Spitzer's Twenty

By Dr. Duru written for One-Twenty

March 13, 2008

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I have one more take to add to the oceans of ink being spilled on behalf of former New York governor and state attorney general Eliot Spitzer and his monumental and hypocritical indiscretion.

Coincidentally, my wife and I rented Tyler Perry's "Why Did I Get Married" this past weekend. In the movie, "Terry" schools his two male friends on the 80/20 rule that T.D. Jakes applies to male/female relationships. Most of us learn about the 80/20 rule in school as the Pareto principle that states for "many events, 80% of the effects comes from 20% of the causes." In the case of relationships, T.D. Jakes promotes the idea that we typically find 80% of what we think and want in a relationship in our partner. When that remaining 20% comes along in the form of another person, the prospect looks so good that we run off in pursuit even at the risk of losing the 80%. The Emperors Club supplied Spitzer with the 20% he found lacking in the rest of his life (and based on the quotes from the wiretap, it is probably not surprising that he was not getting that 20%!).

I have often chided some of my male friends for trying to optimize the relationship process. Some of us tend to think that the attainment of relationship happiness depends on getting as close as possible to 100% of everything we want. This process becomes a near endless quest where the next partner has something (20%?) that the last partner lacked but never enough to generate that 100% contentment. Instead of optimizing, we should be "sufficing" or "satisficing." Economists, starting with Herbert Simon, adopted this term after accepting that people (consumers) are not capable of maximizing the utility of their economic behavior and instead seek to satisfy some minimum criteria of benefits. If we accept that 100% is not realistic, that 80% is practical as a minimum, and being practical is satisfactory (sufficing), then we are likely to be so much more productive in our relating and so much happier overall.

Why do I bring this up? Well, I found this an interesting set of linkages. What does this have to do with financial issues? Well, it is not because I used to think of Spitzer as a champion of the little guy (my blog is all about the little guy), and I am royally disappointed with this turn of events. Instead, I made an interesting link to something I recently read from Robert Kiyosaki in "Investing in Better Research." In this article, he recalls learning from a friend the Rothschild formula for investing: "...This involves not participating in the first 20 percent or the last 20 percent of an investment run-up. Instead, it's investing in the middle 60 percent, when risks are low and the direction of the price is determined. As the asset value approaches what appears to be the last 20 percent, you sell and move on to another asset class. As we all know, most amateurs...only participate in the last 20 percent." Why do the masses tend to participate only in the last 20%? Well, that part is typically the most exciting. It is when everyone has finally bought into the "unbeatable" thesis of the investment. It is when we feel like we have joined the club of smart people and rich elites. It is when we are convinced that either this time is different and the run will last for a very long time or that we know exactly when to get out before everything falls apart. It is when we finally think we have figured out how to optimize this investment just right...

Spitzer pushed his one twenty to its most thrilling limits. The remaining eighty will now look better than it ever has...ever.

Be careful out there...!

DR. DURU®, 2008