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Friday, December 28, 2012

The Normalcy Bias and Procrastination


Presently there exists a uniquely positioned psychological dilemma in our financial markets. For private businesses and small cap public entities the capital markets have come to a standstill. There are no banking opportunities and now the investor side of the equation has all but dried up completely.

The major causative factor in this phenomenon is the normalcy bias. The following best describes the normalcy bias:

"A quirk of the human condition is for the mind to desire normalcy so intensely as to consciously or subconsciously disregard knowledge that is disruptive to a pre-conditioned reality. This phenomenon is an important part of crisis management and market psychology. The consequence of a normalcy bias is that warning signs of a potential crisis go unnoticed or are interpreted optimistically. When a crisis occurs people are so overwhelmed by events inconsistent with a desired reality they lose their ability to make decisions. Researchers believe when the mind encounters an entirely new experience or event it attempts to match that reality to relevant experiences of the past. If there are no matching experiences the mind enters into a kind of feedback loop resulting in passivity. This lack of action as a response to risk is called negative panic and it culminates in a dangerous inability to act assertively in crisis. In essence, the psyche struggles to come to terms with what is really happening, paralysis follows.

The afore-mentioned paralysis exists in the form of procrastination which is always a negative factor for any financial decision making process. One can always measure their loss in both the present and the future based upon procrastination. Nothing good ever comes from procrastination, it is a no-decision which is in itself a very discernible decision.

Investors of all types large, small, fat, skinny, intelligent, ignorant etc... Are suffering this malaise. Once they understand and become aware of it, they can be awakened and the ability to make smart decisions about money will return like fresh meat after a thaw.

We now have many people who are stuck in the paralysis by analysis cycle, this is why so much money is on the sidelines and people believe they want to stay in cash. By treating the symptom we will not cure the disease. The core of the procrastination is the normalcy bias, which is being promulgated in a continuous state of unawareness.

The initial step in correcting this psychologically driven procrastination cycle is to overcome the fear of change. Just as the normalcy bias overcomes individuals in disaster based crises, it now exists due to the ineffective awareness of a permanent changing economic environment. Everything old will not be new again. Gone are the days of happily reminiscing for a return the good old days of the past. We have recycled into a global economic trend and investors need to start embracing the way opportunity will present itself in this type of environment. Of course it will look, feel and be abundantly different. Old trends have become meaningless and provide no benefit for any forethought into smart decisions about money.

Not only do investors have to make this leap, but investment advisors, financial planners, family and business advisors such as CPA’s etc.. all need to make the leap as well. The ostrich approach to sit around and wait until things return to normal is a sure-fire failure driven approach.

The second step once fear is lifted is to practice a counter-intuitive approach to investment observation. Plain vanilla investment approaches will not keep you above water in the present financial environment. The need to embrace alternative investment opportunities is paramount to financial survival. Understanding the motivation of Wall Street institutions and their direct connection with government impact on the economy becomes more necessary than ever before. Your investment success is now mandated upon several additional factors including geo-political factors that impact the entire universe of industries and investment sectors. How does taxation, regulation and government oversight impact the entire industrial universe has to be taken into account when looking at any single business entity within that specific universe.

These are big changes and they are difficult adjustments for investors and consumers alike. By embracing these changes and fearlessly diving into the new financial market place you can master the on-coming surge of great opportunity and successfully overcome all obstacles in making smart decisions about money. What you cannot afford is the infinite losses assured through procrastination.

Learn the Psychological Triggers that will inoculate and insulate you against scams, fraud and predatory sales tactics.

www.karlschilling.com

Saturday, December 8, 2012

Value of Research


The truth is the free market has always been the staple success of capitalism. There market allows for winners and losers, of course there are many market manipulations that have long permeated the scene. These manipulations have broadened the loser pool in order to enrich a small group of winners.
There is a reason for successful manipulation though and it is in the basic premise of laziness. Unfortunately for losers they are simply lazy and dependent which turns them in to investment victims. The manipulation I am discussing here is perfectly legal and it plays within the rules, yet it is a tilted game and the losers are unaware they are being manipulated.
So what is this manipulation and how does it occur? The simple answer is financial media. In general investors rely upon many different levels of financial media for their information. Most of the time this information touted through the financial media is enticement for investors to buy whatever in order to enrich those who have paid for the media platform. If you as an investor rely on the pundits who are paid via advertising, or even company remuneration then you are receiving biased information meant to entice you to use your money at the risk level and allow others to have a risk free ride on your losses. This is simple supply and demand and it shows itself in the concepts such as pump and dump schemes and the oldest loser in the history of the markets which is buy high and sell low.
So how do you get a fair chance at making money in the markets? The answer is the old fashioned way. Your research should begin with basic business principles on how good companies become great. From that platform you can then look into industries and sectors that are leading the way. Once you have this basic education (all of which can be self-taught) you will reverse engineer the process. By reverse engineering you will start top down, which is looking at industry first, then the overall market for that industry drilling down until you find companies that are leading market share in those specific industries. Once you land on these companies you begin to reverse engineer their internal fundamentals and then their stock history.
This sounds like a lot of work and in some cases it is, yet this work is non-biased (of course you will have to identify your own personal bias level, but that is another story line) and it will be work that pays off in your financial decision making process.
Now, the information you need is all available in public filings for any companies you want to research and there is incredible amounts of information available on industries and sectors as well. (Simple Rule #1 is NEVER invest in a company that does not produce public filings) All the information you need is readily available and if you can read and comprehend some basic tenets of markets and business you will be able to identify your own winners. In doing so you are providing a reasonable risk profile for your investment opportunities. When you rely on others for these decisions you are increasing your risk profile by taking on the potential underlying bias and conflict of interest that is under the surface. This invisible manipulation is what introduces you to a zero sum game in which you have been set up to lose by design.
Does this mean you dismiss your advisors or brokers? NO, it simply means you have a process to vet their recommendations. If you find that their recommendations continually fail your due diligence process (research) then fire them and find new professionals to work with. The point is to uncover and reject manipulation when it appears.
Lastly, the financial periodicals ( I won’t name them, but you can find them on any newsstand) including the penny stock, small cap issues that appear in your mailbox are all PAID for and have underlying motives. Those motives are simply to tout the companies, funds etc.. that pays the most for the ink on the pages. In the case of the freebies that appear in your mailbox these are often paid for by non-affiliate shareholders of the company being touted. These shareholders are often paying for the media piece in order to solicit buyers who they can sell off to while watching the stock rise on the back of the new buyers.
The end game is your money deserves the best chance for success, this is always dependent on your making smart decisions about money. The best chance you have is to do your own homework.

Wednesday, December 5, 2012

Why having a Counter-Intuitive Approach to Investing is a Must


Whether you are a high net worth investor or an average Joe, you must reconsider all you think you know about investments. The economic climate has undergone an unheard of evolution. Common sense financial staples no longer contribute to the growing trends in the markets. Change has always been a purveyor of obstacles, yet most of these obstacles are self-inflicted.

The ability to embrace change and actually warm up to it has always been a gift of being counter-intuitive. The vast majority of our population doesn’t take well to change. The obvious emblem of this was the vastly popular book “Who Moved My Cheese” in which Ken Blanchard made the case for counter-intuitive thinking.

I submit that we are now in the greatest time of change that our society has witnessed over the last century. Everything old is not going to become new again. Unfortunately we raced towards moral hazard and have accepted the fate that comes along with ignoring the simple and common sense principle of moral hazard. The issue is not debating the virtues of moral hazard, the issue is accepting change and enriching your life through a counter-intuitive mind set about investing.

Hockey Icon Wayne Gretzky said that his success was due to the fact that his philosophy on the ice was to “go where the puck was going to be and get there first” now this is highly counter-intuitive behavior. Well, as an investor you need the same philosophy, “understand where we are headed and make decisions based upon this forecast.”

Here are several points to consider in your counter-intuitive approach:

1.      The US will be heading into recession once again.

2.      Invest in companies that are recession proof and thrive during recessionary periods.

3.      Avoid all dividend paying companies that are not recession proof.

4.      The US will continue to expand debt at an unheard of pace.

5.      Follow the financial products and services that correlate positively with increasing debt.

6.      Commodities, oil&gas, precious metals all trend upward as debt increases.

7.      The US government has set their sights on the qualified retirement plans (401k, IRA, SEP, Keogh, any ERISA based plan) which have approx. $13-16T in assets under control.

8.      The government snatch on these plans will begin with a plain vanilla tax reform act which will reduce maximums, limited tax deductions and moderate the percentages of investment vehicles.

9.      The second stage assault on qualified plans will be a mandate on what types of investment vehicles the funds may invest in (The government will require a huge percentage be invested in US treasuries)

10.  The final assault will be a GRA (government retirement account) much like social security this account will freeze your principal funds and turn them into an annuitized retirement payment with you having no control over your funds.

At the Advocacy Network our goal is to inoculate and insulate investors and consumers from scams, fraud and predatory sales tactics. This is a preventative process, not a reactionary one. In order to fully insulate you requires a counter-intuitive approach. Most people will not agree as they will stay put in the normalcy syndrome continuing to believe that things will return to the same as they once were. The rubber band has snapped and we are not going back to any familiar circumstances. The change is already occurred and is continuing to evolve, don’t allow it to consume you. Self-reliance will be at a premium and those who take a proactive counter-intuitive approach will be the biggest winners.

Thursday, November 29, 2012

Forget the Cliff, 3.8% Obamacare Tax Is Coming: What Advisors Are Telling Clients

Forget the Cliff, 3.8% Obamacare Tax Is Coming: What Advisors Are Telling Clients

Another goody in the Obama basket of coal for any investors who earn dividend income or have portfolios with earnings. Bah-Humbug to all those people who have any level of success.

Monday, November 26, 2012

Victimization is all in the Behavior


Are you familiar with the concept of “the Mark”? A mark is slang for the identified victim of a scam or fraud. Most investors don’t think they can ever become a mark. Yet, the vast majority of high net worth individuals are easily identified and often targeted. The reality is stunning because this particular pool of victims is rarely recognized. The reason for this is these victims rarely report their losses. While there are many reasons for this behavior it is mostly related to the common emotions of shame and guilt.

All victims suffer shame and guilt, yet the higher the profile the greater the threat that shame and guilt is socially motivated. The social networks of High Net worth families are closed societies and life style is one of the highest priorities. They are targeted more not simply because they have the wealth, but even more importantly they will usually not publicize their losses and therefore become almost a victimless crime opportunity. Conmen love High Net worth marks.

This doesn’t mean that scams, fraud and predatory sales tactics are isolated to High Net Worth victims solely; unfortunately everyone is subject to being victimized.

One of the constant staples of victimization is your financial decision making process. This process is fully ingrained and it is behavior driven. The behaviors that determine your financial decision making process have been seared into your sub-conscious and can easily be identified and manipulated by scammers and fraudsters. In fact the reason that so many people are victimized is that they are simply unaware of the psychological triggers that make up their financial decision making process. This makes investors and consumers easy targets for predators.

Our greatest advancements such as social media and communication on demand have made scamming and defrauding investors easier than ever. In the past cons needed to work hard to identify ideal marks, today in less than an hour they could come up with dozens of potential marks. They can also easily identify all the necessary psychological triggers needed to successfully manipulate their identified marks.

If you aren’t fully aware of your financial decision making process and how the psychological triggers can be manipulated you will have a total blind spot and never see the scam coming. Everyone believes the old adage “it can’t happen to me” and unfortunately they would be very wrong. At the Advocacy Network we provide our members with the information and tools necessary to completely inoculate and insulate investors and consumers against scams, fraud and predatory sales tactics. Wouldn’t you enjoy the peace of mind of knowing that were 100% protected from scams, fraud and predatory sales tactics? It is about prevention not reaction.

www.karlschilling.net  321-574-6562 O  321-947-3220 C

 

Friday, November 23, 2012

Psychological Triggers in Action


Today I am going to display the psychological triggers in action from a legal brief recently filed by the SEC against a classic scam artist. The complaint brief displays the depths of desperation victims’ face and the rationalizations those victims will resort to in order to recoup their losses.

Once the psychological triggers are pulled the results are consistently evident. The only solution is to be fully inoculated and insulated from scams, fraud and predatory sales tactics. Without this basic education and understanding of your financial decision making behaviors you will consistently and persistently be open prey for scams, fraud and predatory sales tactics. Victims ALWAYS believe it can’t happen to them, because they are too smart and sophisticated to be lured into an obvious scam or fraud, and yet the lists of victims grows exponentially larger on a daily basis.

Most scams are not exposed for at least 13 months and many last for decades before full exposure and legal action is taken.

Let’s look at a recent SEC criminal and civil complaint against a scammer (no names will be used but a link to the SEC filing will be provided for your review)

“From April 2009 to Feb 2011 (Defendant) obtained more than $12M from 3 individuals as private advisory clients. (Defendant) made misrepresentations to these investors regarding the historical and current rates of return that (Defendant) earned for advisory clients. (Defendant) also misappropriated approx. $185,000 from these investors.”

(Red Flag number one for the victims was they did no due diligence and could have easily found that the defendant held no securities registration or license to act in an advisory role)

These victims recruited several other victims and also invested in 4 separate entities created by the defendant. This behavior displays the desperation phase once a victim has learned they were duped. Each of these investors had simple due diligence tools at their command but they were SOLD on the opportunity to make great returns with limited risks and they dove in full force. The desire to gain huge returns with no risk is the consistent bell weather of all scams and frauds and investors continually are attracted to fairy tales. Once their psychological triggers have been manipulated there is no turning back because the next level of psychological pain is guilt and shame for being victimized. At this point victims would rather become part of the scam then to take accountability for their mistake.

The link for this legal action is http://www.sec.gov/litigation/complaints/2012/comp-pr2012-235.pdf read it through and look for the countless mistakes made by the investors (victims)

This process is consistent and can be stopped before it even gets started, but it requires knowledge of how the process is used and how as an individual you are susceptible. Without this education and self-knowledge you remain exposed and will be an on-going target for scams, fraud and predatory sales tactics. The Advocacy Network can permanently inoculate and insulate investors and consumers against scams, fraud and predatory sales tactics. You can choose whether or not you become a victim, it requires a proactive preventive financial decision making process though. Once you have done this work you will be fully inoculated and insulated from scams, fraud and predatory sales tactics and the Advocacy Network can be your third party totally non-biased advocate who provides this preventive shield around your wealth.

Friday, November 16, 2012

Beware the first name basis!


One of the exceptionally useful psychological triggers is the simple use of a person’s first name. Our first name is an incredibly powerful emotion initiator. We all enjoy being recognized and our name is a powerful acknowledgement of our identity.

The ego is massaged when you are called by your first name. The last name isn’t nearly as effect as it doesn’t trigger the same emotional impact. Remember back in HS when the teacher might have called you by your last name, it wasn’t quite symbolic of your identity within the group, but getting that call on the first name created a warm stream of good feelings didn’t it?

Sales people have long been trained to use a prospects name in order to develop a camaraderie or sense of association. Once you have passed the threshold of trust it is quite easy for someone to use persuasive triggers to get you to make a decision. Financial decision making is one of the most important processes an individual faces. Mistakes with money are common and many times these decisions are gravely impacted by a process of manipulation.

This key manipulation trick has been used for centuries by those wishing to separate you from your money. Now, let’s be clear the psychological triggers are not always used for manipulative purposes yet it is vital that you understand what the psychological triggers are so you can determine if they are being used to manipulate your decision making process. It is always what you don’t know that is of the greatest potential harm to you.

The other difficulty is that much like hypnotism your behaviors become an unconscious event and are grooved in which make it quite difficult to defend against these behaviors. You have developed a financial decision making process whether you are conscious of it or not. All that needs to be done to manipulate this decision making process is for the other person to identify your process. A few key questions at the right time can easily identify anyone’s process.

The first barrier to cross is rapport. This barrier is the initial protective shield everyone puts up. It is the easiest of the shields to pierce and it also triggers the unconscious defense mechanisms to stand down. The most common trigger to use is the person’s first name. Upon crossing this barrier there is immediate rapport and a sense of ease within a conversation. If it is being used for manipulation you will find your name attached to certain concepts the manipulator is seeking to associate with your strong emotional state triggered through the use of your name. The manipulator will bracket you name around the decision making question when the time comes to close the deal. The only one capable of short circuiting this process is you. The only protection you can create is a total knowledge of your financial decision making process and a conscious awareness of what the psychological triggers are and how and when they are used.

The Advocacy Network inoculates and insulates our members against scams, fraud and predatory sales tactics. At the base of our work is the new book “You Might Be Getting Scammed When….” You can be totally inoculated and insulated against scams, fraud and predatory sales tactics and consistently make smart decisions about money.

Tuesday, November 13, 2012

Advocacy Network on Air in Dallas market today


The Traders Network
SCHEDULED GUESTS FOR TUESDAY, NOVEMBER 13, 2012
2-3pm Central
Segment 1 - Karl Schilling, Founder - www.karlschilling.net
Segment 2 - Henry Marchell, Managing Director - www.tradeoilfutures.biz
Segment 3 - Garrett Jones, Partner - Stockmarket Cycles
Segment 4 - Anthony Cherniawski, Chief Investment Officer - www.thepracticalinvestor.com

CLEAR CHANNEL DALLAS – KFXR/1190-AM
And Streaming Live @ www.yorbamedia.com
Visit Yorba TV at: http://yorbatv.ning.com/?xg_source=msg_mes_network

To control which emails you receive on Yorba TV, click here

Tuesday, November 6, 2012

Check out Advocacy Network on radio Today!

The Traders Network
SCHEDULED GUESTS FOR TUESDAY, NOVEMBER 06, 2012
2-3pm Central

Segment 1 - Laif Meidell, President - www.financialhealth.com
Segment 2 - Karl Schilling, Founder - www.karlschilling.net
Segment 3 - Norm Winski, Editor & Publisher - www.normwinski.com
Segment 4 - Anthony Cherniawski, Chief Investment Officer - www.thepracticalinvestor.com

CLEAR CHANNEL DALLAS – KFXR/1190-AM
And Streaming Live @ www.yorbamedia.com
Visit Yorba TV at: http://yorbatv.ning.com/?xg_source=msg_mes_network

Thursday, October 25, 2012

The Perception of Risk


Financial Advisors and Planners require a risk profile for all of their prospective and existing clients. The impression of risk has undergone many changes due to the ever-changing economic environment.
The investment climate can no longer rely on the former principles that existed right up until 2008. Since that time the financial arenas have become unrecognizable. Investors have grown skeptical and weary of their losses. The modern portfolio theory can no longer offer the protection once relied upon.
The past was driven through a buy and hold methodology and a Ibbotson model. All one had to do was hold and simply make adjustments to their portfolio based upon the long standing principles of diversification and rebalancing. Nice in theory but the game has changed and with it a new normal.
A large part of this belief system is found in something called the normalcy bias. The normalcy bias, or normality bias, refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. This often results in situations where people fail to adequately prepare for a disaster, and on a larger scale, the failure of governments to include the populace in its disaster preparations. The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur. It also results in the inability of people to cope with a disaster once it occurs. People with a normalcy bias have difficulties reacting to something they have not experienced before. People also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation.
 Late 2007 we saw a financial disaster impact our former comfort zone. Most of the public responded to this by electing a President who promised he was outside the normal politics of the federal government. The public bought this due much in part to the normalcy bias. Most of the populous had never faced a frightening economic climate such as that of the past 4.5 years. The normal response is to interpret these events in the most optimistic way possible and to hold tight to the belief that everything will return to the way it once was. The everything old is new again mindset. Unfortunately, we will never return to the economic circumstances of old.

The sooner the population faces this fact the sooner and better will be the economic recovery. Much of this response can be altered by fresh viewpoint on the principle of risk. If you are not willing to make the necessary change in perception and thought process then we will face a much greater financial disaster. By taking a refreshed strategic process for investing we can successful alter the course of our history.

In the past alternative investments were part of the highest risk level possible, and now if an investor ignores alternatives in their portfolio they will be doomed to no growth and the ongoing liquidation of their asset base.

 
www.karlschilling.net

Tuesday, October 9, 2012

Investing and Unknown Unknowns


In 1999 David Dunning a Professor of Social Psychology at Cornell, produced a study which developed the Dunning-Kruger effect; which basically states that our incompetence masks our ability to recognize our incompetence.

Dunning has long purported that the sign of intelligence is tied to the ability to realize that there are things that you don’t know that you don’t know. Donald Rumsfeld gave a speech on Terrorism in which he was lambasted by the media for the following comments: There are things we know we know about terrorism. There are things we know we don’t know. And there are things that are unknown unknowns. We don’t know that we don’t know.

Being confident about unknown unknowns is one of the core principles behind financial victimization. When investors do not have the ability to recognize their own incompetence in the area of financial decision making they are easy prey for scams and fraud.

No one wants to admit to weakness, we all believe we are better than we truly are. It is a common thread in the trends of human nature. The most prolific danger however exists within the unknown unknowns as this characteristic will ensure our loss consistently.

The blind spot in assuming the unknown leaves one susceptible to manipulation. As an example when I was selling Life Insurance I would often have to work through CPA’s or CFO’s and they would often be a major stumbling block to getting deals done. My method with them was to simply drop a few well designed concepts with their lingo which made them feel that I was their equal when it came to the knowledge of their expertise. This of course was far from the truth but this bluff ALWAYS worked. It worked because these professionals simply knew what they knew and had no awareness that there were things they didn’t know such as being able to have their beliefs manipulated. It is much the same for investors and consumers.

When you gain a small bit of knowledge this is usually extrapolated into your believing you know well more than you truly know. When this happens you are totally blinded to the unknown unknowns because your beliefs are locked into the known. The conman knows how to play the unknowns and also how to manipulate the unknown. Just a few well-placed questions can uncover just what you know and more importantly what you don’t know. Please remember it is always what you don’t know that is most dangerous. Even when investors develop a process for the completion of due diligence they often will miss key issues because they do not know the necessary questions to ask.

Acknowledging that there are unknowns as well as unintended consequences behind every decision will help you develop a better decision making process. Never be afraid to admit there are unknown unknowns which will allow you the open-mindedness to seek the best answers.

Wednesday, September 26, 2012

Don't Pull That Trigger!


Don’t Pull That Trigger!

Now that you have a full overview on behavior traits that construct the psychological triggers, you can insulate and inoculate yourself against scams, fraud and predatory sales tactics.

We become victims due to a lack of understanding of our consistent behavior trends in making financial decisions. The thought process that is grooved in can easily become a rut which exposes individuals to becoming victimized. The cons, scammers and fraudsters are masters at manipulating the psychological triggers of their marks. If you don’t have knowledge of your own triggers you have no chance of avoiding victimization.

What does the process look like? It starts with desire; of course we all have the basic desire to accumulate wealth. Desire simply puts an investor in a position of constant interest; this is how one gets identified as a mark. If you are actively soliciting perpetrators they will find you. Desire is a scarlet letter that allows the world of scammers and fraudsters to identify you. Control your desire and you can insulate yourself from the perpetrators. Much like the storyline for Vampires, the conman has to be invited in.

Once in the conman now has access to manipulate you into the role of a victim. When you become interested in the scam you have stepped in with both feet and now the game begins. All of us are susceptible to the fear of loss. For most situations the fear of loss is a healthy behavior trait, unfortunately for the victim the fear of loss is directly tied to the greed trigger which is aptly initiated by the scammer.

A normal fear of loss would to consider the risks involved with the amount of capital you are seeking to invest. For example if you are looking at an opportunity that requires $100K investment then your healthy fear of loss would be that capital investment of $100K. This is the normal effect of a reasonable and healthy fear of loss. The scammer and fraudsters though are expert at twisting the fear of loss towards the future gain they are tempting you with.

An example would be this same offer which you are considering investing the $100K into. The conman triggers your greed by manipulating your focus on the future gain to be enjoyed. Let’s say the scammer tells you that the gain will be $500K on your $100K investment; this is just one aspect of the gain, the scammer takes it a step further and puts a timeline on the gain; say in 6 months your $100K will turn into $500K and there will be the usual levels of guarantees and other risk mitigation factors which will make the offer appear to be almost a sure thing. At this point your healthy fear of loss becomes focused on losing $500K not $100K. You have now been successfully manipulated into a greed based focus. This is the point of no return; once your greed trigger has been initiated it is a nuclear event.

The scammers and fraudsters seek to initiate your greed trigger and tie it to an unhealthy fear of loss. This is how victims are created and the process is the same in every situation. All scams and frauds are perpetrated through the use of 3 common psychological triggers and all scams and frauds can be avoided by understanding what these triggers are and thereby fully inoculating and insulating oneself from the initiation of these triggers.

Thursday, September 6, 2012

Magic bullets and other Potions


Continuing on our search for the magic silver bullet please see the copy below. The average consumer has no real exposure to the manipulations in marketing and sales. The proof of this is that the average sales person doesn’t even recognize these manipulations, as is proved below. The copy you see below is targeted to Insurance professionals. Imagine how exposed the average consumer is when many so called sales professionals can be victimized by this type of marketing manipulation.

The human nature trigger to all these manipulations is greed. The process is simple, everybody fears poverty. As Napoleon Hill referenced there are 6 basic fears that everyone experiences. The one that leads to scarcity driven behavior is always the fear of poverty. The fear of loss is founded within this fear of poverty. What happens is that you begin to see the world in terms of scarcity as opposed to abundance. The law of supply and demand begins to shrink the world around you and slowly you begin to believe that there is not enough to go around and certainly not enough prospects in the market place for one to make a living. This is simply not true and never will be true. The truth is we live in a world filled with abundance and it is equally available to everyone. There is no need for a magic silver bullet to begin with. We all have free and clear our own magic silver bullet and it is between our ears. Your mind is the corridor to your successful ventures in life. Everything you need is right in front of you and can be tapped into FREE of charge. Now does that mean that people shouldn't trade goods, services, information? Of course not! There will always be need for good and meaningful information, solutions to specific needs that people have during their lifetimes. A society thrives upon the good will and commerce it creates among its people.

What is not necessary is predator behavior and manipulative fear, greed driven practices. These types of practices will unfortunately always exist. The trick is to recognize it when you see it. You do not have to experience it to recognize it. You simply need the awareness of it, and when you see it you will know it! I am not the judge and arbiter of good and bad. I do however have knowledge and experience in the world of sales and marketing manipulation. Your financial health and well being is too important an aspect of your life to be victimized by predators and incompetents. If you are a sales professional it is even more important that you recognize and refuse to play this type of game. Integrity is the foundation of creating meaningful relationships that are based upon trust. In the end all you and I will ever have is the relationships we form over our lifetime. If we value those relationships and protect them we will be able to maintain an attitude of abundance and therefore create the very abundance we seek. All the while we will also create abundance for those relationships surrounding us. Please see below:

**We weren't sure that we should even have this free telephone seminar because of the controversy surrounding the topic. You see, there is an underground selling technique that is so powerful that, if used improperly, can be used to influence someone against their will. Traditional sales trainers don't teach it because most of them are unaware that it exists.

But we decided to have the call because our goal is to help you gain every advantage possible... and the simple yet powerful breakthrough sales techniques you'll discover will not only give you a HUGE advantage, but will help you close sales faster, and dramatically increase your commissions.

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If any of this sounds interesting to you... you OWE it to yourself to attend this upcoming free teleseminar, where I'm going to reveal every mind boggling secret about my little known, but amazing lead methods and hypnotic sales techniques that will Explode Your Commissions like a fireworks display on the fourth of July!

During This Eye-Opening Teleseminar You're Going To Be Exposed To The Most Electrifying Lead Techniques And Astonishing Selling Methods Ever Created!

Just by listening about these amazing sales and marketing methods, you will be liberated forever from the prison of high pressure, low success, low commission, low self esteem "sales methods" you've been taught by the "geniuses" at the Home Office!

 

The above message is filled with an attitude of scarcity. Start with the phrase “compel prospects to agree with you and say “yes” I especially love the hypnotic trance line. For those who really have knowledge of the sub-conscious and the hypnotic state you already know that anyone in such a state cannot be compelled to do anything they wouldn’t do in their primary consciousness. The EXPLODE your commissions and having a huge advantage over the competition are simple sales motivators to get you in the sales process. This is the regular sales copy that has been around since the dinosaurs walked the earth and it continues on because it WORKS! It works because people want to believe it will work. $500-2000 later you will simply be $500-2000 poorer. Scarcity always does this. There are meaningful self-development programs that rightfully require your personal investment in yourself. Magic silver bullet marketing plans are simply not one of these meaningful personal investments. Invest in yourself and your own human development, in this way you can deliver value to others and create the abundance that guarantees your success.

 

**Actual email solicitation received by licensed insurance agent

 

Tuesday, August 28, 2012

Dangers of Framing


We discussed the flaws in mental accounting and how it negatively impacts our financial decision-making process. A key fundamental flaw in mental accounting is the effect of framing.
Framing is how we tend to view our mental accounting decisions. For example say you go to the big box store and look at the newest in computer tablets and you find a tablet you like for $500 but remember that the discount store around the corner is selling the same tablet for $400. It is an easy decision to buy at the discount store and save $100. The next day you go shopping for a new bed, and you find the one you want for $3000, but the store around the corner is selling the same bedding for $2900 saving you $100. Yet this time you purchase the $3000 bedding. Why did you make this decision? It is due to framing, in each case you saved the same $100, yet your framing of the matter was based upon the rate of discount. The 20% discount was far greater in your mind then the approx. 3.0%discount for the bedding. The reality is in both cases you would have saved the same amount of money $100 but chose to ignore the $100 savings in the second circumstance.
The danger of framing is what your benchmarks are and if these reference points are consistently meaningful. If the reference point becomes tied to a discount you will consistently make poor decisions about money.
Investment psychology becomes even more important as these investment decisions have numerous variables that can be mismanaged through poor mental accounting. These mistakes with money are constantly made by the majority of investors.
Your financial decision-making process is the foundation to any investment success. In my private practice I had used an Insurance company who created a marketing campaign in which they would provide Susan B Anthony Silver Dollars for us to hand out on initial prospect interviews. The slogan was “Even the US Government makes mistakes with money.” (the Susan B Anthony was minted the same size as the quarter, and many people purchased $3 Cokes at the soda machines) Most prospects found this humorous until they were exposed to the reality of how their financial decision-making process was consistently causing them painful mistakes with money.
Your focus point is once again in your money journal. Reflect back on what your focus has been with regards to sales. What is the last item you bought on sale and what was the deciding factor. Identity these for small and large ticket items and see if the mental accounting bias of your framing has caused you a loss of money. Once you identify what are important reference points for you, an understanding of the framing process will be easy to identify.  This self-understanding of your specific financial decision-making process will be the first building block that needs to be in place before you can successfully insulate and inoculate you from scams, fraud and predatory sales tactics.

Tuesday, August 7, 2012

The Pitfall of Mental Accounting


The majority of investors have a bucket list when it comes to money. They separate money into buckets and prioritize those dollars usage. An example of this behavior is a college fund. When investor puts the dollars into the college fund they lock it up and wouldn’t consider any other usage of those dollars, even if those dollars were being eroded by inflation they would stay in the college fund bucket. This is commonly referred to as mental accounting.

Mental accounting creates a disconnect with the big picture overview for financial decision making. We are much more likely to take risk with money perceived to be “house money” as is witnessed by the casino behavior with winnings. By example, when we go to the craps table with $100 and win an additional $200, we are more likely to take a bigger risk with that $200 then we would if the money was our own to begin with. The perception is that the money isn’t really ours and we didn’t work to earn it so we can risk it with impunity.

Where this disconnect displays itself best however is with tax returns. Our tax return represents money that we worked for and earned yet we ultimately perceive it as found money and are willing to frivolously spent or risk it. It is not the same circumstance as the casino effect but it is the same result.

So how does mental accounting endanger an investor as a potential victim? The psychological trigger used by scammers is a twist in the mental accounting behavior practiced by individuals. The twist is in the offer of tremendous gains, when triggered the individual reverses the fear of loss to the gain and not their initial investment. The mental accounting fast forwards to the gain and sees it as the risk involved. When the con explains how you will earn 3 million dollars on the upside, he has triggered your mental accounting to the gain. Now the impact of investing $100K seems very reasonable and the fear of loss is focused upon $3 million. The sense of urgency is created and the initiation of personal greed has blinded the victim from the real fear of loss which should be focused on the $100K being risked. This twist of mental accounting is one of the common triggers used in scams, fraud and predatory sales tactics.

The take away here is that money is always just money. It doesn’t come in separate categories such as found, house or risk free. It is a financial means to an end and has stated value. The opportunity to increase and multiply through risk is a transactional event that needs to be fully vetted for due diligence and risk analysis. In the end though the money requires no mental accounting.
www.karlschilling,net

Friday, August 3, 2012

The Power of Confirmation Bias


A resulting impact from anchoring and overconfidence is an additional form of bias referred to as confirmation bias. This bias puts us at risk in the way we perceive information. We continually extrapolate our own beliefs unconsciously and treat information that supports what we believe or want to believe more favorably.

During the decision making process for financial decisions we will refer to information that supports our decision more favorably. We rarely give the obvious negative much consideration. This is due to confirmation bias.

Sales predators are well aware of how individual biases will impact an individual’s decision making process. Surely you have sat through many sales presentations and have not picked up on the unconscious (subliminal) messages. These messages go right to you core belief system and trigger your confirmation bias. You unconsciously are seeking information that supports your beliefs and desires. Unfortunately common sense often is over ridden in this process.

For example you may have a favorite industrial sector you has been very good to you over a period of time. Let’s say energy for example. You will be much more inclined to believe information that supports you positive experiences in this sector and disregard any contrary information. In essence you will continually discount any negative information that could well make a difference in your decision making process.

Hindsight also plays a predominant factor in a confirmation bias. This creates a tendency to re-valuate our past behavior surrounding the decision after we have full awareness of the outcome. Our judgment of a previous decision is tainted by a bias formed to accommodate the new information. In a stock investment once we know the outcome of the stock’s performance we adjust our reasoning for purchasing in the first place. When updating our rationalization in this manner prohibits us from viewing past decisions as objectively as we need to.

The focus effort required here is to once again journal your experiences as they pertain to your decision making process. In order to recognize your internal biases you must have data to review. Without this data you will continue to groove ruts in your decision making process. We become creatures of habits in our decisions. By having a record of the thought process and emotions involved in any decision you will be able to review results with clarity and full transparency. By treating all information with full objectivity you will not fall victim to confirmation bias in your decisions.

Next time we will cover the disastrous impact of procrastination.  
www.karlschilling.net

Tuesday, July 31, 2012

Anchoring and Decision Making


The cognitive bias that describes our common tendency to place too much emphasis on one trait or piece of information when making a decision is called anchoring. This occurs during the normal decision making process when we rely too heavily on a specific piece of information which governs our thought process.
Once the anchor is stamped in our mind there is a bias set towards adjusting all information to reflect the anchored information. This cognitive bias is often developed at a young age when it is reinforced through our learning process.
Anchoring has a strong impact on our beliefs about money. The financial decision making process an individual moves through is reflective of their perception of money. For example, a person looks at investing in a company they may focus excessively on a certain element of fundamental analysis and use those criteria as a basis for evaluating the value of the investment, rather than considering all the proper elements of complete due diligence. The bias will cause the investor to view all future information in a manner that reinforces their decision.
These decision traps commonly lead to investors staying too long with an investment as well as developing a very large blind spot with regards to the initial investment decision.
Understanding the psychology of your decision making process will allow you to eliminate pre-conditioned bias’ which reduce your probability of making successful financial decisions. Awareness will also help you develop an objective decision making process.
Scam and fraud victims are manipulated through the knowledge and experience their perpetrators have in the field of psychology. In order to insulate and inoculate yourself fully you must understand the psychology behind your financial decision making process. You don’t stand a chance if you haven’t gained full awareness of your anchors. Believe me when I tell you that the professional scammers and fraudsters will find your anchors very quickly and devise a strategy to use to their best interests.
Your focus points for this concept are simple; return to your journal and review your last 5 investment decisions. Take the time to reflect on the answers to several questions:
1.      What is the most important aspect of an investment for me?

2.      What is my due diligence process?

3.      What must an investment not have that makes me decide to say no?

4.      What must an investment have for me to say yes?

5.      Why do I want to invest?

Wednesday, July 25, 2012

Perception of Value

An important psychological factor that influences our investment decision making process is the concept of perceived value. Predatory sales people have long manipulated this concept to sell their products.

Value much like beauty is in the eye of the beholder. If I can make you see value I can get you to make the decision I want you to make. The secret is in the creation of perceived value. This can be directly connected to loss aversion through the concept of sunk costs.

Once you make a decision to invest or spend your hard earned money you have committed to a perceived value in your mind. This value has to continue to be as you perceived it or it causes great psychic pain. You can't allow the pain of poor decision to interfere with you perception of value.Unfortunately the vast majority fo the time someone else has dictated the value for you. This commonly happens because very few people are consciously aware of what they truly value.

Rational behavior would suggest that an individual would make on-going decsions based upon their own best interests, they wouldn't allow perception to interfere. Yet we consistently allow our best interests to be ignored in order to protect the value of previous decisions. This allows us to protect our self-image when we have erred substantially. This is one of the most common reasons individuals are easily manipulated by scammers and fraudsters.

Victims of scams and frauds will work overtime to protect their self-image and deny all existence of evidence which was available prior to their poor financial decision. After all in order to face this pain we would have to admit and feel the pain associated to our own guilt associated with our greed.

No one wants to admit they fell victim to their own greed. We will do anything to avoid this reality.

This is the reason we hold on to investments to long even when all hope of gain is lost. It is also the reason we will make even poorer decisions attempting to regain what we lost. This never ending cycle ends just as it does for the degenerent gambler. The difference is that the gambler can lean on the premise that they have an illness. The same psychological triggers are in play for the investor who becomes victimized by the scammers and fraudsters.

In general you can insulate and inoculate yourself from these events by identifying your own personal values. Once you have a keen understanding of your sense of value you can begin to make better decisions in financial matters. Your journal comes into play once again, write down the following question and make the effort to go at least 7 levels deep with it. What's important about money to me? Write down your answer and then re-ask the question for another level. Continue for at least 7 levels and you will identify the most important values for your invesment making decisions. Once you have this foundation it will be increasingly difficult for anyone to manipulate your perception of what value is for you.

Tuesday, July 17, 2012

Psychology of Investing: Self-Sabotage


This is also known as self-handicapping. We all have the propensity to create self-limiting obstacles. This allows us to fail without feeling any great remorse or guilt. By setting a limitation that gives us an excuse we protect ourselves from full accountability.

It is always less painful to say I wasn’t at my best today, or I had this particular handicap which was directly causative for this perceived failure.

Think back, have you ever said you’re not feeling to well before an important presentation but you were going to suck it up and make the presentation anyway? Of course the self-fulfilling prophesy is that you didn’t make the sale. Or maybe you suddenly had some back pain prior to stepping out on the golf course for that minor tournament opportunity. These are examples of self-handicapping, basically it your sub-conscious effort to create a convenient excuse for lack of success. It is a protection behavior trait.

For the investor this behavior is the corollary to over-confidence. Most damaging however, this is a psychological trigger to move directly towards what we are attempting to avoid which is failure or a poor result.  The creation of the comfortable excuse protects us from experiencing the pain of a poor result. It allows us to avoid accountability and clears us from the potential guilt that accompanies a poor result.

Unfortunately the protective mechanism simply reinforces and assures the poor result. We have created a self-fulfilling prophesy and have no chance for success.

By recognizing this psychological trigger or behavior trait we can make the necessary adjustment needed to control the decision making process. Once freed of the need to avoid pain we can comfortably complete the due diligence and work through a proper decision making process. Only then can we clearly make good decisions about money. It also allows us to make proper adjustments when we get poor results.
www.karlschilling.net

Monday, July 16, 2012

Psychology of Investing: Loss Aversion


“Oh the tangled web we weave when first we practice to deceive” Sir Walter Scott eloquently penned the tragedy of deception. The most telling deception though is self-deception. We suffer with this tragedy on a daily basis.

No more telling aspect of self-deception than that of loss aversion. Basic human nature holds that we move towards pleasure and away from pain, yet in this avoidance we feel and remember the pain more consistently than the pleasure. One of the basic laws of psychology is simply that we get more of that which we focus on then that which we do not. The most telling thoughts in one’s mind manifest the reality of experiences for that individual. Therefore it follows that when we spend psychic energy in the practice of avoidance we get more that which we seek to avoid.

A simple example of this is laying golf, for you duffers reading this I’m sure you have experienced the dreaded “don’t hit it in the water” trap. The message that the mind is focused on is hit it in the water not, as the sub-conscious mind does not differentiate between good and bad, negative and positive. So when you focus on what do don’t want to happen, you end receiving the very thing you were avoiding and presto the ball is in the water.

So it is with the concept of loss aversion. The investment psychology for many is to obsess upon the poor stocks and ignore the totally successful aspects in the portfolio. We are perfectly willing to sell and take some profits, but bitterly opposed to selling off losers. This also leads to the most dreaded of all behavior the buy high sell low syndrome. Loss aversion is the basic foundation to this process of consistently buying high and selling low.

Regret plays a role in our loss aversion mentality. It is regret that leads us to non-distinguish between a poor decision and a poor outcome. By falling into regret over a poor outcome we tend to overlook the good investment decision on a company and suffer during a weak performance which many times lead to selling off low as opposed to increasing a position at the bottom of a good investment.

As previously discussed we tend to feel pain more than pleasure and this combined with regret tends to lead us down the path of staying too long when we refuse to move on the early pain.

Recognizing these behaviors is the first step in proactively taking control of our thoughts and processing information in a new and improved style.