The Soul Of Wealth
Meditations on the purpose of money
Daniel Crosby has a claim to be the Marcus Aurelius of wealth management. Aurelius was a Roman emperor famous for achieving his military goals while simultaneously grounding himself in the Stoic principles and purpose of his journey.
Crosby’s day job is helping people fight a modern battle - building wealth. Yet he noticed that victory often did not bring satisfaction. In fact, some of the wealthiest people he met were profoundly unhappy. As a trained psychologist who pivoted to behavioral finance, he decided to explore why. The result is his new book The Soul of Wealth, a series of short, Aurelian-like meditations on both avoiding and exploiting emotional biases to build wealth, and then using that money purposefully.
Visualization
Some of the ideas he writes about are shockingly easy to employ. For instance, just giving your savings account a name that signifies its purpose (e.g. My Ski Cabin) makes you more likely to add to it over time and stick with your investment when markets fall.
Crosby claims results will be better the more precisely you conceive of the goal. So…think about where the cabin will be, how you’ll furnish it, what skis you plan to buy, etc. The more specific you make your savings objective, the more real the prospect becomes, and the more likely you are to achieve it.
Crosby’s book is exceptionally readable because he illuminates each idea with a real life story. In this case, he talks about how swimmer Michael Phelps achieved his goals by visualizing every stroke and every turn in his races. His success was meticulously planned! Crosby’s message is simple. Detailed planning - which is virtually costless - increases the likelihood of investment success.
Can Investment Advisors Make You Wealthier?
I spent the first decade of my career working working for BGI1, the world’s largest manager of index tracking funds. Because of this experience, I got good at explaining why most financial advisors were expensive and unlikely to beat the market. I’ve therefore never used one to help manage my money. Talking with Crosby has made me think again.
Sure, I’ve made some good decisions, but also a fair number of clunkers. For example, prior to the Dotcom crash I pulled all my money out of the stock market. That was a good decision, but its tail turned out to have a sting. The S&P 500 has been richly valued for most of the last 15 years and I’ve struggled to own it, fearing another crash. Instead, I’ve nibbled around the edges, searching for pockets of value in other sectors and other asset classes.
The nibbling made sense on valuation grounds, but performance of these investments has trailed the all-conquering S&P 500. Had I used an advisor I’d have gotten more S&P 500 exposure and could have devoted all that time spent nibbling to my tennis backhand, another area of chronically challenging performance.
It’s not just me. After my podcast with Crosby was released I got this note from another ex-professional investor:
“I’ve been resistant to using a financial advisor, but such a person would absolutely have helped me avoid some big errors, like my dramatic US underweight.”
Crosby does not claim that advisors have a magical ability to beat the markets, but rather the emotional distance to help you take an appropriate amount of risk. That said - he works for an advisory firm and admits that this advice is talking his own book. So, think about it…but do so with the appropriate grains of salt.
A Bit On The Side
One solution is to use an advisor to create a plan and manage the bulk of your long-term savings. Then, set aside a small pot of money for trading, speculating or investing in your brother-in-law’s business. Just make sure it’s small enough that losing it won’t imperil your long-term goals.
It’s actually a technique I used in the hedge funds I ran. These were systematic, model-driven funds – we literally claimed that we were ‘taking the emotion out of the buy and sell decision’.
But we still felt the emotion!
When things weren’t working there was always an urge to change the model. We therefore allowed ourselves to ‘turn a few dials’ - make minor adjustments that helped us feel like we were reacting, but did not alter the fund’s basic risk profile. It worked. We scratched the itch to do something but stayed the course with our core investment program.
Believing, Belonging, Becoming
Crosby writes a lot how your approach to saving, managing and spending money can impact happiness. But could the pursuit of happiness for its own sake be as futile as the pursuit of wealth? Crosby admitted to using ‘happiness’ a bit sloppily in the book, when a better term would have been meaningfulness or purpose.
He elaborated as follows:
Happiness can be defined as the absence of pain or discomfort. But a life spent pursing the absence of pain is a low bar. Sure, none of us are looking for suffering, but it's coming nonetheless. The question is - what will we do when it arrives?
It comes down to three things - believing, belonging, and becoming. People who have a felt sense of life being meaningful, which is bigger than happiness, they believe in something. They have a worldview. It could be Stoic philosophy. It could be Buddhism. It could be Catholicism. It could be yoga. They have a mental model for making sense of the world.
Second, we need to belong, we need a tribe - people who love us and and who we love. Finally we need to be becoming. We need a vision of who we are going to be. What are our goals? What are our drivers? Where are we headed?
When you have those three things I think that's about the best it can be.
Not a bad New Year’s message. Happy 2025!
Listen to The Ideas Lab podcast with Daniel Crosby
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Barclays Global Investors. Formed when Barclays Bank bought index fund innovator Wells Fargo Nikko Investment Advisors in 1995. The iShares franchise was started by BGI and I still remember the managing director meeting where we voted to ‘go all in’ on building an ETF business. BGI was bought by BlackRock in 2009. I worked in the business line that used quantitative models to take active positions designed to beat the index. I later founded BGI’s European hedge fund business where we extended this idea to taking leveraged long and short positions. The risk control technology and philosophy of these active funds traced their origins back to the original tools used by Well Fargo Nikko to ensure their index funds tracked the market.