Ashvin B. Chhabra - The Aspirational Investor: Taming the Markets to Achieve Your Lifes Goals

FOR DANIELA

I HAVE LIVED A CHARMED LIFE SINCE THE DAY I MET YOU

I nasmuch as this book is not just about the subject of investing, but an attempt to elucidate an entirely new framework for how people should connect their goals and aspirations with their investments, The Aspirational Investor has been a work in progress for more than a decade.

I would like to start by thanking my two longtime collaborators, Ravindra Koneru and Lex Zaharoff. My thinking has benefited in innumerable ways from our conversations and collaborations.

This book is an evolution of my earlier paper Beyond Markowitz. Strong support and encouragement for the work came early on from many, including Harry Markowitz himself; Bruce Greenwald, professor at Columbia University and guru to Wall Street gurus; Charlotte Beyer, founder of the Institute for Private Investors; Jean Brunel, fellow practitioner and editor of the Journal of Wealth Management.

I have learned from so many people at Merrill Lynch, as the firm, clients, and financial advisors adopted various aspects of this new approach. I must thank Andy Sieg, who brought me back to Merrill to complete an unfinished journey, as well as John Hogarty and John Thiel. The backing of the big three, together with David Darnells enthusiastic support, made it evident that we were going to change the world of wealth management.

My six-year stint at the Institute for Advanced Study brought me back in touch with my scientific roots and matured me as an investor. The greatest influence was the chair of my investment committee, Jim Simons. Six years of closely working with a gentle and ever generous genius has got to take you to a whole other level! A number of distinguished committee members were generous with their wisdom and helped shape my investment philosophy, notably Marty Leibowitz and Nancy Peretsman. Others, including Victoria Bjorklund, Neil Chriss, Robbert Dijkgraaf, Roger Ferguson, Robert Fernholz, Peter Goddard, David Marquardt, Eric Maskin, David Rubenstein, Eric Schmidt, Charles Simonyi, Peter Svennilson, Shelby White, and Brian Wruble, kept me on my toes.

The accomplished group of ex-GS women partners, known as the Circle Financial Group, was another set of early adopters that provided valuable feedback, in particular Ann Kaplan and Jacki Zehner. I am also grateful to Charlie Henneman, Julie Hammond, and Rebecca Fender for a series of invitations from the CFA Institute to elaborate on the Wealth Allocation Framework.

Thank you also, Erin Bellissimo, Stacey Gaine, Lisa Grossman Hirscheimer, Samir Kabbaj, Michael Karam, Kristi Kuechler, David Laster, Richard Marston, Sandra Sanchez, Nick Stonestreet, and Nevenka Vrdoljak. This list of names (and no doubt I have left out many) does not do each of you justice in recognizing valuable contributions ranging from reference checks and error spotting to valuable discussions that ensured that the refinement of the framework would continue.

Freeman Dyson at the institute introduced me to the Brockmans. Thank you, Max Brockman: you have been the perfect agent!

My editor and publisher, Hollis Heimbouch at Harper, took a chance on a different kind of popular finance book and pushed me to find my voice. Thank you for your patience as years went by and for turning on the right amount of pressure to get the job done!

Perhaps not surprisingly, much more was required to get to a finished bookLen Costa was my editor through the many drafts over several years! Ever patient and professional, through the combination of his sharp pen and deep understanding of the subject matter, he has brought not only clarity but a readers perspective.

As I searched for an illustrator who would bring these ideas to life, I was lucky to find, quite by accident, the talented Italian firm Accurat. Thank you, Gabriele Rossi, Giorgia Lupi, Marco Bernardi, and Marwa Boukarim for your enthusiasm, creativity, and collaboration.

I grew up in a family of journalists and publishers, so perhaps it was inevitable that I would write a book. My mother has writers blood in her veins. My sister Sagari set the standard early on for the next generation. Thank you, Mom and Dad, for creating a wonderful home where one grew up aspiring to change the world.

My wife, Daniela, unrelenting in her pursuit of clarity of thought and writing when I was willing to throw in the towel, worked with me on every aspect of this book. My daughter, Maya, who at an early age is already an editors editor, helped by editing several chapters, while my son, Sasha, was ever willing to oppose all of my ideas, thus providing an effective counterpoint.

Lastly to you, the reader, thank you for reading this book. I hope it will have a lasting and positive impact well beyond your financial life!

M oney will not buy you happiness, but wealth does provide safety and comfort and, more important, it creates choices and opportunities. Whether your goal is to grow your wealth or simply to preserve it, how wisely you invest your assets will play a significant role in the quality of the life that you and your loved ones will lead.

Unfortunately, most investors, even those who are otherwise smart and successful, lack a basic understanding of financial markets. This causes them to make poor investment decisions. The problem is compounded by the fact that a great majority of us either do not realize our incompetence in financial matters or are simply unwilling to admit that it has a negative impact on our relationships and personal life.

Many investors do recognize their limitations and hand their money over to a professional advisor. Yet the process of delegating to a professional is fraught with peril. Most individuals have little understanding of what can (and cannot) be achieved through investing. After suffering through a major market disaster, such as the Great Crash of 2008, irate investors will fire their advisors and find someone else.

In the next market downturn, the cycle repeats.

The investment world has hardly helped matters. Despite more than sixty years of debate and research, academics and the financial services industry alike remain divided into two broad camps: the so-called efficient market camp, which holds that most investment managers simply cannot outperform the market, especially after taxes and fees are paid, and offers index investing as a prescription; and the active management camp, which seduces investors by pointing to track records of extraordinarily successful investors like Warren Buffett.

The average investors results turn out to be quite dismal. Their portfolios under-perform not only the standard market benchmarks but also the individual funds they are invested in. We will explore this sad finding in detail.

The exciting and comparatively new field of behavioral finance highlights the role of psychology and emotion in investing. So far, however, research in that field has uncovered a lengthy list of psychological biases that lead many of us down a faulty path, but it offers little insight as to why these mistakes are so persistent and hard to correct.

Meanwhile, the 24/7 news cycle and the plethora of financial news websites mean that even casual viewers are constantly updated on every world event, big or small, and its supposed impact on financial markets. This abundance of information and analysis serves to alternately entertain and confuse, amplifying the noise and adding yet another barrier to sound financial decision making.