“Consumer vs Investor Expectations”: Jonathan discusses Amazon’s focus on consumer expectations, Warren Buffett’s investment philosophy of benign neglect, and developments in global markets.
Good afternoon! This is Jonathan Satovsky of Satovsky Asset Management April 30th 2018 with a video blog update. And today I want to talk about several high profile business and financial leaders. Several weeks ago Amazon’s Jeff Bezos had put out his annual letter which was must read by anyone since he impacted all of our lives. One thing I like about customers, I’m going to read a little excerpt, one thing I like about customers is they’re divinely discontent. Their expectations are never static. They always go up. It’s human nature. We didn’t ascend from our hunter-gatherer days then by being satisfied. People have a voracious appetite for a better way. In fact yesterday’s Wow becomes today’s ordinary. I see that cycle of improvement happening a faster and faster rate than ever before. It may be because customers have such easy access to more information than ever before. In only a few seconds with a couple taps so on and so forth. So certainly Amazon’s Jeff Bezos has raised the bar of expectations for everyone in terms of trying to deliver a client experience that is Wow and perpetually Wow and how do you keep upping the wow. But I want to contrast that a little bit to the financial planning and investment world where if you continue to look for wow wow wow it could be detrimental to your long term financial wealth. So we’ll use Warren Buffett as the contrast in this example since this weekend he has his Berkshire Hathaway meeting which will be very widely publicized. And his well-known quote is benign neglect bordering on sloth remains the hallmark of our investment process. Wow, he’s thinking about doing things at a very slow methodical play pace on border line neglect. I mean it’s amazing that’s sort of like raising children you know the first one you over dote on the second one you know you’re half awake and the third one you’re like you’re turning on Sesame Street because you can’t really get out of bed. So that neglect works works quite well. But expectations are very important in terms of financial planning and investment. So Bezos goes on in this letter to talk about the handstand. Perfect handstand yoga and the idea of giving a teacher to do a perfect handstand and someone says well I should be able to do in two weeks and the teacher says no you actually have to practice every day for six months. So I’m gonna try the best I can to manage expectations on the investment process because we’re trying to help people plan for the long run for retirement for sustainability during their lifespan and building good discipline habits is very tough with volatile markets and with headlines that you know get people very easily deterred. So let’s just keep it simple and go back to the wonderful sketch artist Carl Richards who says let’s just start with where you are where do you want to go and how do we get there. So that’s an excellent segway because we’ve been reviewing many retirement plans for people and have come across a startling although probably not surprising realization that there’s 50 in many cases 50 to 60 percent participation rates in people even saving for their retirement. Which is just mind-boggling. I’m not sure why people aren’t putting money away particularly when they get a match or they get profit-sharing contributions. You know this is free money for your future self. So teaching delayed gratification is something very important. And delayed gratification when you think about the best in the investment climate is also very tough. This is just highlighting the first quarter of 2018 where you see emerging markets that outperformed every other broad asset class in the world. And some people that might be obsessive about the short term let’s say oh okay I’m going to put all my money in emerging markets because I need to get you know I want the best. And you know looking back to 2001 you wouldn’t have been wrong. And said look the average quarterly performance emerging market stocks have been over 3% a quarter which is fantastic. But let’s manage expectations first. How many people have actually bought and held all their portfolio in emerging markets since 2001? Close to zero. And the discipline of staying diversified is because you don’t know what’s gonna perform best this quarter or this year. And you need to broaden the basis. And why do I say that because when we look at the last decade for example the best performing has been the US stock market and emerging markets have only averaged 3 percent a year. 3 percent a year not 3 percent a quarter. They’ve only average three percent a year despite averaging 3 percent a quarter since 2001. So why do I remind people of this. Why do I, why do I you know obsess about this this concept. Because we just want to help. And with April showers bring May flowers. So whatever we can do to raise the bar and raise the expectations of delivering a better financial planning or investment spirit experience so we can help the people we care about save more enjoy their lives and perhaps click a little less.