This post was published in 2016, updated in Aug 2020
Years ago, I was putting some clothes into the washing machine.
I wondered: how much liquid washing powder I should put in?
So I looked at the instructions on the bottle which told me to put in 2 capfuls per load.
I was running on auto-pilot. In those days I was often harassed by looming work deadlines, weekend emails and screaming children. Thinking about washing liquid wasn’t top of my priorities.
I suddenly realised I was violating one of Warren Buffet’s best pieces of advice:
“Never ask a barber if you need a haircut”
I realised I’d been asking Proctor & Gamble for their advice on how much of their washing liquid I should be using.
Now, Proctor & Gamble know a thing or two about washing liquid. We can safely say that they are experts. So I should just follow their advice right?
Wrong, that would be a violation of The Principles of Lifehacking. In particular, Principle #8: Alignment of Interests. It’s not enough that Proctor & Gamble know more than me about washing liquid. If I am going to follow their “advice”, I’d better be sure that they’re on on my side. Or, at the very least, their interests don’t conflict with mine.
The Escape Artist believes in the benefits of free trade and does not mind the nice people at P&G getting rich by helping other people to have clean clothes. That’s a win-win solution and I don’t do envy.
But let’s identify the incentives here. Let’s assume for now that the directors of Proctor & Gamble are lovely people whose mission is to make clothes cleaner. To fulfil their mission, P&G want to sell as much washing liquid as possible.
Our primary mission on this site is wealth-building as a path to happiness. As a secondary objective, I want my clothes to be clean but perfection is not required (see principle #4 of The Principles of Lifehacking).
There is a deal to be done here. I can benefit from P&G’s factories and expertise in making washing liquid in return for a small amount of money which will no longer grow in my compounding machine.
Whilst our interests may partially overlap, they are not aligned. P&G are on the other side of the table from us on the washing liquid issue. They want us to buy more at higher prices, we want the opposite.
You don’t always have to do what you are told. It’s interesting to note the manufacturer’s choice of words on the label: “DIRECTIONS FOR USE”. Not guidance, not suggestions but DIRECTIONS.
But you are allowed to make your own choice on how much washing liquid to use.
As an environmentalist I might suggest that one cap was enough. And a washing liquid manufacturer might say it’s better to err on the safe side and lob in 2 caps. It’s almost impossible for us humans to separate out our own interests from our opinions of what is right and wrong. A better approach is to admit that we are all somewhat self-interested and to avoid or declare any conflicts of interest.
This is why judges don’t preside over trials of family members, teachers don’t mark the exam results of their own students and why juries are made up of independent members of the public.
So I don’t take the “advice” or “directions” of Proctor & Gamble on the issue of how much washing liquid to use. Instead, I use #3 of The Principles of Lifehacking and experiment with a reduced amount to see if it’s still effective. Turns out it works just fine.
So far, so obvious you may say. But every day I see people violating the principle of alignment of interests.
As an example, I can’t listen to commercial radio currently as there is an advert running for a mattress company where the listener is told that “we advise you to buy a new mattress every 7 years”. Note the use of the word “advise” here. Nnoooooooo! You are not my advisor!
The presenter of the advert puts on the “caring & concerned” voice tone that politicians, news presenters and other PR spinners get taught in media training. The listener is invited to suspend disbelief and adopt the comforting yet implausible assumption that the mattress company is on their side. It’s all bullshit.
The Escape Artist does not wish to ban advertising or see all mattress manufacturers nationalised under communism. But I would like to see the CEO of that mattress company dipped in a sewage tank whilst the Escape Artist “advised” them to keep quiet. Making and selling mattresses is a noble occupation that has value to society. But the mattress company can not give impartial advice on whether someone needs a new mattress.
This passing off of marketing as “advice” is so insidious, so universal and so pervasive that we have become pretty much blind to it. Advertising seeks to paint a picture of the warm and cuddly human face of corporations. They try to persuade us that those companies are our friends. Well guess what…they’re not.
Companies wouldn’t waste their money on advertising if it didn’t work. Adverts may be funny but they are created by super-smart business people, not by amusing clowns. We must respect our enemy.
You may not have joined the dots between an extra cup of washing liquid and stashing enough money to never have to work again…but they are linked by the aggregation of marginal gains. Every little helps.
If you can change your operating system so your default setting is frugality + higher earnings + investing wisely, then you will get rich. Life is a series of decisions. We can either make those unconsciously under the influence of advertising and marketing or we can wake up and start to see The Matrix. If every decision you make minimises waste, that will add up over the years to many hundreds of thousands of pounds.
Humans are habit machines. So you are either in the habit of wasting money or you are in the habit of keeping and growing your money. In this sense, how you do one thing is how you do everything.
It turns out that Buffett’s advice to never ask a barber was not actually about haircuts at all. It was about the
sales pitch “advice” of fund managers, investment bankers and financial salespeople. Increasing complexity helps justify and draw attention away from the costs of the products sold by the financial services industry.
Financial advisers can’t be independent of their own interests. They may be lovely people but they’re in business to make money. Too often, the result of charging structures based either on commission or on a % of funds managed is that you the client gets screwed.
Incentives are not trivial details, they are fundamental to human behaviour. As an example, in the UK we seem to have stumbled on a reasonably cost effective healthcare system. Not perfect, but reasonably cost effective. When the Atlee Government created the National Health Service, they anticipated howls of protest from doctors and silenced them by “stuffing their mouths with gold”.
As a result, doctors in the UK are paid pretty well without needing to sell product. As a result, NHS doctors have no incentive to perform unnecessary or complex procedures to maximise their earnings. This may help explain why the UK spends about half the amount on health (as a % of GDP) as the USA and yet gets comparable health outcomes.
One of the keys to getting rich is to accept the realities of life and then work with the grain of human nature. When you think about other people’s incentives, their behaviour becomes much easier to understand. This works better than naively ignoring the conflicts of interest that life throws up. So don’t confuse your financial advisor with your doctor, because their incentives are very, very different.
If a financial adviser is recommending you invest in something, ask them a) whether they own that investment? and b) how much they will make if you follow their advice?
Talk is cheap so I disregard all investing advice where the person giving the advice has no skin in the game or I don’t know how they invest their own money. But if I see that a great investor owns a stock, I will check it out.
People often talk about the risks of investing in equities. Having spent years thinking about this, I have come to a couple of conclusions. The first is that price volatility is not the same thing as risk. The second is that equities are not as risky as they first appear because of who your interests are aligned with (the rich).
The way I see it, owning wealth-generating assets such as equities / property is a path to social mobility, to wealth and to freedom. And when you are on that path, your interests are aligned with the richest, smartest and most powerful people in the world.
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