What Does Financial Investing Have in Common with the Rest of Life?

Ted Siegel has over 13 years of experience in finance. But he’s a big picture guy. He doesn’t just think about work relating to finance, but thinks about how his work in finance can relate to other parts of life. In this interview, he’ll tell you about some of his work in financial services and how those insights can be applied to other areas of life.

BlackBoxPhD 3-Point Checklist: How to Apply Lessons from Finance to Daily Life

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Every decision comes with potential costs and benefits. Think about the things in your life that involve risk versus rewards.
Measuring risk is more of an art than a science. Risk can have many different dimensions, so to properly evaluate risk you must approach it from multiple angles.
Look to financial strategies as one way to learn about what to do in life. Although people might think that work in the financial world only relates to finance, there are important principles (such as figuring out how to do things you want to do while avoiding risk) that can be applied to your daily life.

Ted, tell us about your background and work.

I am a graduate of Dartmouth College and UCLA Anderson, and my focus is on alternative investments. My career has been built on finding overlooked, niche strategies. Today, I focus on below-institutional-level investments that don’t “fit” most investors’ criteria. There is typically more opportunity in investments below $10 million, and with investments outside the standard stocks/bonds/buy-rent real estate.

What were some specific strategies you found to be successful in your financial work?

I look for strategies that have a degree of downside protection, but with a solid level of return compared to the risk and liquidity. While many of my investments are alternative, if not outright exotic, investments can be compared based on expected cash flow, risk of cash flows and liquidity of investment.

It goes without saying that measuring risk is more of an art than a science. Therefore, in addition to conducting due diligence on an investment, I conduct diligence on a person. I want to invest in somebody’s specialty; I don’t want a jack-of-all-trades. Even if I am a passive investor, I see myself as a business partner of the person in whom I am investing.

It sounds like your investments are guided by some overarching principles. Can you describe those?

Every decision-maker has to consider a decision’s expected return, risk and liquidity. Risk means the chances of loss, and of how much loss; liquidity means the ability to exit an investment/decision in a quick manner with minimal loss. Liquidity is often the most overlooked factor, but may be the most important. The question is: if my decision needs to be changed, how quickly and at what cost can I change it?

When analyzing a decision, an often-overlooked test is one of opportunity cost. Would doing nothing be better than the current decision? In what ways does the proposed decision actually make one’s position worse? For example, an investor might be better off keeping his savings in the bank instead of investing in a certain mediocre investment.

Can those principles be applied to other areas of life outside of finance?

Absolutely. One area of application could be policy, like financial or economic policy. A policymaker needs to weigh a policy’s benefit, cost, and ease of transition. And policymakers certainly need to consider whether policies actually make the problem worse. In particular, politicians want to point to tangible accomplishments, but in some cases, doing nothing would be the better policy. For example, policies such as the minimum wage and welfare benefits exacerbate poverty in many ways; a policymaker needs to analyze the ways in which these policies increase poverty as well as aid those in poverty.

Are there any other ways that you think your experience in finance can be applied to life?

I can apply this philosophy even to crossing the street. For example, people don’t normally consider that there are risk and reward pay-offs in everything they do. Take the example of should I jaywalk or cross at the corner? How easily can I change my mind midway? These involve risk and rewards.

Psychology, Products, People

Psychology, Products, People

What Does Financial Investing Have in Common with the Rest of Life?

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