Tim Ferriss has enjoyed a cult following since publishing the “Four Hour Workweek” in 2007. Ostensibly, Ferriss’ book helps readers to pack in their 9-5, outsource all their quotidian responsibilities and instead, join the “New Rich” travelling the world, fulfilling their dreams.
One could be forgiven for dismissing the book as a tacky, get-rich-quick scheme. The title alone makes the book sound like an infomercial. Look beyond the marketing, however, and you will find a new perspective on time management and productivity. Ferriss combines established ideas, like the Pareto Principle, Parkinson’s Law and Dave Allen’s Getting Things Done, with novel services, such as virtual assistants and remote working software to create his framework for efficiency and time management.
Ferriss presents his framework in four words - Define, Eliminate, Automate, and Liberate:
Define your goals
Eliminate distractions and inefficient/unproductive work
Automate tasks and decisions where possible
Most importantly, Liberate your time, your emotions, and your mental energy so that they can be focused on the issues that are most important to you.
One of the core principles in Ferriss’ work is that the quantity of time at our disposal is not the ultimate constraint. The quality of that time also matters. He demonstrates this by drawing a distinction between efficiency and effectiveness. If we are efficient we allocate enough time to a task. If we are effective, we ensure that the time is well spent.
Our time management practices may free an extra hour every day, but if we enter that hour tired, unexcited, or suffering from decision fatigue, we are unlikely to extract much value from it. This is where the Four Hour Workweek becomes relevant to us.
What does this mean in practice?
The importance of having clearly defined and understood goals has been discussed many times on RedBlog. You can read more here, here, and here. In my previous post, I stressed the importance of communication, decision-making frameworks and governance structures in defining and achieving those goals. Trustees, Sponsors and/or advisors may have different ideas about what they should be, but without agreed goals, there can be no success.
Ferriss advises to eliminate distractions, unimportant information, and decisions that you don’t need to make. In the context of institutional investment, a topical example of Eliminate would be CALPERS’ decision to disinvest from hedge funds. Governance cost (among others) was cited as an issue. Selecting and managing a portfolio of hedge funds is labour-intensive and requires constant monitoring and decision-making. This can create a disproportional burden. I’m not suggesting that hedge funds don’t offer value. Rather that, given their position and goals, CALPERS felt that the allocation required more time and effort than was justified by its size and benefits. CALPERS eliminated decisions that it did not need to make.
Delegation is also a form of Elimination. For the Trustees of a DB pension fund it may be more effective to create sub-committees to deal with say, investment or audit-related matters, than to have every Trustee involved in every decision.
Financial markets offer many opportunities to manage risk in contingency. A simple example is an equity put. By purchasing a put with a 90% strike, investors can ensure that the value of their equity allocation will not fall by more than 10%. Aside from the asset effects, a 25% fall in equities would make an immediate demand on the governance budget. However the put reduces the imperative to act in volatile markets at short notice. Investors have more time consider an appropriate response (if any) and can allocate their remaining governance budget elsewhere.
The decision to hedge interest rate and inflation risk to the Plan’s funding level is similar. In doing so Trustees know that whatever happens in the rate and inflation markets, the Plan’s funding level will be unaffected by those factors. Funding level triggers will further ensure that the hedge is maintained as the Plan’s funding level improves.
At this stage Ferriss’ readers are lying in a hammock on some Caribbean island. Perhaps someday we will have distilled institutional investment to such a pure form that we can join them. Not just yet!
By eliminating and automating where possible, decision-makers will free-up time to discuss more complex or urgent issues. More time can be allocated to the strategic asset allocation, rather than individual managers and mandates. Changes to regulation and government policies can be discussed fully. New ideas, such as liability management exercises, can be explored.
Crucially it’s not just time that we have saved. We have also freed up some emotional capital and decision-making resources. With the stress of responding to market volatility removed, investors can manage their funds with greater focus and patience, and ultimately, make better decisions.
Please note that all opinions expressed in this blog are the author’s own and do not constitute financial legal or investment advice. Click here for full disclaimer.