Shifting Baseline Syndrome – The Consequences of Neglecting Gradual Change

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How did you go bankrupt? Two ways: gradually then suddenly - Ernest Hemingway

Gradual change is hard to manage. It’s difficult to monitor how change is slowly, but consistently, creating significant variations in our environments. Because we overlook slow change, we are shocked when small changes culminate in major catastrophes. In short, we suffer from Shifting Baseline Syndrome.

Shifting Baseline Syndrome (SBS) is an important principle found in ecology. This idea explains how many ecological systems, such as nature conservation, water quality levels, and restoration of wildlife habitats, are destroyed over time.

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Excel Under Stress: One Simple Technique Used by Elite Military Special Operations Forces

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Breathing. An action so common yet so often neglected. We don’t realize the power inherent with our breathing. We know it keeps us alive, but beyond that, we tend to just forget about it.

Improper breathing accelerates stress and anxiety while hampering physical performance.

Proper breathing gives us better conscious control over stress and anxiety and enables peak physical response.

The odds are you have never considered the critical effect proper breathing has on mental performance, especially the ability to perform under pressure and stress. Stress and pressure are constants in our lives. We face it at work, at home, and in activities like athletics. Proper breathing, especially in high-pressure environments, enables peak performance and the ability to defeat your competition.

All it takes is one simple technique.

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Everyday Survival: 9 Ideas to Overcome Life’s Challenges

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2020 has been a never-ending year of adversity and uncertainty.

How well do you feel you were prepared?

Did you easily adapt to the difficult environment? Or did it feel like an endless battle to figure out what’s going on and what to do about it?

If you’ve struggled this year, you’re not alone. Most people don’t handle the unexpected well. And the idea of hoping for assistance from the government or other institutions has been disappointing with their unreliable, haphazard efforts.

Your ability to survive chaotic environments is, and always will be, up to you.

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My Notes from ILPA's 2020 Member Conference - Scrutinizing Terms in a Down Market

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ILPA recently hosted a workshop on scrutinizing fund terms during the recent COVID-19 epidemic. Given the sudden and drastic downturn, funds used levers that caught LP’s off-guard. Below are my notes on the biggest takeaways and areas of concerns for LPs

Overall approach

· Are we getting the transparency we need?

· What do we need to be proactive about

· Are there adjustments to be made with new commitments?

· What have we learned through the COVID experience?

Do we have confidence GP's are using the following tools in the best interests of LPs?

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My Notes from ILPA's Legal Town Hall - Deal Killers

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Here are my notes from ILPA’s 3/19/20 Legal Town Hall on Deal Killers. Several LP’s discussed the most common non-investment related issues they see. While all organizations have different levels of comfortability on these issues, it’s useful to see what risks LPs are seeing and their mitigation approach. These risks focus on issues besides the typical investment and fee concerns.

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Subscription Lines: Key Legal Terms for LP Consideration

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Here are my notes from ILPA’s 2020 Members’ Conference workshop on subscription lines. Michael Mascia from Cadwalader, Wickersham, & Taft LLP led the workshop.

The workshop was a thorough review of both common subscription facility terms and more advanced provisions. The workshop was valuable for both investors unfamiliar with subscription facilities as well as experienced investors.

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The Curse of Vague Thinking: How Empty Rhetoric and Hollow Words Mislead Investors

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Vague thinking surrounds us. It’s permeated politics (“come together in a bipartisan way”), business management (“leverage synergies and create win-wins”), corporate mission statements (“build a corporate culture that respects and values the unique strengths…”), and of course, investing.

Every day we are inundated with empty rhetoric used to hide, rather than reveal, the truth. It promotes laziness and obscures incompetence. It’s a tempting way to communicate. It’s the path of least resistance.

Vague communication is standard in the investment world. Market experts talk in vague generalities and obfuscating one-liners that do nothing to further investors’ understanding of the markets.

The investment world is an unrelenting assault of vague language. Vague verbiage has become a parasite in our quest to make wise investment decisions. Everyone pretends to know the future. No one admits ignorance. The illusion of knowledge is real. It’s become absurd.

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The Fallibility of Experts: How Experts Lead Us Astray and How to Prevent It

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Be careful what you ask experts. Experts are bad at predictions, but are great at assessing base rates.1

Experts are the go-to source for life’s uncertainties. We rely on them for guidance and advice during ambiguous environments. We crave their authority, confidence, and conviction.

But the evidence is clear - experts are awful at predicting the future. Expertise is not synonymous with superior forecasting ability.2

Experts are extremely useful, if properly directed. As we’ll see, we can use an expert’s deep knowledge to improve our decisions. However, the process is not intuitive and doesn’t happen automatically. The burden is on us to ask the right questions.

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Managing Human Error in the Investment Process

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All investors make mistakes. Mistakes happen not only because of misjudgment but the nature of investing. Mistakes arise from universal conditions within the investment world.1 In other words, it’s usually not the person that’s the source of the mistakes, it’s the environmental and situational factors. It’s the system.

Rarely do we acknowledge and understand the system. We neglect environmental factors and reflexively attribute mistakes to personal factors: laziness, inattentiveness, ignorance, etc.

Investors operate in a complex world with imperfect information and an unpredictable future. Add in additional pressure from clients and organizations and investors are primed to err.

How leaders handle human error separates the great investment teams from the average. Better assessment and understanding of errors build a competitive advantage.

Yes, investors make mistakes. But they’re not made in isolation. It’s the system issues that exacerbate personal mistakes. The big idea is resolving “system” issues that will lessen the effect of unavoidable personal shortcomings.

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Managing a Team During a Crisis: Using Survival Psychology to Lead Your Team

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In all walks of life, fear and stress loom on the horizon: they freeze cops in tight situations, paralyze concert performers on stage, and make skydiver’s brains lock up so much that they can forget the pull their parachutes. No one is immune.1

A crisis is challenging for all leaders. But they are exceptionally difficult for the people you lead. Of all the issues to navigate, managing your team’s psychology may be the most important. Not everyone responds well to adversity. Most people don’t. They perform at the lowest level of their training, which is next to nothing. Organizations don’t train to operate under stress. Because people are unprepared, it’s a leader’s job to anticipate reactions and make plans to manage it.

First, we need to understand how humans respond to a crisis. We’ll borrow the lessons of survival psychology to understand crisis reaction patterns. By understanding how people react, we can reduce stress and anxiety.

Second, we’ll discuss steps to proactively help our teams. Stop with vague, naïve advice. Start with evidence-based advice proven in real-world situations.

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The Art of Disagreement: Using Disagreement to Build Better Relationships

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One reason for ineffective decision making is miscommunication. Unclear goals, conflicting objectives, and vague directives all play a role. But there’s one issue that underlies them all. And it’s an issue that makes us all uncomfortable.

The act of disagreement.

We’ve all suffered through a typical disagreement. It starts cordial but devolves into a free-for-all. Anything goes. Egos get in the way. Emotions rise. We feel attacked. We subtly undermine each other. We weaponize our personal grievances. We stop listening and just want to win. Instead of learning, we want domination. We let ego and defensiveness overwhelm openness and empathy. We end up faking agreement to avoid the stress.

It doesn’t have to be that way.

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The Curse of Experience: When More Experience Doesn't Make You Better

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Most people believe experience improves ability. As we accumulate experience, our skills grow.

At least that’s the theory. And the hope. But it’s not what really happens. In reality, we stagnate. We think we’re getting better but produce little tangible proof. As the saying goes, 30 years of experience is often 1 year of experience repeated 30 times.

Think this doesn’t apply to you? Can you honestly describe the skills you have recently learned? What can you do better today than you did one year ago? Or 5 years ago? Could your peers tell you what you’re doing better? Or would they shrug their shoulders?

Do you have evidence of improvement or just a feeling?

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Learning From Mistakes: 5 Lessons from NASA's Challenger Disaster

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Big mistakes may grab the headlines, but it’s the path leading up to the big mistakes that intrigues me. Seemingly inconsequential mistakes, compounded over time, are the foundation for disasters.

Common wisdom says we should learn from our mistakes. Easy to say, tougher to implement. There’s a tendency to look for a smoking gun – find the people that screwed up and fire them. Or find the one piece of technology that failed and replace it. If only it was that easy.

Problems are rarely traced to a single cause. Organizations often fall into the trap of seeking a convenient scapegoat because it’s easy and convenient, not because it reveals the truth. There are several conflicting factors that complicate learning from mistakes:

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Getting Through Tough Times: Lessons from James Stockdale

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If you’re looking for guidance on how to get through tough times, turn to James Stockdale. Stockdale was a Navy fighter pilot shot down during the Vietnam War. He spent eight years in a Hanoi prison. He was tortured fifteen times, put in solitary confinement for four years, and put in leg irons for two.1

You might be facing some stress, but I can promise you are better off than Stockdale was.

Stockdale knew something about getting through bad times. He knew something about adversity and struggle.

Today’s environment demands practical wisdom from those who have overcome extreme adversity.

No matter how tough our current circumstances, others have already gone through it. What we are going through is not unique. It certainly feels unique, but it’s not. Others have dealt with the exact same situations.

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Quit Trying to Time The Bottom And Start Looking For Value

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There’s no shortage of investors trying to guess the market bottom. Fortunately, it’s completely irrelevant to delivering exceptional returns through this crisis.

We’d all love to know when the market bottoms. We’d be able to load up on risk assets and see nothing but immediate gains. But successful investing doesn’t work that way. No one consistently calls the bottom. Some get lucky once or twice, but never in a systematic way. Mostly luck, not skill.

You’ll always be too early or too late. You won’t know the bottom until you look back with hindsight years later. So if you shouldn’t be timing the bottom, what should you be doing?

Stop trying to call the bottom and start trying to find value.

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Resilient Investing: Navigating the Unknowns of a Crisis Environment

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By now, investors have felt the violent market reaction to the COVID-19 pandemic. As with any crisis, the outlook is uncertain as we scramble to latch onto any sense of predictability. But markets, especially in times of crisis, are anything but predictable. Anyone who expects the market to conform to predictable patterns set themselves up for disappointment when the unexpected happens.

Markets are complex environments – full of unknown connections and hidden feedback loops, driving drastic and extreme market moves. Expecting predictable markets is naïve and dangerous. Volatile markets bewilder overconfident investors, as the market moves don’t fit their beliefs of how a market should work.

What does this mean for investors?

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How to Handle Market Uncertainty - Why Emotional Stability Beats IQ

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The limiting factor for investors is not their IQ, but their temperament, rationality, and independent thinking. As Warren Buffet says, "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential. Even if you do have an IQ of 160, you should just give away 30 points to somebody else because you don't need a lot of brains to be in this business. What you do need is emotional stability. You have to be able to think independently."1

Investors who lack control over their temperament make foolish decisions during market extremes. They struggle to respond to unexpected events in a thoughtful way. Instead of approaching decisions in a calm and rational manner, they abandon their process and invest based on their gut. They can get lucky for a while, but eventually will fail. Even brilliant investors who get caught up in the euphoria of a market boom or the pessimism of a market crash will abandon what has worked so well for them. They can’t resist the overwhelming pressure to exert control and do something now, no matter how foolish in the long-run.

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4 Secrets to Improve Your Workday: How to Build Career Success

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#1 Routine, Not Willpower, is the Key to a Successful Workday

It was as if the first few times a rat explored the maze, its brain had to work at full power to make sense of all the new information. But after a few days of running the same route, the rat didn’t need to scratch the walls or smell the air anymore, and so the brain activity associated with scratching and smelling ceased. It didn’t need to choose which direction to turn, and so decision-making centers of the brain went quiet. All it had to do was recall the quickest path to the chocolate. Within a week, even the brain structures related to memory had quieted. The rat had internalized how to sprint through the maze to such a degree that it hardly needed to think at all. The key to a successful workday is to replace manual effort with habits and routines. Habits allow us to process more work without using extra energy that drains us by mid-afternoon. The attitude of hard work is great, but hard work has a downside because it depletes our energy levels when focused on low-value activities. We can’t produce quality work. -The Power of Habit, Duhigg

In his book, Power of Habit, Charles Duhigg explains how to channel habits into powerful assets to improve our lives.

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How Deep Work Can Transform Your Life: 7 Powerful Principles

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Becoming exceptional is hard. The professional world is competitive, full of intelligent and ambitious people vying for the same top positions.

To make things more complicated, there isn’t one exact set of rules we can follow that guarantees success. Hundreds, if not thousands of books are published every year promoting magic formulas for success. But how many of these books create lasting change?

How many of us really achieve the success we expect?

Where do we go wrong?

What do we need to change if we don’t like the path we are on?

Do we practice becoming exceptional like we practice golf, triathlons, or public speaking?

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The Resilient Investor: 10 Habits of Mentally Tough Investors

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Great investors develop mental toughness through proper mindset and habits. These are 10 guiding principles to condition the mind for investment success.

1. They Don’t Worry About Issues Outside Their Control

Much of investing and life is outside your control. Wise investors learn to recognize what they can control and what they can’t. The things that can’t be controlled are ignored.

2. They Don’t Obsess Over Volatility

It’s a fact: every day markets go up and down. Trying to obsessively negate volatility usually worsens it. The value of every asset you own, including your own human capital, moves up and down every day. Only you don’t see it, so you normally don’t worry about it. Do the same for random market fluctuations.

3. They Don’t Judge Success by Short-Term Results

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