Kitces & Carl Ep 31: Maintaining Personal Advisor Wellness In Times Of Market Stress

Show Notes

• Self-Care And Self-Compassion In Times Of Financial Stress And Anxiety
• Markets Plunge. Economies Stall. Panic Spreads. It All Feels Very 2008.
• 20 Years Later, the Y2K Bug Seems Like a Joke—Because Those Behind the Scenes Took It Seriously
• Kitces & Carl Ep 18: Talking Clients Off The Ledge From ‘Scary’ Markets
• Kitces & Carl Ep 26: Talking Clients Out Of The Bunker Portfolio
• Nick Murray

Kitces & Carl Podcast Transcript

Michael: All right. Welcome, Carl.

Carl: Greetings, Michael. How are you?

Michael: Well, doing mostly okay. It's been a little bit of a stressful few weeks. The world is in a global pandemic and it's a little freaky right now.

Carl: Yeah. It's super-interesting, yeah, and really crazy, really crazy. So yeah, it's going to be interesting for us to chat a little bit about how we handle this. I'm assuming that's where you'd like to go.

How Advisors Face Their Own Anxiety As They Reassure Their Clients During Times Of Uncertainty [00:01:27]

Michael: Yeah. We separately did a webinar recently on calming client anxiety of coronavirus. So I thought an interesting discussion today would be calming our own anxiety, right? It's one of those things I don't think we talk about much, this realm where markets are going crazy, the world is going crazy, I suppose like, "These are the times we make all our money. These are when we add our value, keeping clients on board, talking them off the ledge when they're scared, when they're anxious, when they're freaking out."

And nobody ever talks about what happens when we're freaking out maybe on the inside because you can't say that to clients because then you just freak them out even more.

I remember going through this in the tech crash, because I started my career before 9/11, and then probably even more so I remember it in the financial crisis. There were these moments of trying to keep clients invested to stay the course while the financial system was melting down, and it was hard not to have this nagging thought in the back of your head of like, "What if it is actually coming down?"

I was telling people to stay on board because we were going to get through, the system is resilient, then we'll recover, and the economy will grow back again. But it's hard not to have that nagging thing somewhere in the back of your head of like, "Well, unless it doesn't."

And these are never the same, right? History never repeats, but it always rhymes. So last time it was, "I wonder if the financial system is going to survive." This time it's, "I wonder what happens to all of our economies as the pandemic rolls through."

So let me start there, because you've been through this journey as well. Let's maybe start in 2008. As you were going through this with clients, did you have doubts yourself? And how do you handle them, or think about them, or process them, or just deal with them? Because we don't get to talk about it with clients because we're supposed to be their anchor.

Carl: Yeah, yeah. So first I think there are a couple of quick stories and then I think we can get to some really practical things we can do. So the answer is yes, I had massive doubts, which I'm sure we'll have a chance to talk about in another episode, but I was really sort of a crushed human after I got through it.

Part of that was just my own anxiety and fear, and doubts around things, but I think we're now starting to remember what that felt like. If you've been through it maybe... I didn't know of any people actually that were saying it. Now we look back at Y2K and we're like, "Oh, wasn't that cute?" Right?

Michael: Yes. At the time where it was like, "Oh, my God. What if all elevators stop working because the clocks and the floor timers were tied to the wrong number of digits?" I remember this queuing up to Y2K.

Carl: Totally. Yeah. I was trying to explain this to somebody who wasn't even born yet and they couldn't even process it. My point is that I don't think we've gotten to the point yet where we are saying 2009, 2008, 2009 were cute. People who've been through that still have that in their memory.

Here's a story. I remember I had a friend; his name is Brad. Brad had built this business and he had an offer to sell it. Somebody was going to buy it from him and Brad was one of my best friends. I consider him my brother. I had seen him build this business and I had known what it did.

Just those of us who built businesses; sometimes it's pretty intense, right? I'd seen the sacrifices he had made and he had an offer to sell it. And this was in the middle of all this going on. And he called me and said, "Carl, hey, if I sell this, how are we going to invest the money?" And I remember saying, "Man, I don't know." Right? I don't know.

Michael: It was supposed to be the big moment, clients having liquidity events!

Carl: Yeah. And let me be clear. Brad was not a client. So this is a friend who I could say, "I don't know."

Michael: We didn't say “advisor friend” having their own liquidity event?

Carl: No. This is a friend who wasn't an advisor, right? He was building a different business and he was coming to me saying, "Hey, I'm... Obviously, whenever I have money, I'm going to trust you to invest it." And I was saying, "I don't know."

I remember telling my wife that and my wife was like, "Well, wait. How should we invest our money?" And I was like, "I don't know." So where do we go from, "I don't know?"

So this is the other story that I think is really valuable. Dan and Barbara were two clients of mine, and to make a long story short, Dan was laid off because of his age. They were downsizing and he got a buyout. That's what we'll call it, a buyout package. 95% percent of his net worth was in the stock of the company that he worked for when he came to me. It was a substantial amount. It was close to $2 million in the early 2000s and the stock was at $40 without getting into the details of which stock it was, but it was at like $40.

And I said, "Dan, if you're going to become a client of mine, we're going to sell all of that." And Dan said, "Well, why? Because you think the stocks are going to go down." And I said, "No, no, no. Because I don't know. In fact, I would prepare; if we sell, it will double the day after we sell it and if we don't sell it, it will get cut in half the day after we decide not to sell it. But that's not why we're doing it. We're doing it because of our principles, right?" This is all important to the story. Dan, I said, "You can't become a client unless we sell this and we're going to diversify using correct portfolio design principles, not because I know about the stock."

We sell it, and six months later that stock has gone from $40 to $3. Right? And so Dan starts calling me Santa Claus because of that. And I keep telling him like, "Dan, I didn't know. I would have never even wished that to happen. It was just a principle, right?"

Okay. So fast forward, Dan who calls me Santa Claus through every single scary market we’ve had and he would just be like, "Carl, I don't even care...whatever." Scary markets. He was like Teflon from that point on. It was just like, "Whatever." So anything we had happen between Y2K and September 11, as crazy as that was, and all that stuff just didn't faze him.

And then he goes on a cruise in late 2008, early 2009. They leave from LA (which apparently means there were more retired folks?). They get to the first port and Dan calls me. This was with Lehman, AIG – that week. He was on a cruise that week with a bunch of other retired people and he was like, "What's going on? Should I come home?" And I said, "No. Listen, things are pretty serious. When you get home, come meet with me. But just finish... You're on a boat. You don't need to jump in the water." And he's like, "Well, half the people are flying home from the first port." So Dan comes home.

So the reason that all this context matters is because Dan was calling me Santa Claus, right? So this was a big deal. Dan comes home. Dan and Barbara come into my office and I took them through the scary markets conversation that you and I have talked about before. This is the point for the conversation.

I remember looking them in the face and saying, "Dan, look, we're in a lifeboat. It makes no sense. We've kind of prepared for this, but remember, risk is an arbitrary concept until you experience it, right? So all the lifeboat drills in the world – they're good, but they’re not the same as actually getting punched in the face, right? So you're in a lifeboat. The only thing..." After taking them into the whole scary markets conversation like, "Look, it makes no sense to jump in the water. We just need to stay the course." You guys can go review the scary markets conversation.

This is the point for this thing. I remember closing the conference room door and thinking to myself, "Oh, my gosh. I hope I'm right." Right? So there's an internal conversation that we need to be having that we probably do need to keep separate from clients. And in the internal conversation, we need to acknowledge that when we say that cute little phrase where we say the last four words of any great investor, "This time it's different," what we mean is the end is never different, meaning they always end. So far they've always ended.

And so we need to acknowledge two things. One, the beginning is always different. Right? The stimulus for these things is always different, enough that you feel like...

Critical Events Precipitating Client Anxiety May Always Start Differently, But They Have Always Ended The Same [00:11:05]

Michael: Right. This time it's coronavirus pandemic. Last time it was a financial system meltdown from the mortgages. The time before that it was 9/11 and the tech boom and crash, then it was algorithm trading in '87. It was an oil crisis in '73. They are always different.

Carl: They're always different.

Michael: The precipitating thing that at least sets off the chain reaction is always different and, right or wrong, the presumption is always, well, it's going to end the same and the ending is, "We get through this, things get growing again, scary stuff eventually ends, and then we move on."

But as you said, there's this lingering thing, right? Clients have this lingering doubt, "Okay. But what if it actually is different?" And right or wrong, true or false, we'll see. That seed gets planted in our own heads as advisors, like, ''Oh, my gosh. What if it is different this time?"

Carl: Yeah, yeah. And I think there are a couple things that are super important. One is that the beginning is always different enough to make you feel like it's unprecedented. We've never seen anything like this before. That's always true.

So it feels like, yeah, in the middle of 2008 and 2009, we weren't just talking about, "Oh, it's scary." We were talking about things we never heard of before, the credit default swaps and who knows? And people didn't even know how to explain it. It's always different. So first, we need to feel that, "Okay. This is different. It's okay for me to be scared because this is unprecedented. We've never seen this before."

Number two is the idea that it will always end. We just need to acknowledge that that little creeping doubt... We weren't basing this off 95 years of stock market data. Right? And then you want to go back a little bit further and say, ''Oh, no. I'm not. I'm betting on the concept of capitalism." Okay. That's fine too, but the concept of capitalism...when we talk about the window of human history, we're still talking about a relatively short time period.

Michael: Okay. You're ratcheting up my fear here, Carl.

Carl: I know, I know. It's on purpose. We need to at least acknowledge that that is uncertain, but what do we do? So here's the solution my head. The way I go through it is believing that this time, the ending is going to be different. Even though it's a possibility, I think acknowledging the possibility is important. Not externally, internally between us advisors, it's important for us to go, "That feeling I'm having, I need to acknowledge that, right? I need to find a safe space to talk about it."

But just because something is possible doesn't mean it's likely. Right? So the only thing left to do is live in this uncertainty and say, "Okay. How do I make a decision? I've got to rely on the weighty evidence of history." It would be unreasonable to assume that this time is going to end differently because the only precedence we have that we're making all these decisions on is that you know what? We get through these, we figure it out, and we get through them. Right?

Michael: Well, it strikes me as well. I remember particularly going through this in 2008. It was different to me when the tech crash happened and 9/11 happened. The actual stock meltdown, well, for the tech crash was fairly confined to tech. Granted, everyone was obsessed with tech and they wanted to put all their money into the Nasdaq cubes instead of broad-based portfolios.

So people got to concentrate and portfolios got hammered a lot harder. But broad-based portfolios held up quite well. Heck, small cap value even went up while all the rest of the market was melting down because it had been so neglected in the late '90s.

Even when 9/11 happened, I felt there was this reaction in the country of, "We got hit. America is strong. We'll bounce back." There was such a surge of patriotism that I felt this acknowledgment, "Yes. We got hit and this may have done some economic damage, but we're better than this. We're stronger than this. We will power through this." And the surge of patriotism that came to me, I never had doubts in 2001 going through 9/11, of, "Would markets be okay? Would the economy be okay?" Yes, terrorism has hit home. Our lives have changed." We haven't gotten away from TSA since. But there were never doubts for me in telling clients that they needed to stay the course, about staying the course.

2008 and 2009 to me felt different, right? Even as participants in the financial services industry, we were seeing things that we had never seen before. Institutions that we were accustomed to, even within the industry, were suddenly disappearing and vanishing. Organizations that had been around for a hundred-plus years were suddenly vanishing basically overnight.

I remember conversations with clients of the firm in the fall of 2008, trying to keep them on board, and all the same stuff – this too shall pass, let me pull out the charts, here's how long it typically takes for recovery and bounce back periods – all that stuff that we try to do to anchor people. But I'll admit for that one, that nagging fear in the back of the mind was definitely there like, "Man, I hope this is actually true because if it's not we're all kind of screwed here."

The irony to me, at least with the nerdy logical rational brain that I have, frankly, was that it was kind of a comfort in some ways. It sort of reminds me of the bunker portfolio scenarios even before the coronavirus. The folks that want to buy 100% gold because they think the whole economic system is going to melt down someday for all the various reasons that they think the whole economic system is going to melt down.

There was always a piece of those scenarios of like, "So what exactly are you going to do if it really melts down? Are you going to chop the gold with your knife?" You really need guns and food storage. And even that's only going to last you so long if literally the whole economic system has melted down.

There comes a point where I feel like you have to keep powering forward not just because the alternative is too awful to contemplate, but because there are no tools for the alternative where you're like, "We can talk about gold as a hedge, but if you really want to blow up the entire economic system, gold ain't going to cut it." That actually still assumes there's some foundation of government and systems that cares about gold and the interchangeable nature of commodities as opposed to just owning hard goods.

It's not exactly the same, I think, for this coronavirus cycle. But the more it grows, the more it compounds, the more these discussions of sadly how many people may die, how much loss of life there will be, how much permanent harm we are doing to the economy as travel starts grinding to a halt and business starts grinding to a halt. These questions start surfacing again like, "What if we don't come back from this?” or “What if we don't come back in the same way that we have all the other times that terrible things play out?"

But I still keep coming back to some combination of, okay, well, we actually still have some historical precedents for this like the Spanish flu. And yes, eventually, the world did come back and it did grow again. We still get through this. We're not quite at the 12 Monkeys level and I don't know what the alternative would be anyway.

There comes a point where you may as well bet on the system recovering because none of our bets really matter if you think it's not going to. It's sort of a Pascal's wager. Do you want to bet that God exists or not? Not to go into an entirely religious direction here, but famous philosophy wager around should you bet that God exists or not. And it essentially comes down to well, you may as well because if you're right this is going to go well for you and if you're wrong this is going to go really bad for you. But if God doesn't exist, you're not giving up much by betting he does. So you may as well go for it.

I feel like there's a similar thing that comes forward, but even that to me still leaves this lingering doubt. It means that we're sort of assuming this blind confidence for ourselves. I'm going to tell clients, “You gotta keep going, it's going to be okay,” even though I'm actually not sure deep down it's going to be okay because I don't know where else I could take them anyway. So we may as well keep going down this journey together and we'll all collectively pray it works out.

Carl: But here's the deal with that. Right? So number one, what are you going to do anyway? What are your alternatives? That's the way I always think through it. What are my alternatives? Okay.

Number two, the only rational conclusion based on the weighty evidence of history – at least the piece of history we're using – the only rational conclusion is that we'll get through this. Right? And we just have to remember that humans are uniquely qualified and really good at dealing with problems right in front of their faces. Right? MacGyver bubble gum and duct tape style. We'll figure this out. I don't know, but we'll figure it out. Right? We're terrible at understanding what's going to happen two weeks from now.

What has Nick Murray been saying? Optimism is the only realism. Being irrationally optimistic about this is the only thing to do and it's actually that “We'll figure it out” has been true. So I'm totally cool with assuming otherwise. If I had a bunch of data that told me that, "Oh, you know what? It actually turns out 50% of the time, we don't figure this out."

But so far and what I'm talking about figuring out is the capitalist system speaking broadly. I have no idea. If you own individual holdings or you've made bets on Bitcoin, or you bet on whatever else, gold, any individual, I have no idea. I only know how to handle this: when I've got a broad-based globally diversified portfolio that's aligned with what I said was important to me. The reason my money is invested that way is because it gives me the greatest likelihood of meeting my goals based on the weighty evidence of history. That weighty evidence of history included the idea that we would have markets like this (in air quotes).

We didn't know when, we didn't know how, but we knew they would come and we're not even... Where are we, 25? As we're speaking I don't know what the numbers, but we've crossed into bear market territory. But we're not down 50. The S&P 500's not ... The Nasdaq's not down 82 or whatever it was in 2002. Right? And I'm scared to death. I'm talking right now as if I'm not, but, of course, I am. I'm human. But this is the dialogue we have internally.

And then there's one more piece that I think is useful for people to remember. So now let's talk a little bit about how you would feel it out with clients. There are times when overconfidence plays a productive role, where overconfidence becomes a tool in a backpack, right? And I can't find the reference, but somebody told me about the role, the sort of research that had been done in military science around times where you have to look people in the eyes even though you're not sure yourself and say, "It's going to be okay."

I've been in places like that in the woods in some of the adventures that I do. I've been in places where I was, "I'm not sure exactly this is going to work out." I was the leader. I couldn't look at the other people and go, "I'm not sure this is going to work out." I had to look at them and say, "I know you're freezing. I know you're cold. I know that's a really scary place to go, but listen to me. We've got to go there." Right?

So, Dan and Barbara, that's what I had to do in that meeting. I had to say, "Okay, look. I'm not sure. We're in uncharted territory. I can acknowledge that. This field is crazy, but Dan and Barbara, I can't think of anything better to do. We built this portfolio based on your values and goals. We're broadly diversified. We followed all those principles. We got low-cost investments. The investments are working like we expected them to work in this environment. Right? There's nothing broken there. There's no fraud. I can't think of anything we should do differently," and then I have to walk out and go, "Oh, gosh. I hope I'm right." Right? That's all we can do.

If there's something better to do, tell me, but I can't think of something better to do. And we might be wrong. But to assume we're wrong would be to deny the weighty evidence of history. How about that?

How Advisors Can Use (Rational) Overconfidence As A Powerful Tool For Effective Leadership During Difficult Times [00:25:21]

Michael: It's an interesting point of just how we talk about these as behavioral biases, all the negative implications of behavioral biases, which overconfidence is always one of the big ones that's out there. But yeah, I think you sort of indirectly make a good point. There's a reason why this behavior got naturally selected for that, right? If it was actually counterproductive to our survival, the people that carry that trait tend not to survive. There's a reason this is honed for us and I think you make a good point. Right?

Take it out of modern environments and back to our roots just a few thousand years ago. Almost everything in the world was scary uncertainty. We didn't know how anything worked and every day was just survival mode with the herd, right, with fellow humans, where someone was the leader leading the herd. And you needed a confident leader, and the leader may or may not have actually known what was going on. But someone has to lead and you have to lead confidently or people don't follow. Right? It's one of the first things you discover. I still remember as a parent early on, learning that lesson that if you see your child fall and get hurt and you rush them upset that they got hurt, they just get more upset because they see you're upset.

If you want to calm a child when they’ve gotten hurt, when something's happened, you have to be calm and exude the calmness, and they feed off your calmness. And it helps to settle them down even if you're still thinking about it in your head like, "Oh, my God. Did you just break a bone?” How about, “Is she hurt? What just happened?" Right? All those thoughts are rushing in your head as a parent, but you have to exude the confidence because it helps the other side even when you have the doubts or the worries in your head.

I think there’s a striking similarity; there’s a striking parallel here to me. It's just recognizing that it's okay to be confident. It's okay to be overconfident. It's okay to be irrationally overconfident sometimes. And you can still recognize that you might be wrong in the back of your head. Right? We don't know these things. We don't know the future. I cannot unequivocally know that this time won't be different and if it will end the way it was kind of differently leading in. But at the end, I've got a role to play in trying to transfer that confidence to my client, which means even if I've got doubts, I need to carry the overconfidence. That's part of the burden we bear.

Carl: Hey, Michael, one quick thing I just want to point out is it's not irrational overconfidence that we're talking about, right? Because we've already said the story; so yes, it's overconfidence…

Michael: It's rational overconfidence.

Carl: We're not talking about a leader who's going to take the whole world down in flames. I don't want you to run with me off a cliff. What I'm saying here, based on everything I have, the course of action here is still uncertain, which is me acknowledging the reality of uncertainty internally and then saying, "We don't know."

And in the face of that uncertainty, this is a little different than a critical care doctor that looks at somebody knowing that person is going to die, but saying, "You're going to be fine. You're going to be fine." Right? This is different than that in the sense of this is a critical care doctor that's more like, "Well, this is touch and go. I don't know how the situation is going to work exactly, but I've been through this a couple times before. And I think there's an 85%, 90%, 95% chance that if we get this person in the hospital quick enough they'll survive."

They're not going to talk to the patient, and say, "I think there's an 85% chance that you’ll be okay... But there's still a 15% chance you're going to die." They're not going to say that. They're going to look at you in the eyes... This is what we're talking about here, right? This is rational overconfidence. They’re going to look at you in the eyes and go, "You're going to be okay. Stay with me. We got you." Right? That's rational overconfidence. I don't even know if it's the correct way to say it, but that feels different to me than like, "Follow me. We're going." It feels different to me than "Braveheart" – against all odds and it will happen to work out. Well, if this were against all odds, we would be making a different decision right now.

How Advisors Can Deal With Lingering Doubts Even While Reassuring Clients [00:30:05]

Michael: So I like the framing of rational overconfidence. But I guess as we wrap up, the one other question I'd put back to you, Carl, is just how do you handle, how do you process, how do you quell the doubtful thoughts that still sit in the back of your mind as you're trying to have that conversation with clients?

I think some of us, maybe more than others, but all of us, at some point, still come back to the thought of, "Man, I hope I'm right about this, but I'm not sure."

Carl: Here's the tool I wish I would have used in 2008 a little more explicitly. I was doing it in my head, but I didn't realize I was doing it. And it's what I do now. Write yourself an argument. Pretend like you've got to convince a court, a jury, of the position you've taken. Get it written out; it should just be one page, right, with a Sharpie even. That's the level of resolution I'm talking about.

So you just go through like, "Here's how I've made this decision that the best course of action right now..." You're dealing with a complex adaptive system, right? It's changing. New information's becoming available. So you're going to have to keep updating this thing.

But I think you write out, "Here are the principles. Based on the weighty evidence of history, da-da-da-da-a. I recognize that this time the beginning was different." And at the end, you come up with this conclusion that, "Based on all of these facts, the only reasonable thing I can think to do is to stay the course because of all of this."

Then if you have that written down, keep pulling it out, right? Just use it as a touchstone because what happens is you swirl and you lose track of what you're even swirling about. And then you can go, "Wait, I've already made this decision" You can pull that document and go, "Is there any new information that requires me to change what's on this document?" Because if you keep that touchstone there and keep going back, you'll catch yourself. You're going to still do it 50 times a day. Right? You're going to wake up early and see how Tokyo opened or whatever. Right?

But if we can get to the point where we can take ourselves back to breathe at a touchstone, the things that we can control are on a piece of paper and then we have to let go of the rest. That's it. Right? That's all I've got. I've been thinking about this for a decade. That's all I've got.

Michael: Yeah. And for me, I think it really comes back to this fundamental challenge. I don't know what the alternative is that I would plan for anyways. There comes a point where there is no Plan B. Right? Markets may go down, they may go down a lot, and they may go down a lot, a lot. Some people may die. A lot of people may die. The economy may go down some. The economy may go down a lot. Heck, take it back to the Great Depression when the market crashed almost 89% from top to bottom – and we aren't even that bad yet. We've had such horrible stuff, but at some point, humans move on and adapt. The system adapts. We start growing again. We move on to new opportunities and new highs because if the whole system just fundamentally breaks, I don't know how else to plan for that anyways. And not to be totally morbid about it.

It's amazing how adaptive the system can be even in the face of horrible, horrible stuff that has happened historically. But there comes a point where I feel like you have to power on with that belief, with that rational overconfidence framework, because I don't have a solution for the alternative, "What if the entire system stops functioning?"

Carl: Look, I know we have to wrap up, but here's one mental framework I use, around that exact thing. I would literally get down and say, "Okay. Great. Let's go that path.” Right? So then you go down the guns and butter path, really. If we go that path – I used to have this conversation with clients. "Let's just explore this together." Right? "If we go down that path, what would be the reasonable portfolio? What would be our conclusion portfolio?" So let's just go with guns and butter. My clients would say cigarettes and powdered chocolate. Somebody said powdered chocolate. She's like, ''That way I can trade with all of you people who just have powdered milk; it tastes so gross."

Anyway, guns and butter; then the framework I used was, “Okay. Guns and butter would be the appropriate portfolio in that environment.” And then the question that I found really helpful to myself was what percentage of the time in the history that we're dealing with, modern markets history, what percentage of the time has guns and butter been the appropriate portfolio? Zero? Maybe if you've dealt with days? Like, "Oh, yeah. I could pick out a few days where it would have been..." But mainly it's zero. Do I want to make a bet on zero?

That's how I would get that. I realize the odds. Maybe it's 5%. Do you want to make a bet on 5% or 95%? In the end that's where we get to be rationally overconfident. Just the odds are in your favor of saying what you said, which I think we've got to remember. It's unbelievable how good humans can be at adapting and making something work, at figuring things out. We've gone through way crazier stuff and we don't even know what the role of the massive amount of news, social media, the stable market we've had, politics, and nationalism. And you mix all that in and it's, "We'll figure it out. We'll figure it out." So anyway, that's all I got for you.

Michael: The takeaway to me: it's okay to be rationally overconfident. It's the reality of our role in trying to lead clients that sometimes as a leader, you have to express a rational level of overconfidence, even if there are some nagging doubts in the back of your mind, and it's okay to have the doubts.

That doesn't make you a bad advisor or a lesser advisor. You can acknowledge the doubts and recognize that you have them. And then do what you need to do to help move clients forward.

Carl: Yeah. I'm fine. I know we'll record another episode about this probably, but just on that little note, just find a place where it's safe for you to have those doubts. Right? Whether that's a paid place or a friend, you gotta have a place that's safe to have those doubts where you can just go, "I don't know."

Talk it through. Hug it out. Well, don't hug it out right now. Air hug it out and then get back to being irrationally overconfident because we need you. Right? We need you, and the people need you. So thanks, Michael.

Michael: Thank you, Carl.

 

***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.

Show Notes

• Self-Care And Self-Compassion In Times Of Financial Stress And Anxiety
• Kitces & Carl Ep 06: Building Resiliency For The Stress Of Being A Financial Advisor
• Kitces & Carl Ep 17: Responding With Empathy When Clients Call About ‘Scary’ Markets
• Kitces & Carl Ep 30: Conveying Rational Overconfidence In Talking To Clients About Coronavirus Fears
• The Value of a Real Financial Advisor
• Why the Abandonment of Buy & Hold in Favor of Tactical Asset Management May be a Symptom of Posttraumatic Stress
• Goldman Sachs Employee Resilience Program
• David Foster Wallace Commencement Speech
• Benefits of Cold-Water Swimming
• Benefits of Breathwork
• Exercising To Manage Stress
• Six Reasons To Drink Water
• Scheduling Time for Self-Care

Kitces & Carl Podcast Transcript

Michael: Greetings, Carl.

Carl: Hello, Michael.

Michael: How are you doing?

Carl: I’m great. I’m great. Things are good, right?

The Stress That Financial Advisors Themselves Experience As They Help Anxious Clients Make Critical Decisions In Times Of Fear and Uncertainty [00:01:03]

Michael: Things are good. Well, yeah, it’s been a rough couple of weeks. I don’t know that “good” is necessarily what comes to mind for everyone offhand, but I’m always looking forward, always seeing what the opportunities will be in the future, even when things are really, really tough.

I wanted to talk about that theme, though, for the discussion today, as we’ve talked about in the past – this burden of rational overconfidence that we have to carry for our clients even when all this stuff is happening and the world gets really scary for a while. We do that to try to lead clients and bring them forward, but it takes its toll on us, right, as advisors?

There was a study that had come out back in... I think it was 2010 or 2011, looking at the advisor community in the aftermath of the financial crisis, and found that a significant portion of advisors were exhibiting PTSD-like symptoms. I don’t want to minimize people who have been through full Post-Traumatic Stress Disorder; it was not full-on PTSD. But similar symptoms were being exhibited by huge portions of the advisor community over just what we go through when it sometimes feels like we’re punching bags or a venting point for every bit of stress and anxiety that clients have been going through over the past several weeks.

And so, I wanted to talk today about our wellness as advisors, our mental health, how you keep yourself sane and healthy when there’s that much negative energy from clients flowing at you, plus whatever stress you may or may not be going through for your business, depending on how much your business, and yourself, and your employees have been impacted by coronavirus. How do you handle your own mental health when times get dark like this for a while?

Carl: This is such an important conversation, and it’s one I’ve been trying to have for the last... well, since 2008 and 2009. To a large degree, it’s why I moved to New Zealand, because I was a broken human on the heels of 2008 and 2009 and everything I went through with the business, my family, and everything during that time because I didn’t know how to deal with this. I sort of appointed myself a couple of years ago, I appointed myself vice president of unspeakable things.

And so, I would start talking about this at conferences. And you can imagine how that went over, right? Conferences of spreadsheet and calculator folks who would stare at me, and I would be talking about like, “We need to talk to somebody, and if you need to cry, and food, and diet, and all the things you could do.”

These are conferences where it was spreadsheets and calculators, 12 point font and 17 bullet points on a slide, right? And I would always get these sort of stoic looks until after. And then, at every single conference I’ve spoken out for as long as I can remember, somebody has come up to me afterwards, looks around to make sure nobody else is listening, and says, “Man, I can’t. I don’t know if I can do it. I don’t know if I can do it.”

It shouldn’t surprise us. Part of the job of being a financial planner is to be the release valve for other people’s anxiety, right? When things get tough and you and they, sometimes just them, but sometimes you and them, are uncertain about how you should act. It’s your job to make mission-critical decisions in the face of irreducible uncertainty.

And you’re doing it with people that you’re looking in the eyes and who you’ve seen cry in your office. You know what the money’s for – you know it’s for Susie to go to Harvard, you know it’s for the parents to never end up like their parents… whatever their goals.

If you’re doing work like a real financial planner, you need to know people’s values and goals.

Michael: It hurts more.

Carl: Yeah, it’s serious business.

Michael: It hurts more. It’s kind of the irony, right? The clients we have a looser relationship with, it’s numbers on a page. The clients that we build deep plans and relationships with, these are friends – these are people we have relationships with – that you’re watching scared and in pain or, in some cases, actually watching their goals change and evaporate.

Because at some point, things may be down enough that it really is going to change their lives, right? Not everything always bounces back in a timely manner for everyone. That’s why we have sequence-of-return risk. We watch clients deal with this live, in real-time. And it takes a toll.

The Importance Of Acknowledging Difficulty And Setting The Stage For Self-Care [00:06:39]

Carl: So, I think a thing to do is, number one, let’s start acknowledging this, right? Let’s start being okay with the idea. I can tell you story after story. I get these phone calls from the CEOs of big advisory firms.

I got a call two months ago. This was before this thing got scary, and it was from the CEO of one of the biggest advisory firms in a specific country, a big country, who said... I had to take seven phone calls this week late at night from my advisor saying, “I don’t know that I can deal with this.” Three of them, I had to go pick up and take to get help.

So, all I’m saying is step number one is let’s just... As vice president of unspeakable things, I’m granting permission for everybody to talk about this.

So, what do you do? Well, first thing we do is, A, we have to be able to talk about it. We just acknowledge, “This is part of the job.” It’s why being a real financial advisor’s such a hard job; it’s because not only do you have to be a technical rock star, right? Like a ninja nerd.

You’ve also got to be able to give people empathetic hugs, and you personally have to be resilient enough to help people make really important decisions in the face of irreducible uncertainty. No matter what you do, you can’t get rid of all the uncertainty that you’ve got to deal with.

So, I think step number one is just acknowledging it, right? And having a place. That’s why I’m sort of really heartened by the work that’s going on in the financial therapy sort of side of our business. The Kansas State work that came out around PTSD-like symptoms, losing sleep, thinking about changing your investment process.

And, now, we’re having the benefit of other industries saying, “Hey, diet, sleep, time outside, and movement, and breath.” Five things. Those are the things I’d be focused on. That’s what I’m doing right now.

We’re talking about this in the middle of coronavirus. I live in London. There are a few people here who have been to other countries. What can I do? Yeah, make sure I’m getting in the cold water, make sure I’m eating well, make sure I’m getting good sleep, right? Those are the only things I have to control. So, I think acknowledge and then do some of the work.

How about this? Goldman Sachs has a resilience week. I asked to speak at it one year. I don’t know if they’re still doing it. So, we’ve got plenty of research around what makes a human resilient, and I think we need to just start paying attention to it.

Sorry, one last thing. The hardest part about all that research is exactly at the time that you should be doing the thing, right? Getting sleep. Let’s just pick the easy one. We know, irrefutably...

Michael: So, if I’m really stressed and losing sleep, your recommendation is I should get sleep?

Carl: Yeah, yeah, yeah, yeah. That’s the thing that stinks so bad about this; this is exactly the thing. So, we know without a doubt, the research is clear, staring at your phone for an hour before you go to sleep will result in suboptimal sleep. We know that. There’s no debate anymore about that. So, turning your phone off for an hour and finding a way to downregulate before you get in bed would be one of the most important things you could do.

The other day, I went up to go swimming. I’m pointing as if people will know. I went up to go swimming. I swim in really cold water for this purpose, this exact purpose. It helps downregulate. There’s a whole bunch of research around it. And I went up to do it. I was with a friend, and we were walking up to the pond. It was 5°C. And I thought, “Oh, you know what? I don’t really feel like it today. I probably shouldn’t go.” And this alarm went off in my head. And the alarm said, “The fact that you don’t feel like doing something that you know is good for you is precisely the reason you should,” right?

So, that’s the hard part about all this, is it’s all... I remember in 2008, my wife would say things this, “Carl, you should turn that off and go to bed.” And I would be like, “What? Turn it off and go to bed? This is my job! The world’s ending!” So, I realize it’s hard, but that’s what we’ve got to do.

Habits And Routines To Establish For Good Health and Mental Well-Being [00:11:11]

Michael: Yeah. The time to do all this stuff is, of course, when it’s hardest to do, right? Get more sleep when I’m working more hours, fielding an undue number of calls from clients, doing more meetings with clients, doing more plan updates to try to show them they’re still okay on track.

At the point that everything is getting hardest and craziest is when I’m supposed to do all this other stuff that maybe I should have been doing in the past, but I hadn’t been doing. And now you’re telling me I’ve got to do it when I don’t have the time and my stress levels are at the max.

So, to me, I think the question becomes, literally, how do you do this? What are a few things you would very specifically try to do differently to break whatever your normal habits and routines are to say, “I've got to change something here to keep my own health and sanity through all the stress right now."

Carl: Yeah. So, let's just go as micro as we can. And this is what saved me in 2008. When I use the word saved, I'm actually not exaggerating a whole lot, right? I was catching my breath, just realizing. Because I realized everything seemed out of control, everything seemed out of control, totally out of my control.

I can't remember if somebody pointed it out to me or if just the thought occurred to me, "Wait, there's one thing left I can control." And so, you can literally just schedule...we could do this on your phone. Breath or movement are the two really easy things, or maybe even water. Breath, movement, or water...drinking, right? Breath, movement, or drinking.

You could schedule on your phone, whatever the interval is, but at the very, very longest, every 90 minutes for an alarm to go off. And when that alarm goes off, just walk outside the house, walk up and down the block, and come back in, right? Or every 20 minutes, take 10 breaths. Ten breaths where you control what's happening, at least what's happening to you.

I don't know if this is universally true, I don't know what the boundary conditions are. But what's happening is when everything feels out of control, it's amazing how good it feels to find one thing that I can control. And that sense of control spreads just a little bit, just micro it spreads. "Oh, if I can control that, maybe I could go to bed." I wouldn't start with that, because getting good sleep is like...are you crazy? So I would just start by picking your favorite one, 10 short breaths every 20 minutes – I'm just randomly picking 20 minutes – where you just stop.

Because what happens is your breath is really short, you feel anxious, and you don't even know you're doing it. It's like water you're swimming in that you're not even aware of. Like that old David Wallace speech, about the old, wise fish who swims up to the two young fish and says, "Boys, how's the water?" And the young fish say, "What water?" And you're not even aware you're swimming in that water until you go, "Oh, my gosh, look at me." Like this.

And then, you go, “ahhh”, 10 times. Or if that's too woo-woo for you, every 45 minutes, hour and a half, whatever, set an alarm to go off. When it goes off, get up and do 10 minutes outside. I don't care how cold it is, I don't care if it's raining. Don't give me rain, I live in London, right? Go do 10 minutes outside.

Michael: Well, I would even take that one step a little bit further. Most of us, right now, we're living off our calendars as client meetings fill up as we're trying to work with people. Put it on your calendar. Just put it on your calendar at whenever you want, 10:00, 1:00, and 4:00, 10-minute walk outside. Just as you said, throw on the jacket, get some fresh air. Do not bring your phone. It's okay, you'll be back in 10 minutes anyways.

Carl: Beautiful.

Michael: Put it on your calendar, three 10-minute breaks. You're going to go outside, not with your phone, and just walk and take deep breaths, and do it every day for the next two weeks. You can schedule the rest of the meetings around it. At some point, you got to eat, and take bio breaks, and grab a glass of water anyways. You can fit in a few 10-minute breathers even in the midst of a schedule.

But if you don't schedule it, you're going to come out of your 9:50 meeting, there's going to be a voicemail from another client who's got some concerns. You're going to grab the phone, you're going to call them back, you're going to talk to them for 20 or 30 minutes, and your break's going to go away. And your alarm is going to go off in the middle of your call, which, of course, then you can't break off in the middle of the call.

So, schedule it for yourself, put it on the calendar, and as with any appointment or meeting, you're not allowed to take a new phone call right before something else is already scheduled on the calendar. Put it on your calendar, respect the time. It's only a few minutes a day, a couple of times a day. And just go outside without your phone, get some fresh air, take deep breaths, and just get a few moments to clear your mind.

The Power Of “Micro-Actions” To Quell Stress, Promote Healthy Habits, And Provide A Sense Of Control [00:16:53]

Carl: I love that. And I think another little mental trick you can play there is just to acknowledge that you are your most important client. And this idea of sort of losing yourself in the service of others. Some really smart people historically have said that, right? Lose yourself in the service of others.

It's true, but it's only true if you're not broken. And so, I think there's plenty in the wisdom traditions around the idea of finding a place apart to sort of find space for yourself. And so, this isn't a reward for doing good work, it's a prerequisite for continuing to do the good work. And this one last thing that I think people...at least for me, one last thing that I think... this trick we play in our heads is we tell ourselves, "Ten minutes outside? Come on. That's not going to make a difference."

So, we think it's too simple, it's too basic, it's not going to make a difference. That's exactly the point of a micro-action. I define a micro-action as something so small that you don't even think it's worth doing. We should know this. Of all people, we should know this. We should know about the compounding effect of small activities taken repeatedly over time.

So, if that's all you can do right now, is schedule four 10-minute walks, please, right? I agree. And you'll start finding, "Oh..." Last story, sorry. I remember travel. I was always this way with travel. And my strength coach and my family would say, "Carl, you've got to keep yourself sane on a trip. The first thing you're supposed to do when you get to the hotel is go down to the gym and do this 45-minute workout."

They had this whole thing laid out for me. And I'd get there and be like, "Forty-five-minutes?" The last thing you feel like doing after a six-hour flight is going down to the gym. At least I haven't gotten there yet where I feel like doing it. I feel like sitting on the couch and ordering something.

So, I would just put my shoes on, right? Like, "All right, I don't feel like... Just put your shoes on. Your shoes are on. Why don't you wander down to the gym? Just go down and check it out, see where it is. So, tomorrow. See where it is so you know how to get there tomorrow. All right."

And then, you end up finding yourself in there, you think, "Oh, I'll just warm up. I'll ride the exercise bike for 10 minutes. I'm here." So, that's, that's what happens, right, is we get a little bit of control? Breath, 10-minute walk, whatever. That sense of control starts to expand a little bit, and we start to feel better.

Michael: I love the framing of sort of creating micro-changes, trying to set different micro-habits for yourself to change the trajectory as you kind of get in the habit of new micro-habits. You had said earlier, there's kind of sleep, time outside, movement, breath, and also just diet. I know the challenge for some of us. I tend to want to eat more when I'm stressed, as a lot of people do. So, eating habits get worse at the exact moment that we're supposed to distress and try to do better.

For me, A, the habit, actually, even before this environment that I had started a few years ago to get better about this was I always keep a giant glass of water on my desk. Just always keep it filled. I don't always drink it. Sometimes it sits around too long, and I pour it out and fill up a new cup.

But it's amazing how much more water you drink and getting healthier when you just always keep a cup full on your desk. So, get a big cup, fill it with water every morning. And you may find you just start drinking from it because it's there as you're going through stress and your body may be craving something you don't even realize or have the time to go get it, but you'll drink it if it's there.

So, just keep a full water glass nearby and buy some healthier snacks. I found a good, healthy popcorn with not a bunch of junk added on top of it. And so, now, when I'm worried, and I'm stressed, and I'm getting hungry, I grab a bag of popcorn. You get popcorn with no fake butter and all the other stuff on top, it's basically just a dry bag of fiber. It's amazingly healthy. You basically can't overeat on popcorn because it's got a lot of volume.

I even put glasses of water and bags of healthy popcorn within arms reach so that if I go for arms reach to grab something, I grab something that's positive for my health and not something that's negative. I know I'm more likely to grab for it when I'm stressed because these are stressful times.

Carl: Totally. That one's really hard, and I agree. I heard something super, super insightful the other day, and I can't remember who said it. I would give them credit if I could remember. But they said any of these changes, you don't have to be 100% in, you just have to be 51%. You know what I mean?

I just want to do that a little bit more than I want to do this. I love that framing because it allows me to be like, "Oh, I don't know if I want to go get in the cold water this morning, but I feel like...okay, I'm 51%." It's so helpful. So, I think all of these things, we're just pointing to the edges, like keep a water on your desk. Could you just make the snacks 10% better, right? Maybe you don't try to not eat volume, which is what you pointed to. You're saying, "Okay, forget it, I'm not going to worry about volume. I'm just going to change what?" right?

And a lot of the intermittent fasting stuff. Peter Thiel talks a lot about quality, quantity, or timing, right? And then, he only tries to focus on one at a time, right? Maybe I intermittent fast for a little bit, and then I'm only going to eat during eight hours a day. During those eight hours, I'll eat whatever I want right now, but I'm just going to... Because that helps with inflammation and helps me feel a little bit better, right? Or maybe I'm not going to intermittently fast, I'm going to eat whenever I want, but I'm only going to eat high quality, right?

So, I love just the idea of just can you make a little game, can you play a little bit, can you find a way to keep yourself accountable, are there other people you can chat with. But just find small, little things.

For me, what kept me alive in 2008 and 2009 was recapturing control of my breath. And it was shocking to me how just after a couple of days, the sense of control grew a little bit. And I was like, "Okay, how bad is it? Let's dig in here and figure out. Oh, you know what? I can control that, right? And then, I can control that." And the sense of control grew from one decision to the next. So, those are amazing, super good. So, schedule, right?

Michael: So let's do a recap. So, set alarms for breaks, schedule some walks outside, put it on your calendar. And you're not allowed to bring your phone. It'll be there when you get back. Turn off your phone, we're going to say 30 minutes before bed, an hour before bed.

The news will be there tomorrow morning. Whatever problem you're trying to solve will be there tomorrow morning. At least you'll hit it better rested tomorrow morning if you don't go into your moment of sleep, still being stressed, having just looked at your phone.

Carl: And remember, in that moment, you turn it off and you're going to have a hard time, just remember, you're going to loop, right? And, in that moment, go back to breath. It's all you got. It may not work. I'm not saying it's going to work, but at least give it a shot. So, sleep.

Michael: And then, keep a glass of water filled on your desk.

Carl: Totally. Upgrade your snacks, just at least a little bit.

Michael: Upgrade your snacks. So, mine is Quinn's Popcorn. If anybody wants to look it up, you can find it on Google. I have no affiliate offer. Maybe I should get one.

Carl: Oh, no, don't tell them! When you contact them, tell them Carl and Kitces and you'll get 10% off.

Michael: Sure. We’ll see what happens.

Carl: I would add dark chocolate to that. That's another way to just say... I don't love dark chocolate. I don't. I love, love, love just nasty milk chocolate. I love it. But if I buy dark chocolate instead, I still eat it, and it helps a little. I love it and it's way better for me than the dark. And I won't eat as much. That's a little trick I play.

Michael: And just recognize, when it feels like a lot of other stuff is out of control, how powerful it is just to take control of a few of these moments and segments in our lives, what we're putting in our body, how we're sleeping, taking walks, controlling our breath.

Don't underestimate how much better you may feel just to get a few of those moments where you take back control for yourself. And then, get into the reactive mode of trying to help clients through their stresses as well.

Carl: Totally. Amen. Super good, Michael. Thank you. Amen.

Michael: Well, thank you, Carl. Thank you for joining us. And, hopefully, times get more “good” from here.

Carl: Yeah, yeah, totally. I hope we look back 30 days from whatever this day is and say, "Well, wasn't that silly?" That would be the best outcome, right?

Michael: Yeah.

Carl: Okay, man. Talk to you later.

Michael: Thank you so much.