Formula and Process: The Key to Accomplishing a Goal

Formula and Process: The Key to Accomplishing a Goal

April 29, 2023

Over the last 18 months, we have heard your feelings of gloom, despair, anxiety, and chaos. If we charted the comments we have received, negativity would be at an all-time high. Good news does not register (historically low to moderate interest rates, record low unemployment and higher wages) but all ‘bad’ news (high inflation, wars in Ukraine and threatened conflict in Taiwan) as well as imagined future problems (collapse of the dollar, takeover of the world by China and Russia, etc.) stick like glue to the brain stem.

The Chinese character for chaos also means opportunity. With many of the investing public feeling confused and helpless, our Wealth Management firm sees the opportunity as we have seen it for decades—the clear and comprehensible way out of chaos—and it involves both math (formula) and process.

For over a century, the main companies that today make up the S&P 500 have rationally invested capital and returned approximately 10% annualized return (Dr Jeremy Siegel’s work shows 7% net of inflation since 1802). The math (formula) is that shareholders who provide the capital expect this rate of return over time. A company must constantly adjust to changes in both its industry and market conditions (supply chain, increased market competition, technological innovations, regulations, interest rates, etc.) to generate this return for shareholders. There is NO successful STATIC company (the only static company is a company in or on the way to bankruptcy). Each company develops a process to manage and grow profit and return cash dividends and appreciation to the owners of the company. A company can have the right product or service, but if it lacks the correct process, it is unlikely to have a successful outcome.

Formula and Process are present everywhere you have people wanting to accomplish a given outcome.

Lisa and I recently visited the surgeon who replaced her left knee a year ago. Dr Berger has a formula for his business (the actual mechanics of where to put the incision, which prosthetic to use, how to place it, how to close the incision and prevent infection). That’s the math. But without process, a successful outcome for patients would be in the single digits instead of in the high 90th percentile. Every step, pre and post operation, is clearly scripted. There is a color-coded spiral guide including who to contact (even after hours), when the ice machine will show up at the hotel, medication schedules, PT, and follow ups with the office. Patients who follow the process, guided by Dr Berger’s staff, are almost always guaranteed a successful outcome.

Weight loss is another area where it is easy to see math and process. The formula for weight loss is to consume less calories than you burn. Doing this for an extended period through lower food intake and greater exercise will result in a smaller size. But who can do this on their own just by recognizing math? Nobody. There must be a process in place. Thinking and planning meals in advance; changing to smaller plates; reducing alcohol and high carb foods, are all part of that process. Most people require a program to follow like Weight Watchers or Metabolic, and possibly hire a personal trainer or join a gym. The process of the team around the individual is more important to losing weight than just knowing the formula.

The field of wealth management is abundant in math and process. You cannot possibly take advantage of the world’s chaos without a process. Years ago, our firm developed a formula to apply across all our business models. Many of you know it but as a reminder, here it is:  

WM (Wealth Management) = IM (Investment Management) + AP (Advanced Planning) + RM (Relationship Management).

Each of the main categories has additional embedded processes Some of these are illustrated below:

  • Investment Management. The math portion determines what allocation is needed and which investments to utilize (ETFs, Mutual Funds, individual securities, private equity, alternatives, cash) and the process is to smooth the pieces together, to rebalance and tax harvest.

  • Advanced Planning. This includes advanced tax planning. The math of reducing taxes is straight forward--get to lower income and capital gains brackets. The process involves the current CPA, as well as considering a variety of potential solutions (qualified and non-qualified retirement plans, real estate, private equity, alternative investments, tax free vs. taxable fixed income). Then the process integrates the math decisions into the overall process of WM.

  • Professional Relationship Management. For Property and Casualty, the agent, estate attorney and UWP determine which assets to protect (mostly process) and then the agent prices the tools to put protection in place (math).

Whether it’s knee replacement, weight loss, or growing and preserving your wealth for you and future generations, success requires both a formula and an easily repeatable process.

Winston Churchill said, “The positive thinker sees the inevitable (7% net of inflation), feels the intangible (the need for people to have a process and team to help execute) and achieves the impossible (math and process in symbiotic harmony so that you can get to your life’s goals).

If you have any questions about our wealth management process, please do not hesitate to reach out to us.