We normally seek advice about what actions to take but there’s plenty of evidence we might do better by considering what actions we shouldn’t take. And more financial advice or financial education could be focused on what the ancients called the via negativa or the negative path.
In short while we’re encouraged to work towards positive goals, such as saving a certain sum by a fixed date, it’s also wise to have some negative goals— even if that sounds counterintuitive. I was recently approached by someone who’s experience in terms of a disastrous financial outcome reminded me of a passage in Rolf Dobelli’s 2013 best seller ‘the art of thinking clearly.’
“This realisation, as simple as it is, is fundamental: Negative knowledge (what not to do) is much more potent than positive knowledge (what to do),” he says
She told a tale of woe involving a high-profile agricultural investment scheme which perhaps quite typically collapsed. My source didn’t seek to demonise the adviser involvement although near-retirees were bundled into high risk products and young families sold on the prospect of funding their kids’ education.
No, the interesting area for me was how my informant a savvy, confident, educated and accomplished woman could have fallen for it in the first place? On one level the answer was that she’d been a horticulturalist and had a soft spot for growing trees or whatever as well as her nest-egg.
At a later stage, when some of the wheels had fallen off the deal, she felt more confident dealing with a customer-owned bank instead of the Big Four because “They just be more community-minded.” The results of both feelings resulted in a tough collision with reality, a class action , a fruitless exchange with FOS and an all-too-common frustrated disillusionment with the system.
At the risk of generalising what as she, and perhaps some of the others, really needed was financial advice of what not to get into, advice of what not to do especially with managed schemes like this.
There are various online definitions of ’advice’ including guidance or recommendations offered with regard to prudent action. And prudent action can of course mean sometimes doing nothing. However I’d venture most people would consider advice to do something more valuable than advice NOT to do something.
It’s hoped financial advice is well-balanced between the positive and the negative but in the case above the adviser appears to have been blinded to the difference at considerable cost to the consumer.
Dobelli’s highly recommended book into our cognitive biases, especially around money, also quotes some good advice in this line by investor Warren Buffet and his partner Charlie Munger.
“Charlie and I have not learned hot to solve difficult business problems. What we have learned is to avoid them.”
Rolf Dobelli, "The Art of Thinking Clearly"