to your portfolio, your career and other aspects of your life, you want to be that kid you once were—and listen to the message the world is sending.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.
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Painfully true, thanks.
I´m reminded of a Seinfeld episode where George’s girlfriend gets a nose job. She takes off the bandages and:
Elaine (wincing): It looks good.
Jerry: Great job.
Kramer: You got butchered.
It would be nice to have a Kramer around who could always be counted on for an honest opinion.
To accurately assess my investment portfolio, I created my own fund way back in 1989. I track it weekly. I initially took my balance and divided it by $10 to give me the number of shares. When I add or withdraw money, I divide that amount by the current balance to calculate the number of shares to add or subtract. Each week I divide my total portfolio balance by the current number of shares and I get my net asset value (NAV). It’s worked like a charm for for many years, I know exactly what my actual returns are. Of course, I actually like doing this!
This article reminds me of the concept of satisficing. From Wikipedia: (Herbert A.) Simon used satisficing to explain the behavior of decision makers under circumstances in which an optimal solution cannot be determined.
Good article and a couple of comments:
Golf…a good walk spoiled. Mark Twain
Two tools that have helped me: Schwab has a portfolio performance tool that factors out deposits and withdrawals to give a personal (and comparative) rate of return for any time period. Microsoft money has a “my index” RoR that can be compared to various indexes, although I am unaware of how it’s calculated (market capitalization or even weighting, total return or stock price, etc)
On the other hand, I find it almost impossible to get meaningful personal feedback on my investments!
Thanks for pointing me to the Schwab portfolio performance tool. Humbling though…
I agree with most of what you say with a couple of caveats.
While it is very important to have a realistic understanding of our abilities I think enjoyment of recreational activities are far more important than being successful at them (assuming you are talking about success compared to others). For example, consider someone who is talented at golf but gets more enjoyment running marathons even though their personal best is six hours.
At the risk of being considered boastful, our adventures in NYC real estate began with the purchase of a small loft in Soho for $110,000 in 1986 and ended with the sale of a mortgage free Brooklyn brownstone in 2019 for $3.55 million. Neither purchase was made with a eye toward making a profit but real estate has turned out very well for us.
Location, location, location… My parents bought a house for $8,000 dollars and 49 years later sold it for $55,000. It was not in a location that generated your kind of returns, but it was a great place to live and raise a family.
Jonathan – Congratulations on a sub 3hr marathon! That’s a real achievement. I likewise got into marathon running 30 years ago but under 4 hrs was always my goal. Enjoyed it immensely but nowadays it’s swimming for me. Thanks for all the humble financial education over the years, I have benefitted greatly as have others!
Thanks for sharing. One of the most important aspects to your storyis that based on feedback you re-calibrated what you were doing, i.e. moving from full to half marathons. Adjusting and re-calibrating is important in life in many areas – athletics, investments, personal relationships and the list goes on. Thinking honestly about the feedback you receive and making adjustments will not only usually yield a better outcome but also a happier, less stressful life.
Two comments:
“Do you have terrible dress sense? It’s hard to know for sure, though I’ve noticed the standard HumbleDollar office attire of shorts, ratty T-shirt….”
Well, do you want to be the Millionaire Next Door or not? If you do, then you have to wear the uniform.
“Yes, we might have sold our home for more than we paid. But what about the costs to buy and sell, as well as all the expenses incurred along the way, including maintenance, repairs, remodeling, mortgage interest, homeowner’s insurance and property taxes?”
You did have the usufruct of the house. If your going to add in those costs, then you have to subtract out the cost of an equivalent rental property that you didn’t have to rent in order to make your calculation accurate.
Yes, the imputed rent is typically the most valuable part of a home’s “investment” return. But I’ve yet to hear anybody boast about his or her home’s imputed rent!
Zillow.com has a “Rent Zestimate” they display which shows a guess of what the rent on that property would be. / I first heard the word “imputed” when I won a company trip and got a 1099 showing the tax I owed. It was the most expensive free trip I ever had.
As a fellow longtime and now broken down runner, your article resonated, Jonathan. Both in athletics, investing and life, it’s hard to truly hear and accept the signs we’d prefer were otherwise. But therein lies humility and wisdom.
Henry B.
Your article is moving. My mom heaped over the top praise on me. I assumed that I would excel at everything that interested me. I would accomplish this excellence while being handsome beyond all reason.
I dismissed the 1st cretins who provided critical feedback.
Eventually, life taught me the painful lessons that I needed to learn. Those weren’t stares of admiration; I was just overdue for a haircut. I did well in some areas, I was poor in others.
As a feedback provider I haven’t heaped false praise on anyone. On rare occasion I have provided critical feedback to a select few. More often I leave it for someone else to crush their misconceptions (and be dismissed as a cretin).
I disagree on one point. A grown woman in a sailor suit would probably get a marriage proposal from me.
This is one of the most entertaining comments I’ve read on HD! I always hated the pre-work for a performance review where you are asked to rate your own performance. I guess I hate being honest with myself.
Jonathan, thanks for the excellent article. Early in my career some of the more experienced engineers stressed to me the importance of knowing the difference between precision and accuracy. I had a great manager and mentors who could look at a very precise analytical result and tell whether it was close to the actual result. They were great at back of the envelope calculations, and at questioning results that seemed off. It was a great lesson that I took to heart and try to maintain.
I always liked this quote from Warren Buffett. “It is better to be approximately right than precisely wrong.”
Feedback is important in life and sports. Moreover, we need to be receptive to the feedback and learn from it. Sports give immediate feedback but many other aspects of life do not quickly give feedback. The important thing is to seek feedback and be receptive to the feedback and learn from it to get better.
Jonathan’s benchmarking of our investments is a good example.
I up-voted your comment. You got feedback!!
So true, so true.
I couldn’t climb ropes in gym, I couldn’t hit a baseball, my early efforts at investing were a disaster, I got turned down for a date to the prom.
My education beyond high school was useless. I was very bad at office politics, my math skills are mediocre.
During my working years I would occasionally look at my high school year book and read what I had written – crazy goals of a 17 year old. I still found them valid and they have been achieved.
My only claim of success is never giving up. The rest is good fortune.
I ran into a guy several years ago at a Berkshire Hathaway meeting and he mentioned he had attended annual meetings in the 1970s back when they were held in the National Indemnity breakroom. He confessed he was truly impressed with Buffett, but only put half of his net worth in Berkshire stock. I don’t know what the amount was but even $10,000 would have turned into millions. It was the correct, cautious approach and things worked out well for him, but I think he had that lingering “if I’d only put all my money in Berkshire” feeling.
This is from an old insurance company advertisement. Jonathan’s good article reminded me of it.
A Legend
One night in ancient times, three horsemen were riding across a desert. As they crossed the dry bed of a river, out of the darkness a voice called, “Halt!”
They obeyed. The voice then told them to dismount, pick up a handful of pebbles, put the pebbles in their pocket and remount.
The voice then said, “You have done as I commanded. Tomorrow at sunup you will be both glad and sorry.” Mystified, the horsemen rode on.
When the sun rose, they reached into their pockets and found that a miracle had happened. The pebbles had been transformed into diamonds, rubies, and other precious stones. They remembered the warning. They were both glad and sorry – glad they had taken some, and sorry they had not taken more.
And this is the story of Insurance
Years ago a coworker suggested I invest in a company that her husband was hot on as the founder had just returned to the helm. I demurred as I told her I was a mutual fund investor in order to reduce my risk. Oh yeah, that founder was Steve Jobs and he had just returned to Apple.🤷♂️
Lol, I invested in that company years ago (perhaps we had the same coworker). My core holdings are index funds, but my greatest return has been the individual stock pick…apple. As Sanlouiskid mentioned, I only wish I’d taken more.
What if it’s the opposite? What if you are, coincidentally to the title, humble? What if you get amazing feedback and a high salary and are always somewhat amazed. Many others seem to think you’re very good at your job or at sports or investing, but you think it’s just a matter of time before you’re found out, despite the objective success. While overconfidence is definitely a thing, the opposite is definitely a thing too. Just a better thing with better results.
I hear you. Fortunately being humble (and introverted) worked out OK for me in my profession and I managed to do quite well. Not to say that it wasn’t always easy dealing at times with self-doubt. Fortunately, any feelings of self doubt were more motivating that paralyzing. Interestingly now that I am retired and financially secure, I still have recurring dreams of losing my job or not getting hired for a job and being out financially. Just the way I am wired.
”But you think it’s just a matter of time before you’re found out”…that’s called Imposter Syndrome