Edit: this was drafted in late 2019.
I loved the movie The Game. The premise was that for his birthday, Michael Douglas’s character was ‘attacked’ in a real life adventure. It was part thrill, part horror. I can’t even remember how much of it was real.
‘What is real’ is a common premise in my favorite movies.
Part-of-the-reason I like it is because it holds a truth. Without skin-in-the-game we really don’t know what we would do. There are our stated and revealed preferences. There are our human biases. There are the ways something is presented.
It’s a real quagmire and something Sallie Krawcheck noted when she spoke on The Long View podcast:
“Ya’ll probably know this as well or better than I do, but when you ask someone what their risk tolerance is, nobody knows it until they go through an ’07 or ’08. They just don’t. Let’s call a spade a spade. But we answer it. Men will answer it and women will go, I need to figure out what it is.”Sallie Krawcheck
According to Daniel Kahneman, we’re answering an easier question. Instead of what is my risk tolerance we probably answer something like how do I feel today or which column of returns looks good? We do the same thing when choosing college.
Here’s the pitch: Taking a cue from David Fincher and Krawcheck, we’ll create a company that coaches financial advisors on how to stage Doomsday Days with their clients. Like for Douglas, the clients won’t know when it will happen (and we’ll hide this feature in a bunch of legalese).
The plan would be to make up financial statements that mimicked actual downturns; 1953, 1981, 2008, etc. Clients would come in for their regular meetings, be presented with a fictionalized loss for twenty minutes, and then have a debrief session. It’s the financial equivalent of a false positve lung cancer diagnosis.
During the debrief the advisor could talk about real feelings of loss, of risk, and pain. Then, together, work out a new plan.
As advisors are already busy, the business would sell them a script. They could choose a level of pain, and we would provide the portfolio forms (printed on very formal looking paper) as well as suggestions on handling the psychology of it. As an upset we could offer “Confederate Coordination” as we called the wife and explained the plan to her. Yes, it would have to be, the wife.