Month 4: Damn Economy!

Oh no! Finance! Nothing scares me more than money and numbers and ahhh... I hate it all! That was until I met Ron Cook. The first two weeks were financial hell. My head was spinning and I thought for sure that I would fail the course without question. With Ron's and fellow classmate Mike Mason's help they taught me how to teach myself finance, a sort of role reversal which not only got me thinking positively about finance and money but also gave the the ability to pull a B+ in the course after taking the final a day earlier than the rest of the class!

Around this time I was meeting with MEISA. I met the student President, Matt Kenny - a funny Northern Irish fellow, who would later become a fan of my music (I'm a singer/songwriter when I'm not pumping out MBA materials) but also my friend. Matt informs me that there are no leadership positions available as the elections were 2 months prior to me joining! So now I'm 0/2 on the leadership role. We'll make up for it down the road...

For my LP, I had the privilege of sitting down with Tim Jernigan, CFM, CFP and President of The Jernigan Wealth Management Group at Morgan Stanley. Tim and I met at a Subway Sandwich shop in September talking about baseball. Unknowingly, I was speaking to a giant financial planner here in downtown Winter Park. Living two blocks from his office, I run into him at restaurants occasionally.

Tim is a Financial Planner for high net-worth individuals with over 120 clients and 10 financial planners working underneath him. He recently moved from Merrill Lynch to Morgan Stanley and is currently in the process of transferring his clients over. Tim has had a unique life and his path to becoming successful financial planner is no different. Tim started out playing Minor League baseball for the Cincinnati Reds as a pitcher. Two years in he broke his arm, ending his career as a pitcher. He moved to sports broadcasting and lived in that world as a broadcaster for CBS and ABC for roughly 10 years. While broadcasting he made friends with the gentleman who did weekly financial reports and gave him tips on covering financial stories with more story and less finance. Meanwhile he and his colleague saw the potential he had in the world of finance. We spoke for 45 minutes about a number of topics, but mostly our conversation revolved around the psychology of finance.

The Psychology of Finance

He immediately spoke about the McDonald’s survey polling average check sales after they incorporated electronic paying methods (credit/debit card). They found the average check was 32% higher than with only cash purchase systems. He spoke about the unemotional spending habits of this current generation because of the ease of use of credit card and credit-based purchases. He refers to my generation as the ME generation. He referenced the Visa ad where the theme song is “I want it all. I want it now.” Explaining that we (Generation ME) have been targeted since the early 90’s into unemotional spending habits by giving us access to simple painless methods of payment. He spoke about a Barbie doll play-set that now features credit cards and a cash register that when you swipe the cards a little soft voice says “You’ve been approved.” Marketers for credit card companies are now making key fob systems to aide in the care-freeness of spending. He feels that this is a major factor in the downward economy.

Risk Tolerance

Tim spoke about necessary risk tolerance. He says that a lot of the time people take unnecessary risks when investing their money. Risk tolerance is not necessarily ‘how much am I willing to lose’ but what is my overall financial goal and what is the least risky way to achieve it in the time frame that is acceptable. People often invest with little concern for risk tolerance, referring back to the psychology of finance.

“People may say I’m willing to take a lot of risk, but then I will look at their financial goal and say why would you take that extra risk? You have to understand, do you need the risk? If you need it, and you have an appetite for it… just understand you will lose money. I always tell people if you put $100,000 in the Market are you willing to loose 10%, would that be ok? People will look at that 10% and will say, ‘well sure’ 10%, that’s not too bad. Then I say, that’s $10,000. Are you willing to lose $10,000? People will say ‘Whoo… that’s a lot of money! No, I can lose about $5,000.’ People’s appetite for risk changes when you put it in a dollar amount.”

Behavioral Finance

“My whole job is to keep people from being greedy and fearful. I want to keep you in the Market when you need to be in the Market, and I need to get you out when you need to get out – when it gets too hot.” Tim views the Stock Market and the housing market exactly the same way. When talking to clients in today’s bear market they are eager to get out and sell all the stocks they have and get out. When asking the same clients if they want to sell their homes, the immediately reply no, they would loose all the equity in the home. A few years ago when the housing market was high, everyone sold their houses and no one sold their stocks, they bought more of them. Tim feels that the same attitude towards home equity should be applied when thinking about your stocks equity.

Getting Out of Debt

Coming out of graduate school I am looking at over $100,000 in combined debts. I asked Tim what he thought I, as a student should do to get out of debt. Without hesitation he said, “Get a plan. If you don’t tell your money where to go it will find itself somewhere where it shouldn’t be.” He said to keep yourself to a

budget and plan out your monthly expenses. Always save where you can, and always put money towards your debt. “You need to pay off your debt before you can look to the future of investing.”

Conclusion

Meeting with Tim was a pleasure. He allowed me to view finance is a totally different way. Since I tend to understand theoretical concepts over math, viewing finance as a behavior or a psychology was a fresh and understandable approach. I asked briefly at the end of the interview about his suggestions to making a million dollars (so I could hire him as my financial planner) he said, “The best way to become a millionaire is to hang out with millionaires. Pick their brains and they will show you how to do it.” He then told me to give him a call anytime to grab a drink at the local wine bars. I think I might just have to take him up on that offer.