Notes, Views, and the Occasional Provocation March / April 2015 

San Francisco chronicler Herb Caen captured a truth about living when he wrote, "I tend to live my life in the past because most of my life is there." Yet one of the defining characteristics of being human is our ability to think about the future. Given this, it's strange how poorly we tend to anticipate what comes next.

This month's newsletter discusses one of the primary obstacles to good planning, and, to give a preview, it isn't lack of good data.

Best regards,

Milo Benningfield

There's No Time Like the Present – That's the Problem
Looking back, most of us see how life did not unfold as we expected. Yet time and again, we have trouble taking advantage of this information. more

BFA Media Quotes
Recent media quotes. more

There's No Time Like the Present – That's the Problem
The assignment sounded almost too good to be true: as a young, newly employed management consultant at an East Coast consulting firm, I was to travel anywhere I wanted in the U.S. to visit strategic planners at major corporations to see what I could learn. In a few months, I would report back to the firm to "increase our knowledge base." There was, indeed, a catch: finding those planners.

Strategic planners once held an honored place at the boardroom table. In the 1940's and 50's, General Dwight D. Eisenhower had demonstrated the power of planning with the dramatic D-Day invasion of Normandy and later, as U.S. president, with his creation of the U.S. interstate highway system. In coming years, large corporations established planning departments to create their own successes and guide them into the future.

By the late 1980's, however, most of the planning departments had been disbanded. Senior executives had become disillusioned by one failed planning prediction after another, and line managers, whose compensation packages were often tied to those predictions, resented the "useless, pointy-headed forecasters." Finding a planner, particularly one who would talk to me, became a search for an endangered species.

General Motors turned out to be a surprising exception, and a few weeks later I flew to Detroit to meet "George," the head of strategic planning. Given GM's reputation at the time for boxy, unattractive cars, I expected an institutional setting with perhaps a small office, beige or gray filing cabinets, and a man in a Brooks Brother suit. Instead, I walked into an expansive room with Persian rugs, framed art, and items such as a model of Horatio Nelson's ship at the Battle of Trafalgar and a map of Waterloo that alluded to the military origins of strategy.

A tall man with a slight British accent, slicked-back hair, and colorful suspenders, George ushered me to the "living room" in one corner. For the next hour and a half, he regaled me with a rapid-fire monologue about the economic history of the world, the increasing pace of innovation, and the delights and challenges of trying to peer into the future.

It seemed generous of him to share his knowledge, and when I left, I felt I'd met one of the most interesting people on the planet. Back at the hotel gathering my notes, though, I felt chagrined, realizing how clever George had been: in all the blur of his mesmerizing speech, he had revealed not one scrap of insight about GM or any of its planning practices.

He did leave me with one nugget, though, that became helpful years later. Planning, he said, was not about prediction. "We can line up all the super computers in the world, but still can't say when the next earthquake will happen."

"Right," I said, scribbling.

"But we can prepare," he said. "We can reinforce our house, buy insurance, and avoid hanging a mirror above our beds."

I nodded, beginning to feel a little bored.

"So why don't they?" he said, leaning forward.

I stopped scribbling and waited for him to continue, but he looked at me until I said, "Because they don't believe it will happen to them?"

"Right!" he said, eyes shining. "They don't believe it because they don't really see it!" Sitting back, he said, "Poor planning isn't a failure of prediction at all; it's a failure of imagination."

These days I think of George whenever a California client resists buying earthquake insurance. To try to help, I share my own experience near the epicenter of the 1994 Northridge quake in Los Angeles: forty-one seconds of terror as the walls heaved, throwing me from side to side as I ran to the front door; fridge falling with an explosive crash in the kitchen, glassware sliding out of cabinets, shattering on the floor. But many times, I might as well be describing a bad hair day; clients remained unmoved.

Harvard psychologist Daniel Gilbert summed this challenge up well in describing how important, yet how limited imagination is in forecasting the future: "Most of us have a tough time imagining a tomorrow that is terribly different from today, and we find it particularly difficult to imagine that we will ever think, want, or feel differently than we do now. Teenagers get tattoos because they are confident that DEATH ROCKS will always be an appealing motto."

In other words, the future is distant while the present weighs heavily upon us, and this, in the end, is the most serious challenge to any long-term plan, not lack of data or computing power.

Two decades after meeting George, General Motors had its credit downgraded and during the Credit Crisis a few years ago filed the fourth largest bankruptcy in U.S. history. I'd like to think that George was already enjoying the fruits of his imagination with a well-earned retirement, relatively unconcerned about GM's fate. But this probably required George to anticipate that his seemingly impregnable pension would someday be at risk, and if history is any guide, even he may not have been up to the task.

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BFA Media Quotes
The New York Times, March 5, 2015
Milo was quoted in an article by Tara Siegel Bernard, "Schwab's Service for Investors Seeking Thrifty Advice Raises Eyebrows," which discussed Schwab's new investment service designed to compete with "robo-advisers." Milo commented on the large percentage of stocks and risky bonds in one of Schwab's allocations, noting that it was "a portfolio with thin shock absorbers." He also commented on the unusual compensation structure of the service, which seemed to influence Schwab's allocation choices.

Read the article.

Thank you for reading. Please look for our next newsletter in June.

Best regards,

Milo Benningfield

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