Destination Unknown
The Challenge of Our Time
Missing Persons, Steely Dan, Emerson, Lake, and Palmer, Dollyrots, deadly bacteria, and the challenge of our times.
The Curious Case of The Flesh-eating Bacteria
I just finished Atul Gawande’s “Complications”. A word of warning - do not read it if you are squeamish. The amount of uncertainty in medical diagnoses and surgery is surprising astounding . The amount of variability in determining whether or not to perform many surgeries is statically significant. Where the surgeon and surgery will end is an unknown destination. Surgeons diagnose. They have expectations as to what they will find. The facts and outcome? Uncertain, to a degree that would frighten people if they only knew.
“Recently, I tried “treeing out” (as the decision buffs put it) the choice Eleanor faced. The options were simple: to biopsy or not biopsy. The outcomes quickly got complicated, however. There was: not being biopsied and doing fine; not being biopsied, getting diagnosed late, going through surgery, and surviving anyway; not being biopsied and dying; being biopsied and getting only a scar; being biopsied and getting a scar plus bleeding from it; being biopsied, having the disease and an amputation, but dying anyway; and so on.”
There was also this option: Conduct the biopsy, find the disease (necrotizing fasciitis - it is both likely to be fatal and gruesome), do a complex and uncertain surgery, and save the patient (which is what happened). From a decision science perspective, such as if they had an AI tool that could work through the decision tree in the five minutes during which they had to make a decision, they would not have biopsied. And Eleanor? She would be dead today. If they had taken a traditional approach when they found the disease, they would have amputated most of her leg. They did not. They made a series of human judgements no machine would have made. They saved her leg and life.
“According to the final decision tree, we should not have gone to the OR for a biopsy.”
Now, to be sure, this was an unusual case. Necrotizing fasciitis cases are quite rare. An infected wound, however, is not. This could have happened to any of us who had a burst blister, paper cut, or any open wound, serious or not. The surgeons in this case did not make assumptions. They looked at what could be and pursued their best judgement. There was a certain element of luck, too, especially when you look at the decision tree. Logic would not have led them to the decision they made.
New Fools and Wealth-eating Bacteria
Since my passion is helping people create and sustain financial health, this brings to mind Jason Zweig’s To Be a New Fool In The World. The surgeons were new fools in the best way. While the new fool Mr. Zweig discusses is investment-oriented, it is equally useful when planning your financial life (and other parts of your life). It certainly made sense for the surgeons, whether they had read this article or not. Make no assumptions. Identify what is and what can be, with no labels and no judgement. The math of financial planning is easy. The human side is hard. A new fool/beginner’s mindset is incredibly useful.
Several years ago, we met with a couple earning close to $400,000 annually. These are two intelligent people, successful, hard-working, decent humans. On the surface, they were in great shape. Then we start talking. They had close to $100,000 in credit card and other high interest debt balances. One of them was in tears in our office, convinced that they would never escape the debt cycle, where payments consumed quite a bit of their savings capacity. To this client, their debt was the financial equivalent of necrotizing fasciitis. Untreated, with their existing financial habits, it might have been the equivalent. The other spouse had a vision of owning a share in a plane (this client is a trained pilot who, at the time, flew for fun). Both of these seemed impossible to our clients. How would a new fool look at this state of affairs?
What if you looked at total, available cash flow, after tax, without regard for current payments and existing thinking on how to use cash, and then crafted a waterfall, starting with essential spending? If you then took the remaining cashflow, net of essentials, how could it be applied, given the goals? Collaboratively, we crafted a schedule for debt reduction. Concurrently, we started them building a no-purpose cash reserve so that the next time they had a large expense it could either be paid with cash or the resulting credit card bill could be paid when due. We found enough savings capacity to max fund their retirement plans and to start (not fully fund, but start) creating college savings for their children. Three years pass. No longer are they feeling the burden of credit card debt or any debt other than the mortgage. Habits have been changed. No accumulating credit card balances. No more wealth-eating bacteria.
A few more years pass. During this period, the pilot has acquired the much-coveted share in the plane. How did this happen? When the debt was paid off, that monthly dollar amount was re-routed into a plane fund. Savings are on track for their retirement goal. College is not fully funded. There is a high probability of sufficient cash flow to pay college costs not covered by their savings when the children get to university. By this time, the pilot spouse, while having a significant position and income, really wants to be a commercial pilot - a lifelong dream. Given their level of savings and current spending plan, we determine that this is achievable. It can move from dream to reality, although it means family income will drop by around $200,000 annually. A couple of years pass, with planning focused on this major drop in income. That spouse is, today, a commercial pilot. We defeated the bacteria, yes, and we created a much healthier patient from a behavioral perspective, one that could withstand and strive on much lower income.
Could this have been done other ways? Sure. Debt consolidation. Concentrate all free cashflow on debt reduction until all debt is repaid. Use a HELOC if possible. In this case, the path taken worked extremely well. Different advisors arrive at different plans. Our clients did the work. We, as new fools relative to their vision and financial health, envisioned the possible outcome and helped them make the behavioral, spending, and saving changes that created the outcome.
All of our worlds (I say worlds because we all perceive the world in our own way, creating our own world) are uncertain. There is a body of research related to the increasing complexity, perceived additional volatility, ambiguity, and uncertainty in our world (VUCA). We cannot make the world “less VUCA”. New fools constantly consider consequences and intentionally think about alternatives in an uncertain world. I cannot say that this thinking model will work in all situations. I find it useful.
“All models are wrong, but some are useful” is a famous quote often attributed to the British statistician George E. P. Box.
Both in surgery and in financial planning, until you see what’s inside the person, you do not know what challenge you are facing. You might think you have a diagnosis. You might think you know the answer. You need to be prepared to deal with what you find. You might not have a perfect solution. As you learn more and treat the patient, you might need to adjust. Decisions are not always founded on factual clarity. Everything has a probability of success and failure. We humans make the best decisions we can as we go along and learn. Sometimes, the right answer is improbable. Sometimes, we lose the patient.
We had a client some years back. They sold their business for $1,000,0000. Our client was completely certain that they could replicate this event and immediately bought a $300,000 sailboat and Rolexes for themselves and their spouse. The remaining funds were not nearly enough, given their ages and spending, to support their lifestyle. The expected, future business results did not occur. The client went broke. It was painful to be involved in and impossible to stop.
Clearly, life-threatening bacteria and financial planning are inequivalent. The most probable path to success, acknowledging that there is a measure of luck in all cases, is clear thinking and understanding how our thought processing influences what we see. We do not believe what we see. We see what we believe (for an in depth piece on this, go here). Changing what you believe based on what you see, paying attention to disconfirming evidence, is an amazingly valuable characteristic. This is one of the challenges, and maybe the challenge, of our time.
Thanks for reading. If there is a topic you would like me to cover, please let me know.
Sundry:
My musical inspiration today, from The Dollyrots.
I am currently listening to the OCBO/Brian Portnoy discussion with Daniel Crosby. Highly recommended.
We started a series focused on planning for high income people who are not rich yet. There is no sales pitch. We do not discuss product. This is real planning for real people.