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The Canadian Money Roadmap
The Laws of Wealth with Dr. Daniel Crosby: Behavioural Finance and The Power of Rules-Based Investing
Get ready for an enlightening journey into the world of behavioral finance with our special guest, Dr. Daniel Crosby. Not only is he a psychologist, but he's also a recognized expert in behavioral finance and the author of the incredible book, "The Laws of Wealth". Through his insightful lens, we'll discuss the complexity of human behaviour when it comes to money, our misconceptions about wealth and happiness, and how we can build a rules based portfolio that lets our own laziness work in our favour.
Lots of fun topics in this episode and a true pleasure to hear from Dr. Crosby who makes these topics easy to understand and applicable to every day life.
**Note: The draw for a copy of The Laws of Wealth has been completed
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Hello and welcome back to the Canadian Money Roadmap podcast. I'm your host, evan Newfield. Today's episode is a very special one. We've made it to 100 episodes and to mark the occasion today I'm joined by a very special guest, dr Daniel Krozby. He is a psychologist and behavioral finance expert and he wrote a book called the Laws of Wealth that I read recently and I think it is probably one of the best books on investing and becoming a better investor that I've ever read. So I thought I would reach out to Daniel and see if he wanted to share some wisdom from the book to you and to me as well. I love bringing on guests that I can learn from at the same time. So along with this great episode, I have 10 copies of the Laws of Wealth available to you as the listener, and if you just go to the link in the show notes below, you can fill out a survey to tell me a little bit more about yourself and what you like about the podcast. And for anyone that fills out the survey, I'll put you in a draw to get one of 10 copies of the Laws of Wealth. So, without too much more rambling here, it's a great conversation coming up about all things, how to be a better investor and how to understand our behavior as it relates to our money. Here's my conversation with Dr Daniel Crosby. Dr Daniel Crosby, thank you so much for joining me today on the Canadian Money Roadmap podcast.
Speaker 2:Evan, good to be with you sir.
Speaker 1:Awesome. Thanks, daniel. Okay, so, as we were talking about before we started recording here, recently stumbled on your book, the Laws of Wealth, which is one of a few books that you've written, and I've started seeing you then online and finding your podcast. You focus on something called behavioral finance. Can you tell me a little bit about your background and what behavioral finance is and how maybe that differs from traditional dollars and cents finance?
Speaker 2:Yeah, no, happy to. So I am a clinical psychologist by education, right, which will be a little bit surprising to some folks that someone like me would be working on Wall Street effectively right in the world of money. But what happened is I went to school to be a psychotherapist, right. I went to school specifically I wanted to work with people with eating disorders and about halfway through my doctoral training I just frankly burned out. I was seeing a lot of clients. I was all of 23 years old when I started, which is a great time to give life advice. I think you know you've got it all figured out, but you know I was young. I was young when I started my doctoral training. I burned out. I just had bad boundaries. I was taking work home with me and I loved thinking about why people did the things they did. I mean, that's my, that's sort of my only hobby really is reading about psychology. But I knew that I didn't want to do it in a medical setting, and so I came to my father, who is himself a financial advisor, and I said to him like look, dad, you know whatever, 25 years old, I'm already fried on this profession that I'm halfway through a PhD in, not a full scholarship, and I'm like I don't. I love figuring people out but I don't want to do it in this setting. And he said well, hey, there's a ton of psychology in my work. Now that shocked my 25 year old mind because I had always conceptualized of my dad as sort of one part stock picker and one part sales guy and I was surprised to hear him say that there was so much psychology in his work. But that's sort of simple comment by my dad put me on a path to explore what we now know as behavioral finance and behavioral economics. My dad certainly didn't have the language to call it that at the time. But behavioral finance is just finance that accounts for the messiness of human nature, because traditional economic models are built on this presupposition that people maximize utility or sort of maximize positive outcomes. And I mean, I think a quick look at your bank statement for the month tells any of us that that's not always the case, that we sort of don't always make optimized, fully rational decisions with our money. And so behavioral finance my field is just sort of the psychology of money. The psychology of investment decision making in particular is kind of where I hang out. But yeah, that's just. Yeah. Just the messy part of money, the human part of money is my discipline.
Speaker 1:Maybe this question is too big, then, from there. But when it comes to money and you describe it as the messiness of money why does our behavior skew to the messy as opposed to making things better and optimized, like why do we want that and can't do it, whereas our behavior goes the opposite way?
Speaker 2:Yeah, so this is the clinical psychologist in me talking, but I think human messy, human behavior is messy broadly Like. I don't think I don't think money is the only place where we make dumb choices, but it certainly is is maybe the biggest place. So we're we're here today talking about the laws of wealth, but I've written a couple of other books, as you noted, and in in one of my books, my most recent book, the behavioral investor, I did some research and I found fMRI studies. So brain scans, right. So they would hook people up to a brain scan and they would have all sorts of sort of fraught conversations with them. So they would ask them about, you know, all the good stuff sex, politics, religion, death, like sort of all the hot button issues and money was among these. And they found that money had more excitatory power in the brain than even something like sex or death or politics or religion. And that's why we get messy because we've wrapped, we we've wrapped so much up in money, like it's almost like liquid. Happiness is how we conceptualize it. Right, it's this, it's this marker of status, it's a marker of success and achievement. We tightly conflate it with things like happiness and and having lived a good life and I mean, look, all all of those things are kind of true and kind of problematic and we could certainly get into that. But we ask money to do a lot, I think, and have a lot writing on it, and I think that's one reason it gets messy. The other get, you know, the sort of most obvious reason that it gets messy is there's there's a degree to which you just die if you don't. You know, you don't have enough money, right. I mean there's sort of this, there's this biological imperative to have enough money to live sort of a basic life. Then, beyond that, we sort of put all this psychological weight on it. And then the other reason, you know, sort of a third reason is we're all sort of the, we're all sort of this in of one when it comes to our money story. You know the way that you grew up, the time and place and parents that you grew up with, versus the time and place and parents that I grew up with, we learn all of these different money stories and then we live and work and play and marry people who have different money stories, who are also an NF1 that's different than ours, and so, like our money, realities are also bumping up against sort of seven billion other money realities and I think that's an inherently messy process.
Speaker 1:Which makes marriage and markets and everything else very unique when it comes to managing things for ourselves. So, okay, so we've talked about the messiness side of things, but that's not why I liked your book and I have appreciated your approach, because this is not to discredit any of the names I'm going to draw up here, but you know Richard Taylor, his book if it's not on the shelf it's on my other one His book called Misbehaving, and Daniel Kahneman, his whole book Thinking Fast and Slow. A lot of these ideas are more around identifying problems and identifying and putting a name to the messiness, whereas your book and your approach it starts there and like you got to understand where the problems are before you can fix it. But you know, I'm not a golfer and so I've taken golf lessons before and one of the worst lessons I ever had was someone who saw my terrible swing and terrible ball flight and just said, well, don't do that, don't do that, don't do that. And so I'm like just tell me what to do and like point me, like help me here, and so your approach kind of takes that okay, well, what do we do? So maybe before we get into that a little bit, how useful is problem identifying versus problem solving when it comes to behavioral finance.
Speaker 2:Yeah, so I'm glad you noticed that. I hope that's. One of the hallmarks of my work is, you know, the growth of behavioral finance and financial psychology has largely mirrored the trajectory of psychology broadly. And if you look at psychology broadly, you know when Wilhelm Wumpt and Sigmund Freud and all these folks were starting out sort of the proper application of psychology, it was all about neuroses, right. I mean, it was all about your mom and your dad and how they broke your brain and you know how you're, how you're so messed up because of how you grew up and past experiences. It was all pathological, right. And it was not until the 1990s so like well over 100 years later into sort of the formal practice of psychology, that you get the positive psychology movement which is the study of like what makes someone great, what are the pillars of human flourishing, what makes someone a great employee or great spouse or a great leader, what makes people happy. I mean that that research is 30 years old and you know it's. It's crazy that it took us that long. And when you look at behavioral finance, the same thing happened, right, like the thing that it took for behavioral finance to achieve sort of escape velocity from the rest of finance was cataloging all of our deviations from rationality like right. These are all the ways that we're not the perfect optimizers that we've been held out to be, and that was sort of a necessary but not sufficient break, right, like that needed to happen. That's fine. The people you mentioned, I mean they have Nobel prizes. I don't like they've. You know, they've done incredible. They've done incredible.
Speaker 1:Yeah, there was no shade on those.
Speaker 2:Yeah, yeah yeah, you know they've done incredible work, but I think now it's time to sort of shift right Because, like, like you said with your golf lesson, there's now 200 ish ways that we've that. We've cataloged that people deviate from rationality when making financial decisions. Like 200 different cognitive biases and like telling someone who is in sort of a financial quandary like, hey, look, there's 200 ways you can screw this up, is not, you know, not a super helpful comment?
Speaker 1:And I see 180 that you're doing right now.
Speaker 2:You missed 10 of them. The rest you've got no. So I I think you know the way that I think about these things and I catalog a handful in my books is like get the big rocks right. Like no know about these derailers right. Like know about this handful of sort of psychological tendencies that can derail you, but after that it's time to focus on what to do and what not, instead of what not to do.
Speaker 1:So this is kind of skating around the general idea of risk, I would say, and generally when we talk about investing, the conversation ends up around risk. At some level in my profession I got to do risk tolerance questionnaires and all that kind of stuff, which is all well and good for sure, but you know that revolves around the idea of risk being price changes or volatility, and you would say yes and probably to to what risk is. So you know what is risk, or what are some risks that you identify here in your book, and is risk something to be accepted or managed?
Speaker 2:Yeah, so this is a I'm actually I'm actually writing a book on this right now, so I'm like outlined it yesterday, so I'm not very far in this process, but it's a fascinating topic to me. So when we think about risk, right you, you sort of gave a nod there to here's a big psychology term for you. So operationalization, right. So in in finance, we have to operationalize things, which is just a fancy way of saying we have to take sort of an ethereal construct and put some sort of form or substance around it, right, so we've got to come up with some way of quantifying something. And the way that the financial powers that be have gone about operationalizing this concept of risk, which is huge and multifaceted, is, they've said we're going to boil this down to the, the volatility sort of the up and down of an asset price. Now, there's a degree to which that is intuitive and true, right, like nobody loves their stocks to go down, right, or their you know their account to go down. But I say that it's much bigger than that, because volatility is just sort of a, a feature of markets. It just sort of is, and you know it's. It's interesting to me because I talk about in the book sort of the inevitability of volatility and and try to do that in a way to inoculate investors against sort of the inevitability of it. You know, if we look back in my lifetime, like I'm in my early forties, if we look back in my lifetime, the average drawdown right, so the average peak to trough drawdown in any given year is right at about 15%, and so that's what we would quantify as a correction, like a market correction. So on average in my lifetime we've had a market correction every single year. And yet the popular media, every time there's a correction, reacts as if it is the most remote, the most outstanding, the most unusual event that has ever occurred. And returns over my lifetime are in the 10 to 11 percent a year range for the US stock market. And so it's like, look, these things can coexist. You can have really nice returns and sort of inevitably you're going to have some risk in there. But I tell a story. You know, I tell a story in the book and it's actually the story of my first client and I call her Brooke in the book. And you know, in the in the book, brooke, this is my first client. I'm 23 years old. I've never seen a person in therapy before and this woman comes into my office. She's about my age, young woman, comes into my office and presents me with six envelopes and I'm like, oh God, like what is this? So she gives me these six envelopes and she's like, hey, all my life, ever since I was a little girl, I've wanted to be a doctor. I applied to these medical degree programs to be a doctor. I've heard back from all of them and I can't bring myself to open the envelope. Because what if I open the envelope and I find out that I've been rejected in my dreams or dashed Right? So for like 40 minutes of the 50 minutes I'm just useless, right, I'm just like stumbling and just kind of upset that I didn't get some like nice garden variety depression or something for my first client. And then, finally, I say something to the effective because I'm thinking about my own experience and I had just applied to grad school. And I'm thinking about my own experience and I say, hey, you know, basically, like you've got to open these and let them know if you're coming, right, like you've got to open them, like because if you got in, if you don't open these and say thanks, I'm yes, I will be attending. You know you're going to, you're going to miss out. And I said you know something to the effective. It seems to me that in the, in the process of trying to manage risk, you're bringing about the inevitability of the risk. You're bringing about the inevitability of the very thing you're afraid of, because if you don't open these, you know you're afraid of not getting into grad school. Well, guess what? If you don't open these, you're not going to get into grad school. And I analogize that to what investors do, because people are afraid of losing money, they're afraid of not reaching their goals, you know, not keeping up their purchasing power and not sort of crossing their financial finish line, retiring, living their version of the good life financially. Well, guess what? If you sit on your money, if you don't take appropriate risk, if you keep it in cash, you are not going to cross the financial finish line. You won't Like it is. It is almost impossible to maintain a decent standard of living and have your money keep up with inflation If you're not taking some sort of risk. And so you know, basically, for me sometimes not taking any risk is the biggest risk of all. And I sort of close out the chapter by saying look, everything worth doing in life is risky. You know, I've got three beautiful kids Like I lost. I lost three kids, three pregnancies as well. Right, like having kids, it's a, it's a gamble. Right, like starting a business, it's a gamble. Falling in love is a gamble. Like you know, anything that's worth doing is risky and you can own that and bravely move forward, or you can plug your ears and scream about it and find yourself in a very unhappy place. You know, a few decades hence, very interesting.
Speaker 1:I can, I can relate to a lot of that personally. So when it, when it comes to risk management, that's language that I've always been like nervous about, nervous to use with clients and even on the podcast, because when people are people that are new to investing or aren't aware of some of these, like behavioral topics perhaps when they think risk management, that means okay, risk has happened. I'm doing air quotes because my portfolio is down the 15% that happens every year, or whatever the correction that happens, inevitably I'm down this much. I'm going to get out of the markets now and manage my risk by not being exposed to further declines. Do you see that in any of your research or studies of how people view risk management and what's a better way to see investing from a risk management perspective? Perhaps practically, if you can?
Speaker 2:Yeah, so there's. You know there's a couple of dimensions of risk management. This is the financial dimension, which would include things like having an appropriate mix of assets and sort of managing your risk that way. That can be accomplished fairly easily with diversification, very easily and very cheaply If you work with an advisor, read a couple of books and do it yourself like it's not super hard to manage the part of risk that's manageable. But then you know again, there's always going to be some unpredictability, right, that's why stocks pay well. But then if you go, if you go to the behavioral part, like the personal part of risk, that's what you're talking about. And there's this concept from Howard Marks, who's this legendary investor that I really love, and he calls it the perversity of risk. And so Marks' idea of the perversity of risk is that at the times we feel most self-assured, things are actually quite risky and at the times where most fearful, things are actually quite good or the risk potential is quite low. So one of the things about human nature is that we tend to sort of extrapolate the current moment into the future indefinitely. And so you look at a period, like you know COVID, like you know the COVID lows in March of 2020. It feels like a lifetime ago. It was just a couple of years ago. But, you know, if you go to that like, if you remember right, if you put yourself in that spot, I was, you know, like everyone, divorced from the rest of society, walking around my neighborhood, you know, running to the other side of the street when I would see someone else walking. You know, walking around my neighborhood listening to podcasts that were trying to explain the doom and gloom and like all the death and uncertainty and like trying to figure stuff out. And when you put yourself in that moment, or a March of 2009, another, you know, low in the markets during the great financial crisis, the future looks so bleak, right, and you remember all these articles that were written, like crazy stuff was written, like in the throws of COVID, like people will never shake hands again. Like you know, like we're never, you're never getting a hug again in your life, buddy. Like you know, just these sorts of articles were written, and it's this human tendency to just assume that whatever's going on right now is how things are always going to be. But we know that while we think that way, markets move the exact opposite way. Like you know I talk in the book about the truest words and investing are this to shall pass. And so that phrase is so important from a risk management perspective Because in in boom times, it should give us pause and give us a dose of humility, right, like, okay, portfolios, crushing it. It's not always going to be this way, but during the bad times it should give us heart, right, you know, in when you're walking around your neighborhood for exercise and you haven't seen your friends in six months or whatever, you know what it's not always going to be like this and the markets are not always going to be this bad. So you know, the biggest risk we can manage is the risk of our own misbehavior. Again, like the sort of getting you know risk management. From a financial perspective, you know own a good mix of assets and you're on your way. From a behavioral perspective, it's much thornier and what we've seen. Evan, this has been studied now by folks like Meyer, statman and others 19 different countries, 19 different countries that they looked at. The more people mess with their portfolios, the worse they do. And it's we're learning. We're learning big words today. It's monotonic, right Means it's like a stepwise relationship. So at every, if you look at deciles right. If you take it 10%, the 10% who trade the most versus the 10% who trade the least. It's stair step, the performance, and the more you mess with it and the name of risk management, the worse you tend to do. And it's so difficult Because everywhere else in life if you do more you get more right. If you read more books, you get smarter. If you lift more weights you get stronger, you know, and in markets, if you do nothing, you get the best result. And it's just really weird and really counterintuitive.
Speaker 1:I think I saw a study and maybe this is more a mythological study at this point because I've seen it reported in so many different places but Fidelity in the US one time reported the demographics of the people that had the best performing accounts, and some of them were the ones where people have been discovered to be dead. So they had, they had no capacity to trade and so it's like the ultimate hands off portfolio. It's like there's no beating heart on the other end of the trading screen right.
Speaker 2:Yeah, so that was that that was first cited in what works on Wall Street by Jim O'Shaughnessy.
Speaker 1:Okay.
Speaker 2:I think it's a little apocryphal. Now he hasn't been able to he hasn't been able to to like, find a like chapter and verse for that. But there is other related research that shows the same thing. Right, we know that. We know that the less people check their portfolios, the better they tend to do. We know that there's an inverse relationship between things like watching financial news and performance, and so, again, it's this very sort of upside down relationship, because you know in other endeavors, like if you immerse yourself in something and you follow it tick by tick, you're going to tend to be more adept at that thing. And in markets it's like you, really, if you want to be great at this, you literally should step away, like you just go do something out, like get it, get a good plan in place and go play with your grandkids or whatever. Like you know, just do something else.
Speaker 1:Yeah, it's critical to actually getting out of your own way, like that's where I see, like that idea of behavioral investing is just getting out of your own way, not getting out of the way the markets, not getting out of the way of all the bad boogie men type things that you're thinking about or that your brother-in-law is telling you are going to come from the blogs that he's been reading. It's largely just what you're doing that'll have the biggest impact over your results. So, if, if the the idea is get out of your own way, how do you set up your portfolio in the first place where you can actually have something that you sit on for a long enough period of time that that you can safely and comfortably get out of your own way? You describe this concept of rules based investing. I'm hoping I'm setting you up appropriately for that concept here. But how do you describe rules based investing?
Speaker 2:Yeah, so rules based investing is based on this idea. Well, it's based on the research, so, in in the book, I cite a meta analysis which is just, again, fancy word for study of all the studies that have been done on individual decision making like expert level individual decisions, versus just following simple rules, and what we find is that, 96% of the time, simple rules beat human decision making. And what's important and this sort of cuts across context right, this is everything from you know, asset allocation to stock selection, to prison recidivism studies, to doctors making diagnostic decisions, like this sort of cuts across. And so the thing that's amazing, though, is, if you follow these simple rules, not only are you going to do better, but you're going to be able to do better. You're also going to just have less brain damage from thinking about this stuff. I mean, it's not fun. Again, there's better uses of a life than wallowing in the doom and gloom and the daily ups and downs of the market. It's one of these things where you're going to do better and you're going to save yourself a lot of headache and heartache. So, yeah, rules-based investing is just what it sounds like like having simple rules and sticking with those rules through thick and thin, which is very difficult right Coming up with the rules. There's actually a lot of ways. There's a lot of ways to get this right. I introduce some semi-complex ways to get it right in the book, but I mean, there's very simple ways. There's two and three fund portfolios that would serve you very well in a rules-based framework. That you just got to stick with the rules, and that's the hard part, because exercise daily and don't eat sweets is a rule too, but it's tough to follow.
Speaker 1:Maybe that's the million-dollar question here, but how do you like? Okay, someone sets up a rules-based portfolio. Here in Canada we actually have a lot of what we call all-in-one type portfolios that can use some of these. I've often referred to them as factor-based. You use the language of evidence-based or research-based things like that. You go into that in the book a little bit with your five Ps of behavioral investing. But if it's really that hard to do, are there any practical steps that people can take? Maybe working with an advisor is one thing that can help get people pointed in the right direction despite themselves, or what are some of the things that you'd recommend?
Speaker 2:Yeah, there's really two things that I think you can do. One is to automate everything, one of the best things. We talked a little bit earlier about positive and negative framing with respect to investor behavior. One thing we know about human nature is that we're kind of lazy, we're very status-quo-prone and once we get in a rut, we like to stay there. As an investor, that could be problematic, but you can also make it work for you, being lazy and status-quo-prone. If you haven't started your investing journey, well, that's a problem. You need to get going. You can also use your innate laziness and status-quo-proneness to just say, hey, every two weeks, when I get paid, this much is coming out of my check and it's going to these, whatever three funds, however you're set up, it's going to my investment account. I'm going to make that correct decision once and I'm going to leave it alone forever. What you've done is one of the most simple but powerful things you can do for your financial future, which is just to use that natural laziness to make it easy, because we don't want to have to make the right decision every two weeks, we don't want to have to reevaluate that and go. Am I still saving? Are we still doing this. Is this still a good idea? No, set it in there and lock it. I talked to my kids about this. I got a kid who just started high school and it's like look, you've got to decide now that you're not going to do drugs. The time to make an important decision about your life is not when you're at a party and someone's handing you something. It's right now. This is the decision we're going to do. This is what I'm going to do. This is what I'm not going to do. Make the right decision once and then let gravity work for you. The other thing is what you mentioned, which is working with an advisor. This is a question I get all the time. In an era where there's lots of target date funds, there's lots of index funds and it's easy to trade and it's pretty easy from a technical perspective to get what you need. For the average person, it's pretty easy to get what you need financially speaking. And yet we know that people who work with an advisor display a host of improved financial and personal outcomes versus the general population. Right, people who work with an advisor do about 2% to 3% better per year than those who don't. 2% to 3% doesn't sound like a huge number, but when you think that a mix you know, a diversified portfolio is going to average something like 7% a year, you know if you're in 60% stocks and 40% bonds, you're going to make something like 7% a year over long periods of time. 3% is a huge chunk and you know, we've even seen research out of Canada that shows that people who have a long-term relationship with an advisor have 2.7 times the wealth of their peers who match them on many other levels. Right Like they're educationally similar, they have similar incomes. The people who work with advisors have about, you know, more than 2.5 times as much money 15 years on. And it's because that advisor has kept them from being their own worst enemy. It's not like that advisor necessarily is picking the hottest stocks or anything like that. That advisor is just keeping them from making a handful of catastrophic screw-ups that can torpedo your financial future. You know. I'll give a quick example. I have a relative who was, who I don't think listens to Canadian Money Podcasts. We hope not. I have a relative who is elderly now, like he was a dentist, like he was a dentist professionally, lived outside of LA, had a beautiful home, had a, you know, a two and a half million dollar home that was paid for, had a five million plus in the bank and began to have medical problems, right, he began to have sort of tremors in his hands and he could no longer do the work of a dentist, and so he was forced into an early retirement, the way that, you know, sometimes we are sort of forced into an early retirement. But you know, he's got a eight million, eight million dollar net worth. He's doing good. Well, he didn't have an advisor, and so he took that eight million dollars. He sold his house, liquidated that, took the rest of it, bundled that money and gave it all to a friend who was doing real estate deals in Las Vegas right before the housing crisis hit. And so he lost all that $50,000, went from eight million dollars to $50,000 in the course of about 18 months, and now he lives in his child's basement in his golden years, you know, in his silver years. And it's like there's a million examples like that of one mistake. If he had brought that to an advisor, an advisor would have shot it down. An advisor would have told him all the reasons it didn't make sense, and that would have been, you know, the advisor's charging whatever one percent a year, whatever it is in Canada, you know he would have saved him eight million dollars, right? So it's these huge turning points like that where an advisor can be so, so critical. And if an advisor can keep you from making two or three big mistakes over your lifetime, you know he or she will have paid for themselves many times over. Wow.
Speaker 1:Crazy story. Thanks for sharing that. That is wild. I've seen all sorts of things like that, but never one that extreme. Yeah, I took a few excerpts from your book actually on how to find a good advisor and I recorded a whole podcast about it already. So if people are thinking well, are all advisors created equal? I would say no, and there are some things that you can look for. Maybe if you have a few things that are top of mind that you could remember that you maybe look for if somebody's looking for an advisor, yeah.
Speaker 2:So this is funny. My wife, who does not work in finance, read my book and that was her favorite part, which is, like I can't decide whether to be flattered or offended by, like my 10 question checklists being the best part of the book. But you know she was like, look, if I ever get hit by a truck, like you know, she's got to go find an advisor, and you know how do you separate week from chaff. So a couple that I like to talk about is like first you say, could you explain to me your philosophy of planning, financial planning and investing, right? And then look for the answer. And there's really two things that you're looking for. One is an absence of jargon, right, like can they make it simple enough that you can understand it? And two is it should be fairly concise, like there's a lot of BS that can be couched in complexity and a lot of times that complexity is expensive. And so you know, I think I think a well considered, concise response to that question is the hallmark of a thoughtful advisor, and that's a very fair question, right? How do you think about markets and planning? The second thing I would ask is you know, how do you keep me from being my own worst enemy. You know, I mean the. I just shared some of the research. The research is undeniable that that is the best thing that an advisor does for her clients. Right Is to keep them from being their own worst enemy. And so if they are of the mindset that their biggest value is picking stocks or something, that's not the advisor that you want. You want someone who's been thoughtful about how to manage behavior. And then I'm going to ask about fees. And you know again the thing you're looking for here. You're not looking for the lowest fees, like. You're not looking for sort of bargain basement necessarily, but you want someone who is transparent and thoughtful about their fees and how they get paid. And don't you dare listen. There's people here who will say stuff like oh, you know, like this is free and it nothing's free. Like if, if it's positioned to you as being free, the fees are just hiding. So you want someone who is thoughtful and upfront about the way that they get compensated. They should get compensated, right. There's no shame in advisors getting paid. It's just when there's sort of a subtle fuge and smoke and mirrors around fees that I think you've got a shady character.
Speaker 1:For sure. That's a good thing to keep in mind. I've never had yet never had anyone ask me to work for free. They just want to know right. Transparency, like at those stages that you describe, is really important. So, looking at the clock here, I got to get you out on maybe a last word here. So maybe do you have any key takeaways that beginner investors will hopefully get from reading any of your content. I've read the Laws of Wealth. You have a couple other books. Maybe you could highlight which ones might be the best place to start from. If somebody is new to you and these ideas of behavioral investing and yeah, I'll leave you with that what do you recommend?
Speaker 2:So I was very intentional that the first half of the Laws of Wealth is the one, the thing that I think will be of most use to your audience, and I was very intentional about the ordering of that content. And the first chapter of that section is you control what matters most. And a lot of times I'm sure you encounter something similar. When people hear you work in markets, they come to you and go okay, what's the president going to do? What's the prime minister going to do? What's the virus going to do? What's going to happen in Ukraine? Whatever right, they ask about all you know. What's the market going to do? They ask about all of these externalities that require a level of prescience that just doesn't exist. And the thought is sort of like well, if I could just have a crystal ball and if I could sort of see the future, then I could figure this whole thing out. And you know, one of the points that I make in the book is it doesn't require a crystal ball, it just requires sort of radical responsibility and ownership to say, look, the things that matter most are in my power, like have I maximized my human capital? Have I gone to school or gotten the training that I need to get the best job that I can do, because your job is the engine of your wealth. Right, have I hired a professional to help me with these things? Have I been patient and long term in my thinking? Like, all of these unsexy things are the things that are predictive of financial success, and it's none of the fortune telling, it's none of the stock picking and it's none of the externalities. And I think when we can take that power back and say, hey, I can figure this out with the help of a trusted advisor if need be, but like I can figure this out and I can do this and I don't have to get lucky or time the market or be a political forecaster, I think that's an empowering message and, I hope, one that people take with them. Yeah, in terms of what to read, my book, the Laws of Wealth, is definitely the place to start. I just turned in another book that won't be ready for about a year, but it's called the Soul of Wealth and it's all about sort of happiness and contentment and money and meaning, and I think that'll be a great read for your listeners when that comes out. So you should be able to pre-order that, probably around Canadian Thanksgiving. So look for that soon, because I think that'll be useful as well.
Speaker 1:Awesome. This was a great conversation. I appreciate you taking the time and sharing all the research and your life's work that you've done in this area. If people besides the books, if people want to find you, where can they find you?
Speaker 2:Yeah, I'm on LinkedIn. It's sort of professionally where I'm most active Daniel Crosby, PhD. And then, of course, the podcast is called Standard Deviations.
Speaker 1:Awesome. Thanks so much for your time, daniel, appreciate it.
Speaker 2:My pleasure.
Speaker 1:Thanks for listening to this episode of the Canadian Money Roadmap Podcast. Any rates of return or investments discussed are historical or hypothetical and are intended to be used for educational purposes only. You should always consult with your financial, legal and tax advisors before making changes to your financial plan. Evan Neufeld is a certified financial planner and registered investment fund advisor. Mutual funds and ETFs are provided by Sterling Mutuals Inc.
