“Off the Wall” Podcast

How Your Instincts Are Actually Hurting You, Your Team, and Your Wealth

May 10, 2024 Behavioral Investing

Think you have great instincts? Think again.

Judgments and decision-making are common threads that run through not only your investing, wealth management, and business decisions, but also your quality of life. What impacts these decisions and judgments? Your instincts… (and your counter instincts). Today’s episode is all about how your instincts might be hurting your real-time decisions, your team, your wealth, and even your quality of life—and what you can do about it.

In this Off the Wall chat, host David Armstrong and guest co-host Dean Catino speak with Krishna Pendyala, Founder & Chief Empowerment Officer at The ChoiceLadder Institute, as well as Co-Founder and President of The Mindful Nation Foundation. Krishna is an award-winning speaker, author, entrepreneur, and advisor who helps executives and entrepreneurs exercise better judgment and make wiser choices in business and leadership.

Listen in as Krishna breaks down examples of how our instincts and counter-instincts affect our decisions. He also highlights the easiest way to pause before making decisions and why it’s so critical for executives, leaders, and business owners to pause before every decision. He also shares some great tips for managing impulsive decisions and reactions to fear-based narratives around wealth and finance.

“If you do want to behave differently and not be impulsive, not make hasty decisions, which really end up creating new problems that you end up cleaning up, or in your industry, losing money… that’s where I think counter instincts come in.” – Krishna Pendyala

Tune in to find out how your instincts are impacting your judgment and financial decisions.

Are you looking for clarity, conviction and unfiltered advice about your wealth?

You’ve come to the right place.

Episode Timeline/Key Highlights:

[00:00] Intro

[00:27] Learn about Krishna Pendyala & the topic of today’s episode.

[03:23] How our instincts work and how they impact our decisions.

[06:48] Examples of instincts and counter instincts.

[12:22] Fear and greed are driving the markets.

[16:32] The Power of Pause & The meaning of “Beyond the PIG and the APE”.

[20:35] How do we help clients see how their finances are impacted by their instincts?

[27:10] How to manage impulsive financial decisions.

[36:02] The Power of Loss Aversion: Navigating the emotional impact of loss.

[40:28] The 1 in 60 Rule.

[41:39] Judgment: A common thread in your investing, wealth management, and quality of life.

Please see important podcast disclosure information at https://monumentwealthmanagement.com/disclosures.

Resources Mentioned:

Man’s Search for Meaning by Viktor Frankl: https://amzn.to/3W7kUky

Give us your feedback! Take our survey: https://bit.ly/3RZp77h

Subscribe to our newsletter: https://bit.ly/monumentunfiltered

About Krishna Pendyala:

Krishna Pendyala is the Founder & Chief Empowerment Officer at The Choice Ladder Institute. The Choice Ladder Institute helps entrepreneurs, executives, and financial advisors exercise better judgment and make wise choices to achieve a higher quality of life and not just a better standard of living. Good goal setting and leadership skills enable driven individuals to accomplish their goals. However, we often notice that these same people aren’t as fulfilled as one would think. Too much emphasis seems to be placed on success and leadership development and too little if any on developing basic choice-making or judgment skills. Leadership skills alone aren’t enough to move the needle. It takes both raising judgment and leadership skills to improve the quality of our life and of those around us.

Connect with Krishna Pendyala on LinkedIn: https://www.linkedin.com/in/krishnapendyala

Transcript:

David B. Armstrong, CFA [00:01:01] Okay. Welcome to our Off the Wall podcast here at Monument Wealth Management. As a quick change up, throwing a little curveball here today instead of with Jessica, I’m here with Dean Catino, my business partner and original co-founder of Monument with me way back, by the way, we’re about to celebrate our 16 year anniversary, which is really exciting, isn’t it, Dean?

 

Dean J. Catino, CFP®, CPWA® [00:01:23] It is great to be here, by the way, and it’s great to be filling not the big shoes, but the attractive shoes of Jessica Gibbs.

 

David B. Armstrong, CFA [00:01:30] Well said, well said. And the reason, Dean and I thought it would be fun to do this episode together is because our guest today is Krishna Pendyala, and Dean and I came to know Krishna through a completely separate. We were sitting at dinner together and I just happened to be sitting next to Krishna. We got to talking and and Krishna came in and helped us with, with some coaching and some focusing very early on in our partnership. And so we thought it would be great to almost have a reunion with Krishna through this episode, but then talk to him about some of the things that he’s an expert in. He is the founder and Chief Empowerment Officer of the Choice Latter Institute, and also the co-founder and president of the Mindful Nation Foundation. He is an entrepreneur of several different businesses, and he’s the author of a critically acclaimed book called Beyond the Pig and Ape. And we’ll get into that. But realizing the success and true happiness. He’s an award winning speaker and advisor who helps executives, entrepreneurs, and their teams navigate and make better choices. So with that brief introduction, again, we welcome Krishna to Off the Wall podcast.

 

Krishna Pendyala [00:02:45] Dave and Dean, so good to be with you. It’s been probably a decade since we have kind of gotten together.

 

David B. Armstrong, CFA [00:02:52] And boy Monument, looks a lot different than ten years ago when you last came into the office and visited us. And thanks to you, by the way, for that, because you really you really helped us make some very important decisions early on and midway through our 16 years that we’re celebrating today. But today’s topic is not so much about that, but it’s about instincts. And, you know, hey, look, you think you have great instincts. I think I have great instincts. But think again, because it’s not just about your instincts that we’ve learned through Krishna, but it’s about your counter instincts. And we’re going to talk about that and how your instincts might actually be hurting you and your team and your company and or your wealth. So I’m going to start by just asking Krishna to explain. Let’s talk about how our instincts work.

 

Krishna Pendyala [00:03:44] Actually, Dave, inadvertently, I think when you introduce me, you talk about important decisions, right? In the past. And today, I’m really talking about real time decisions, things that you make in the moment, which we don’t pay much attention. I mean, when you’re trying to, you know, look at a company’s strategic decisions so on. We meet on a weekend, right? We take half a day, discuss it. We bring in consultants, experts and then get their input. But those are not the type of decisions that instincts kind of influence. They influence real time decisions, the ones we make in the heat of the moment. And most people think don’t even know they’re making them. I mean, for those of us who even drive. By the time we get to our first appointment, we made thousands of choices. Think about it. How much pressure on the gas pedal? How much on the brake? We don’t think about that because it’s become second nature to us and you know it. You hear from the military, Dave, how many times you practice a certain move just so that it becomes muscle memory or second nature. But instincts are very different. Instincts are what kept us, kept us alive. And so I, I jokingly say. Who do you think our ancestors were? Thoughtful, deliberate and patient people. No, they all got eaten by the predators. So the strain we come from have the following personality traits: highly reactive, motivated by fear and prone to urgency. And I tell the execs, don’t we behave like that? Or forget execs, anybody? Don’t we behave like that? And if we do, why are you surprised? So if you do want to behave differently and not be impulsive, not make hasty decisions which really end up creating new problems that you end up cleaning up or in your industry, losing money. And then. You kind of don’t deal with it. You just don’t know because it’s second nature and then you end up cleaning up, cleaning up and but still not learn. And that’s where I think counter instincts come in. And here is where I want to start with a disclaimer. If you’re in real danger. Do not practice counter instincts because, as I said earlier, instincts are here to protect you. Survival. That’s why we call them survival instincts. But most of the time we are not in life and death situations. It’s the perceived threat or the fear that makes us make mistakes.

 

David B. Armstrong, CFA [00:06:28] It’s sort of like when you hear people talk about NASCAR, how they say drive to the crash, not around the crash, because by the time you get to it, the crash will have been moved off to the side. You know, if there’s a car skidding out in front of you. And I know from my time in the military, I’m just going to tell a quick story here. If it’s okay. Well, it’s our podcast. I can do whatever I want. Right Krishna? So.

 

Krishna Pendyala [00:06:53] But why have a guest?

 

Dean J. Catino, CFP®, CPWA® [00:06:55] They just talk to us.

 

David B. Armstrong, CFA [00:06:57] Just to talk.

 

Dean J. Catino, CFP®, CPWA® [00:06:58] And talk and talk.

 

David B. Armstrong, CFA [00:07:01] So when I was in the military, one of the units I was in was a unit called a light light armored reconnaissance. And we drove these eight wheeled vehicles that look like little mini tanks with a gun on them. And they carried four guys in the back, and, then two people in the turret and a driver. And we would literally take them on the highway and drive them to, the training area. We’d go right down I-95 with these things, going 60 miles an hour with people hanging out. It’s kind of fun. And when we did our safety brief before we took off, we would always brief what to do if something got in front of the vehicle specifically like an animal or a deer. Because as you can imagine, with a big multi ton vehicle going 60 miles an hour with a pretty high center of gravity, if you try to swerve around a deer, you’re going to flip that thing over when it’s going really quickly. And we would always say, you know, do not swerve to miss a deer. Just hit it and we’ll deal with it afterwards. And that’s sort of a a counter instinct isn’t is that an example of what I was doing with Counter Instinct?

 

Krishna Pendyala [00:08:04] It’s a fantastic example. It’s so, ironic. Last Tuesday I was speaking in Clover, South Carolina, in case if you don’t know if it exists. It’s, about an hour west of, Charlotte. And one of the CEOs in the room owned a trucking company. And just the previous week, he’s best driver, they gave him the best truck, the most expensive rig. And you should have seen he showed me the video of that truck after he swerved. The dashcam video showed them what he what happened. He swerved to hit, avoid a deer, flipped it over and crashed into a huge embankment and it was his side completely smashed. I’m surprised he is alive. And so they in their training, they make it clear. Hit the deer, hit the deer. It’s safer to hit the deer. Otherwise you may end up killing yourself or somebody else. And because why? Instinct is swerve. And it’s kind of interesting you brought the NASCAR example too. I think there’s a lot of information to unpack in the NASCAR because when the crash happened, so they typically fly off the course. But our instinct is to go off the course and then we’ll actually hit them. And I actually did that because I used to go to driving school, racing school and a guy and he the guy in front of me, it started misting. It wasn’t even raining. And a guy in front of me spun out. So what did I do in order to avoid him? I left the course and I didn’t know at that time. And they taught me that wet grass is like glass, so I had absolutely no traction. Kept flying down the side. You keep bouncing off of the rubber wall or rubber tires and eventually went and hit him because he was also there. True story 1999. And yeah, it was, I think 1999 or 2000. So ever since, it’s, I mean, you have one example about, swerving. And when you swerve, you typically swerve. Let’s go further into the oncoming traffic because they’re in your lane and many times on two lane highways, when somebody these days especially, we are highly distracted doing other things, they get into your lane. And instead of going off the road because there might be a guardrail, we actually get into oncoming traffic. Because that’s our natural reaction. That’s what a natural reaction is. So unless you practice, practice, practice and again, you know how many times you do a drill in the military, how many times they do a drill in the NFL. The same play people don’t realize they practice it 200 times a day sometimes.

 

David B. Armstrong, CFA [00:10:57] Right. And even mentally practicing it, you don’t necessarily need to major muscle movement practice something. You just need to think about it mentally. Like I’ll go back to the deer in the military vehicle you just had to envision, like, okay, if I see a deer come out in front of me, I am going to keep driving straight and you just had to see that in your mind and keep going and keep being reminded of it also.

 

Krishna Pendyala [00:11:19] In fact, in my workshop, I call it a pre-loaded response. So you load your response in advance of it happening. I mean, I’ll give you two other instances. One, if I’m running late because I’m doing about 90 workshops a year, which means I’m driving to the airport quite a bit. And if I’m running late, which we all end up, what will we naturally do? Speed up right? And we have a windy, we have a windy road between our home and the highway. 25 mile an hour windy road with a lot of deer. So talk about, you know, set up for a crash and if I speed up. What are what’s going to happen? I’m going to increase the probability of never making that flight. And I got to talk myself into that before I get in the car, because the environment tends to really guide your behavior. And that’s a perfect one. I go into homes with friends homes and they have CNBC running. I first thing I do is turn it off. Because, you know, it drives everybody crazy. And they don’t even know that because they are now riding the up and down of every structure they own.

 

Dean J. Catino, CFP®, CPWA® [00:12:30] So let me let me jump in. That’s a that’s a great Segway here because we here at our business and it’s it’s well known what drives the markets? You know fear and greed. That’s what we’ve always heard. And it’s probably relatively true. You know there’s a you could debate that a little bit as well. But it is a driver of the market. It’s kind of feeds into a herd mentality one way or the other, which Krishna, I know you’re, you’re very familiar with. And the other thing too is when I, when I hear fear and greed.

 

Krishna Pendyala [00:13:03] Instinctive. You see. Notice that word hey and non and non-English speaker.

 

Dean J. Catino, CFP®, CPWA® [00:13:09] Yes. Counterinstinctive. And I know that’s a common mistake. Common mistake. But think about what Warren Buffett always said about that. He said be fearful when those around you are greedy, and then be greedy when those around you are fearful. And that’s where he’s actually utilizing exactly what you’re pointing out.

 

Krishna Pendyala [00:13:30] You know what I always said that many years ago, right? Because he says, when people get when people are greedy, I get fearful. And when people are fearful, I get greedy. That’s how I heard it. And that’s exactly the thing that’s really, I don’t know when you’re going to talk about the pig and the ape. That’s really the pig and the ape right there. Because fear and greed.

 

Dean J. Catino, CFP®, CPWA® [00:13:51] Let’s get into the whole pig and the ape. Because I know you wrote that book, what, 2011 or I think or so it came out. But it’s it’s an evergreen book because the concepts probably go back eons as far as, you know, the basic concept. So explain what what is the pig and the ape and what does it mean when you say beyond the pig and the ape?

 

Krishna Pendyala [00:14:13] Wow. You are being particular in your question then. So all right. So, so but it’s kind of interesting. Let’s go back to the we laughed about it in 20, about four years ago, I started using the term counter instinctive. Right. Because I realize most of the people, not just trouble suffering in the present moment, is based because of impulsiveness. And impulsive behavior is as a result of it, relying on our instincts or reacting based on our instincts. And in fact, jokingly, I say, people say the word knee jerk reaction, right? Do you think really, there’s a knee involved? It’s usually a jerk reaction.

 

Dean J. Catino, CFP®, CPWA® [00:14:56] It’s a jerk reaction?

 

Krishna Pendyala [00:14:57] Exactly. So reactions end up usually ends up getting us into some hot water. So other thing I noticed was if you look at the past, a lot of people’s problems end up because they don’t delay gratification. Right. And that’s the so gratification is a key again, survival skill. Because if we didn’t eat we die. So it’s so interesting that we are designed for the jungle. We have not evolved yet in that way. I mean, yes, we can stand up straight and we can walk on two feet. But have we really evolved out of the jungle? For example, I mainly work with senior executives and so on in my workshops, and I ask them when things are running fine in your organization. What pops into your head? Every response I get is negative. What’s wrong? What am I missing? When is the next shoe going to drop? Is this the lull before the storm? Who’s, what’s hiding in the bushes? I mean, come on, we are in the jungle. So if, but when we are in a safe place and we behave as though we are in the jungle, we end up becoming more of an animal. And one of the people who hosted my workshop in Michigan last year did not attend it because he was too busy. But at the happy hour he asked me Krishna in once, I’m sorry I missed your workshop. In one sentence or less, can you tell me what I missed? It was a three hour workshop so I thought that was an interesting question. If I could really answer his question succinctly, that could be something of value. And I paused, thought about it a little bit, and this is what came out of my mouth. I said how to be less of an animal under pressure.

 

Dean J. Catino, CFP®, CPWA® [00:16:42] Well, and you know what you just said there? I have read some of the things you said you said, I paused. Talk about why the pause is so important in making decisions.

 

Krishna Pendyala [00:16:54] I think pause is a superpower. I have pause buttons everywhere. Because on my phone, I mean everywhere because I mean, think about it. Otherwise what happens when it rings? It’s a Pavlovian response, right? Boom. We just pick it up. But let’s unpack, you asked the first. So let’s talk about pause and then go back to the pig and ape. So pause pausing is really a superpower because, one of the favorite books I that influenced my life is Viktor Frankl’s Man’s Search for Meaning. And in that the key line is between stimulus and response there’s a gap. And that gap is the pause. So when you take the pause out, you get a reaction, that knee jerk reaction. And so if you want to respond more in life. And react less. You want to put a pause in there. And this is a little hack. The easiest way to pause, Dean, is to ask a question. If you want to pause, somebody ask a question. If you want to pause yourself, ask a question. Why am I feeling like this? Why am I getting hot? Why is my jogging? Why my fist clenching? Why am I restless? Any of those questions will help you pause and interrupt that reactive behavior. So now let’s get back to beginning. So delaying gratification is really one of the. If you can learn how to delay gratification, I think a lot of problems will be solved. So the book I wanted to call it Dig. And that turned out to be quite preachy. I said, now let’s flip it. And that’s when PIG came up. And it’s interesting when I studied language, the way people use the word pig is don’t be a pig, don’t pig out. And it mapped to that greed, greed, part of greed, part of what you were referring to. And then I needed. So again, you nailed it. Fear and greed. So I got greed and pig. So how can I get fear and not? You know, once you get one acronym, you want to find another three letter acronym. So I was lucky to find the APE, which is the an acronym for Avoiding Painful Experiences. So between the two, right. They will drive your choices if you’re unaware of them. And so I’m a big believer in having visual reminders so that I can be cognizant of it. So I don’t know if you guys can see my cufflinks are pig and an ape. And, you know, they constantly hit the tables to remind me that I own two of these. And if I don’t monitor them, I’ll watch them. They will mind me. So I need to mind them rather than them mind me. And then you picked on the word beyond. So once you’re able to master monitoring your fear and greed, then you gotta deal with your mind. Because, your ego. Too many of us, you know, when you go to a networking., they don’t say, who are you? They ask you, what do you do? And so we have conflated what we do to become who we are. And that creates a problem because if our identity becomes what we do, then the moment that’s gone, we die. And so we got to preserve. So the job of the pig and ape is to feed and protect you also. Fear and greed. But it’s also free feed and protect. So the big name can differentiate between you and your ego. So if that’s unclear to you. What are they going to feed and protect your ego. Which means you’re now on the runaway train. Did that answer your question, Dean?

 

Dean J. Catino, CFP®, CPWA® [00:20:36] It did. And they kind of raised more as you answered that question, because I’m trying to draw. I’m trying to think about. You know, these are universal concepts that aren’t really universally understood at all. But they happen to everybody, you know? That’s why I think it’s so brilliant about what your book does. How do how do we help? I’m taking it back to Monument. How do we help our clients who sometimes have to deal, well, sometimes they deal with all of the turbulence that’s that’s in the world today. They’re constantly bombarded by it, and sometimes it feeds into their pig and their ape. And then then in turn, it actually kind of moves them into what about my finances? How are my finances impacted by my my internal, take an ape. What are some tricks that we just some tricks that we can use to maybe help clients overcome some of that?

 

Krishna Pendyala [00:21:37] I don’t know if it is a trick. I think it is really like, as Dave said, it is that training. Constant reminder. In fact, I remember when I was at Walmart, we used to tell people all the whenever the news was good, that’s when we would educate them that it’s going to fall. It’s a cycle. So today, if you’re a ecstatic tomorrow, you’ll be depressed. So don’t get too static now because it’s a cycle up and down. And the most important thing is introduce them that. Who they are, right? I mean, they react to survival oriented people, but this is not life and death, right? If they have a lot of money and it goes down 20%, they’re not on the street. Right? I mean, that’s really what it is, is. And then they’re not on the street. And, and it will go down. It will go up as well. And so it’s almost like desensitize them. The way I do it is I avoid looking at it because I was trained and retrained. Others saying, if you don’t need the money in 3 to 4 years, don’t worry about the market. If you need it, then work with your financial advisor, investment manager so that you make sure that there are no big dips. And that’s an interesting you asked for a tip and I’m going to give you a trap. That’s a trap. Yeah, because the trap is not knowing. Downside protection. Right. People come to investment managers. And I remember I used to get calls saying, what are your returns? I said, you’re calling the wrong company. And they’d get all worked up. You know, are discombobulated. What do you mean the wrong company. Your highly rated on Barron’s. How come I said Barron doesn’t really grade you based on returns. So and that would start a conversation about downside protection. And even now in my workshops I ask the question when the market goes down 50%, how much does it need to go up to for you to be square? And if it’s a reactive answer that you’ll get 50, you’ll get 50. And if it is not reactive in a thoughtful response, it’ll be 100. And so I talk about it as downside protection. And the way I explain it jokingly is have you guys played Chutes and Ladders that game?

 

David B. Armstrong, CFA [00:23:58] Not for 45 years.

 

Krishna Pendyala [00:24:00] That’s okay. That’s okay. So most of us human beings are trained to get tips, right? We are motivated to find a tip. In that game a tip is a ladder, right? How do you get to 100? So you’re constantly as you roll the dice, you look for the next ladder. And if before gives you a ladder, you say, give me a four, give me a four. But there could be a chute two and five. And you can’t even see it because you’re so fixated. And I’ll give you a more practical example. I have had the privilege of coaching a gentleman who climbed Mount Everest. What’s the goal of everybody climbing, going on a, Everest expedition, to summit? Right. But he sits. He educated me, saying, there’s a 7000 foot drop on the left and sometimes an 8000 foot drop on the right. Does it matter where I climb? But wherever I put my next foot, step. And so I’m a big believer in watching where you put your next step, because if you put your foot at the right place, you will get where you want to go. And I think that’s what good financial advisors do, is help their clients take that next step, next step, next step. Don’t worry about the immediate consequence. It’s really you’re looking longer term. So the last thing is how do you take a four year perspective or a five year cycle cyclical perspective rather than this rollercoaster.

 

David B. Armstrong, CFA [00:25:30] Yeah, it’s it’s interesting because we started off a few minutes ago. Dean was talking about, you know, be greedy when people are fearful and fearful. Everybody has heard that. Dean did not say anything that somebody would have said. Geez, I’ve never heard that before. And then we have a so everybody knows this. And then Krishna I heard you say it like it’s about training and, and and I get sometimes poked fun at because I call it the broken record. I’m saying the same thing over and over and over again in podcast, blogs, post anything we write, which is, hey, have a financial plan, know how much cash you need for the next 12 to 18 months. Have it on hand, and that way you won’t have to sell anything when the market is in some sort of a downturn or a correction, or even a bear market, and you can live out of your cash and have to sell your scripts. I say it over and over again, and we have these parables like the the tortoise and the hare and, and, and all of these things. Yet people will still react exactly the way you were describing, which is right now we’re recording on the 22nd of April. The market’s about 5 or 6% below where it was at the beginning of April. And I’m getting questions what’s going on in the market? I’m like really a 5% decline off of almost a 27% run since the last. I mean, it’s incredible to me that people can hear the same thing over and over again. They can hear the be fearful when people are greedy. They can hear the buy low, sell high. And then when it’s time for them to do it, or it’s time for them to manage their emotions, it’s paralyzing to them. So how are how are some okay, here’s where here’s find me the ladder right. Or the tip. To help people manage those impulsive reactions. Because my theory is that a lot of it is based on the news fear cycle, which has a massive conflict of interest because they’re just trying to get eyeballs and clicks and people to pay attention so they could sell advertising.

 

Krishna Pendyala [00:27:41] You nailed it. You look at the business model. If eyeballs is the business model, and human beings are more focused on fear because of survival, that’s what you’ll hear. So it’s really about and telling you made a lot of comments. I just I’m sorry to interrupt you Dave, but I just would lose my train of thought. You mentioned I keep telling, telling, telling, telling. Telling doesn’t work. If telling worked in our universe, we won’t have any problems because everybody’s been told everything. Like you just perfectly said hundreds of times. So my theory is telling doesn’t work. So you’ve got to flip it into how do you create realizations? How do you help them arrive at it on their own? And that’s what I call an insight. Insight comes from within. And this here is my second English word for a non-native English speaker. I call it outsight. We give too many out sights to people. We keep telling them, telling them how can you create an experience that they have in our heart? Only then you stand a chance. Even then, it’s an insight is useless unless you apply it. Yes, because an insight is a bright idea and we all have enough bright ideas sitting on shelves back there, right? So how do you take action? So the way I work with my people is. Once first you got to create an experience so that they arrive at that insight. Then you got to be a coach in telling them, okay, now that you have this insight, what action, what behavior will you change? Will you change? Not which I want you to change. And they have to come up with whatever action they take you. Because that insight to action is the huge step, right? Without action, the insight remains a bright idea. So what action will you take? And here is the. If you want a tip, here is a tip. You got to reward yourselves when you do something right. When you change your behavior. So let’s just say you did something. You keep doing something one way. And now here we are. We are not swerving out of the road anymore. We are starting to hit the deer the moment, the first day you even go straight. You got to give yourself a reward. And high achievers do not reward themselves. They slap themselves when they learn something because they say, oh, I should have known this earlier. But reward is just such an important component of behavior change. And I keep telling folks what is an example of a reward? A reward is something little that you enjoy doing that you no longer do because you are too busy. Most of us are too busy. Would you agree? So you can pick little things. You can pick little things like I’ll give you one example for myself. Sit on my own deck. Like last night was a beautiful evening and nobody’s home. I wanted to sit outside. Then I said, but I have to cook dinner, so I miss sitting outside on one of the rare occasions where it’s absolutely beautiful in Pittsburgh and I was busy cutting onions, you know? And that’s what you end up doing and and tearing away, you know. So not only did and so and when I actually shared that in my workshops, one gentleman said, you know, we spent $100,000 building a deck during Covid. And today I don’t know where it is. How sad. I mean, so little things. So write down a list of things that. And this is a nice exercise you can do with your clients. Can you do a little rewards list of what are some small things that you enjoy doing that you don’t get to do too often when because you’re too busy? And then once you help them reach a realization, you ask the question, what action are you going to take? If you actually take that action, you get one of those rewards. And that’s a behavior. Because basically what you’re trying to do is changing behavior. That’s not easy. So it’s not easy. Just so the people who have learned how to pause. I’ve met a few of them, and I’ve asked each one of them, how long did it take? And it’s usually one and a half to two years.

 

David B. Armstrong, CFA [00:31:54] Yeah. It’s interesting because you were talking about creating experiences. And the first thing I thought about was. The market creates experiences all the time for people. It just depends on what cycle. They with, where they are in their relationship with us and they experience that experience. Right? So for example. If we bring on a client in January of 2020 and the market goes down with Covid, that’s a bad experience and it’s attached to us. And so when we bring on clients and we don’t tell clients different things, they just experience different things when they come on with us. So the probability of a client losing faith in our advice and what we have to say and our opinions on things becomes questioned way more when they hire us. And then the market goes down or the market goes flat, versus if they hired us on April of 2020 and they saw a massive return, and then they.

 

Krishna Pendyala [00:33:00] You guys are rockstars

 

David B. Armstrong, CFA [00:33:02] Right. But it’s it’s really the advice doesn’t net does it. The micro advice changes do thi, don’t do that with your specific plan. But the macro advice doesn’t really change, which is, hey, you know, long term investing is not the same thing as buy and hold, right? Having a long term strategy and a long term plan and having the cash there as a mechanism to to protect against the downside, living out of cash while there, while the portfolios correcting. And that advice just does not change across the board with, with with anybody. They could have $10,000 or $100 million. That advice doesn’t change a whole lot, but where they start looking at the chutes and ladders using your I guess it’s an analogy is not really parable, but using that game as an example. It depends on when we meet them, whether they’re seeking ladders or they’re experiencing chutes. And I’ll conclude with this the clients that have been with us for over a decade. Hardly ever call in a panic when there’s some sort of correction to include something like we saw in 2022. It’s the people who have only been with us for a year or two that start to say, like, what are you doing? You know what, blah, blah, blah. And I think it’s still hard to manage those impulse because that the impulsive reactions to pick up the phone and start questioning the advice, that’s the impulsive reaction we deal with all the time.

 

Krishna Pendyala [00:34:40] So here is, as you are talking about it, I’m, I’m, brainstorming here. So it’s about screening. So maybe the only time they listen to you is before they become a client, right. Because at that time, they’re trying to screen you and you can screen them as well by really asking the question and I and again, I made a counter instinctive comment earlier. Give them bad news when things are going well. Predict bad news when things are going well. So, hey, you’re having a good time. You. You had a nice run here. Guess what? That too shall pass.

 

David B. Armstrong, CFA [00:35:23] Right. Exactly. And? And we’re saying it right now, Krishna, as people were saying. Hey, do you remember how you felt in October of 2022 and the market was down, you know, 20, 30% depending on how you were invested, maybe even more? Especially if you’re in some of the Magnificent Seven, you could have been down 50%, some of those holdings. Do you remember how you felt then? Yes, I do, I felt terrible. The market’s basically at an all time high. So don’t you think it’s a good idea now to, like, sell some of those securities and read some cash? No, because I think they’re going to go higher.

 

Krishna Pendyala [00:35:53] We’ll go. Whoa whoa whoa whoa. There you go. That is the opposite of what I’m talking about.

 

David B. Armstrong, CFA [00:35:57] That I know it is. That’s why I set it up for it. Like, that’s that’s the instant gratification, not instant gratification. The continued gratification. Right? The greed.

 

Krishna Pendyala [00:36:05] The greed that Dean was talking about. So really is when things are high, you got to remind them that they will fall. And that’s when they’re more open to listening. Because when they’re down there already, there’s an interesting, way to represent the human matter. Burton brain. Okay, think of it this as your brain and this is your prefrontal cortex. Okay? And when you flip your lid and get emotional, your brain stem is running the show, which is your reptilian brain. And so when markets are going on down there in this mode, when markets are high, they are rejoicing. So you want to give them the dosage. It’s almost like dosage right. It’s about how do you vaccinate them or how do you program their mind to expect to fall once they’re sent up. Because the markets are cyclical. Everybody knows that.

 

Dean J. Catino, CFP®, CPWA® [00:37:00] It’s so interesting what you’re saying. Sorry to cut you off, Krishna, but this what you guys are talking about is the power of loss aversion. And this is something. Krishna, I know that you you had followed, Daniel Kahneman, who recently passed away and father of behavioral economics. We talks about the the emotional impact of feeling loss. It’s it’s felt twice as much as an equal gain. So the Dave, to your point, you talked about market experiences people are experiencing all the time in our long term clients. They get it because they’ve lived through it with us. But a relatively new client that comes on and the market happens to go down by 20%. They’re going to remember that 20% down downward movement for probably several years, because it’s one of the first things they experienced. It was so very powerful as opposed to a 20% gain. They’re going to go, oh, well, up 20%. You know, what do we happen for lunch today? They’re just not going to remember, as as impactful as it was, I think that’s really such a key point.

 

Krishna Pendyala [00:38:06] In fact, Dean, you made me recall something. So back to your onboarding or even pre onboarding screening. One of the questions you could tell them or comment you could tell them is we don’t react to market conditions. Your previous guy did or previous person did. That’s why you’re talking to us. Otherwise you would stay with that person, right? The reason you’re coming, looking for a different financial advisor investment manager is because someone reacted or you triggered them to react. We don’t. If you want us to react, we are the wrong people. You know when you say no to somebody, they want you more. And so let’s say we don’t. In fact, recently I only coached now two because I speak so much. I’m too busy to. I coach only two CEOs. And when he was in one of my workshops and he called me, I said, if you want a yes man, I’m the wrong guy. We’re going to have some. We’re going to have some tough conversations because if if you want a yes man, you don’t need anyone because you know everything. Because if you want to improve or change, you want somebody who will disagree with you, not agree with you. Because if you call and say, sell this and we do it, why do you need us?

 

Dean J. Catino, CFP®, CPWA® [00:39:27] Exactly. And indeed you get an earlier too. You know, we’re constantly making micro movements in the management of portfolios, but we’re not making these dramatic and, you know, selling out of everything, going to cash, that is not what we do, but we we are.

 

Krishna Pendyala [00:39:45] That is reactive. Micro adjustments are course corrections like everything. Like, you know, airplane is off course 90 plus percent of the time because it’s never on that straight line because, you know, wind and so many other air pressure and so many things takes it off course. But because you have a path, which is your plan, you can keep coming back to the plan and you’re not making, as you said, in major reactive moves, which is what usually why people change advisors is because they yell at the previous person and they make reactive moves. And then three months or six months later, they see the consequences and then they don’t take ownership. They blame the advisor again.

 

Dean J. Catino, CFP®, CPWA® [00:40:27] You brought up something so key. There’s something I think about all the time. It’s called the 1 in 60 rule. Have you heard of it? It’s a it’s a it’s you just spoke about it. It’s the it’s an aviation concept. When before we had GPS etc. and all this technology, aviators. If you were going to, if your target was 60 miles away. And you were one degree off. You missed your target by one mile. But. And that’s why aviators are constantly readjusting their navigation. They’re doing micro adjustments all the time to what you were just talking about. For that very reason. And it’s. And by the way, it’s very easy to make micro adjustments as opposed to making a one mile adjustment when you’re off course. You’re making very small ones. Absolutely correct. Yep.

 

Krishna Pendyala [00:41:19] Beautiful. Thank you, thank you. I didn’t know about one. And I knew the fact that if you have one degree of. But I didn’t know that you miss it by a mile, but.

 

Dean J. Catino, CFP®, CPWA® [00:41:28] Yeah, it’s a it’s just math. If you’re going 60 miles and you’re one degree off, you’re off by one mile.

 

David B. Armstrong, CFA [00:41:34] We’re coming up on the end here. But I do want to I do want to conclude on one topic, which is this all requires some sort of modicum of judgment, right? Whether it’s judgment on our part, on the things that we’re deciding to do inside of portfolio management, or the advice that we’re giving people or hiring us for our good judgment. But then people have to exercise good judgment as well. Judgment just seems to be a really common thread across. Investing and wealth management and making decisions on both sides of the equation. Maybe you can conclude with some thoughts on judgment.

 

Krishna Pendyala [00:42:12] Well, you nailed it. The quality of your life is really based on the quality of your choices, right? And being a recovering engineer, I always say it’s either a product of or some of your choices, right? Life is either a product or some of your choices, and you choose the word product or some depending on if you like multiplication or addition. There is it. Now I’ve just kind of disclosed I’m a geek, but more importantly. So I came up with this, construct called Judgment Quotient because everybody talks about, you know, smarts for the longest time was conflated with brilliance, schooling. How well you do in school, how smart you are. Well, he’s a smart kid. And then we realized that smart is has more aspects to it, like people skills, emotional regulation and so on and so forth. And the whole concept of EQ got popularized starting in the mid 90s. And then I studied scandals from 2010 to 2016, and I found that everybody involved in a scandal had three reasons poor judgment, error in judgment or lapse in judgment. So these are highly accomplished people because I always say otherwise, you don’t qualify to be in a scandal. Right? So they had high IQ and high EQ, but a lapse in judgment. So I came up with this idea that, okay, here’s a math equation IQ, EQ, and JQ, you need all three. And I don’t use it in a math equation. I’m also a civil engineer so I use it in a three sectional arch. And the keystone is JQ because you need IQ. I mean people argue about is IQ more important, EQ more important? I think it’s a moot argument if it is an intellectual problem. Don’t you need more IQ? If it’s a people oriented problem, maybe you need more EQ. Not. Maybe you don’t need more EQ. So why do we get into this bickering? Which is more important? All of them are important. And it’s a judgment that decides which of how much of what you use and what you finely execute. And, so judgment quotient is simply, it’s a very simple definition. All of us have intentions, right? But are our actions in line with our intentions? I mean, even in your industry, if you want to grow your wealth, protect your downside. But if you start reacting to the market, you’re going to hurt yourself, right? I mean, people, there are so many studies, right? People who invest themselves versus people. People who just dump it in an index fund. Even that the index fund does better even though it goes on a huge roller coaster. And so because the human who is managing his or her own money is reacting. And when you react, you will do buy, buy high sell low. Because that’s an emotional decision. And you will almost get tempted into doing that because then you said it earlier. Herd mentality. How can I afford to miss out on this, right? FOMO is still part of this same extension, right? Fear of missing out. How can I miss out? So judgment quotient is the gap between your intentions and your actions. And I wI ill end with the cliche the road to hell.

 

Dean J. Catino, CFP®, CPWA® [00:45:38] Is paved with good intentions.

 

Krishna Pendyala [00:45:41] If you don’t, if you don’t want to go to hell, improve your judgment.

 

David B. Armstrong, CFA [00:45:47] There is a great conclusion.

 

Dean J. Catino, CFP®, CPWA® [00:45:49] So awesome.

 

David B. Armstrong, CFA [00:45:51] Well, Christian, I feel like we could go on and on and on. We always have such a great time when we’re talking to you. Thank you so much for your insight and your wisdom. Now, as well as what you have always provided us in the past, you’ve been a great friend, and and Dean and I both, admire you. And and the way you frame things for us always gives us some context, for for our good judgment and our good decision making. So hopefully. Yeah, hopefully we are. We are making good decisions.

 

Krishna Pendyala [00:46:18] June will get together in June.

 

David B. Armstrong, CFA [00:46:20] That sounds great. That sounds great. It was great. Well, thank you so much, Krishna. Okay. And if you’re if you’ve made it this far, make sure you go ahead and check out, our LinkedIn page. We’ve been publishing and posting a lot there. Of course you can subscribe to this podcast on any of the major players in our website. It’s full of information, so be sure to check that out too. So again, Krishna, thanks for coming on.

 

Krishna Pendyala [00:46:43] Bye, guys.

About "Off The Wall"

OFF THE WALL is a podcast for business professionals and high-net-worth investors who want to build wealth with purpose. A little bit Wall Street, a little bit off-the-wall; it’s your go-to for straightforward, unfiltered wealth advice on topics that founders, business owners, and executives care about.

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