Broker Check

"Formula for Success" or "Aunt Bee, Just call the Man!"

| April 18, 2018

It is a blessing that math is only a small part of my chosen profession. While there are days where calculators consume a great deal of the time, more of my time is spent engaging with people rather than numbers on a page. My work is much more about communication than computation.

Yet, I must admit that I was intrigued when I came across a formula that professed to “quantify the additional value that can be achieved by an individual investor from making more intelligent financial planning decisions”. The formula is expressed as:


The description of some of the variables was of little help:

T=the last year for which qt >0
P= the investors subjective discount rate (so that dt in equation [A5] is q (1+p)-t )
II= the utility equivalent constant income level based on the EOIS parameter

I find it almost absurd to imagine that the concept of “better decisions” could be measured, if for no other reason that it would assume all advisers give the same advice, and all clients react to said advice the same way. I find quite the opposite to be true. Planning for a decades long retirement is not an intellectual problem to be solved, and I fully believe that investor behavior is the most dominant contributor to investor success.

Assuming a formula can measure investor success is akin to assigning a number to how a person feels about their dog or the affection I have for The Andy Griffith Show.

I do wonder occasionally if the results of the formula change after a day of big losses or gains, as I could only assume that they would. I’m sure the academics would love to try to explain it to me, but I would much rather watch Andy try to convince Aunt Bee to just call the Man from Mt. Pilot to fix the freezer. As with any truly great parable, sometimes I see myself as Andy, sometimes as Aunt Bee, and sometimes the freezer. And, occasionally, I am the Man from Mt. Pilot.

If you would like to discuss Modern Portfolio Theory or your favorite Andy Griffith episode, I would love to hear from you.

Bryan Trible, CLU, CRPC
Financial Advisor