J Money over at Budgets Are Sexy recently wrote about failure. I’ve been working on this post about screwing up based on assumptions, so it motivated me to move this to the front of the queue. My main thesis is from a favorite movie of mine from the mid-90s.
As the head mercenary villain from the Steven Seagal classic movie, Under Siege 2: Dark Territory, stated:
“Assumption is the mother of all f*ck ups.”
Here are lessons learned from three major f*ck ups I’ve made. Let’s get to it!
1. Plowing +$100k into Utilities
My paternal grandfather worked as an electrical engineer for most of his life. Prior to that, he served in the US Army Signal Corps in Europe during WWII. He passed away from Alzheimer’s when I was about 10. I don’t remember much about him except visiting the nursing home. I’ve learned about him through stories from my dad and grandmother.
Grandpa was a steady saver and investor. My grandparents bought shares of Public Service Enterprise Group (PEG), as well as shares of its predecessor, Public Service Electric and Gas (PSE&G), long before PEG formed in 1985.
When my grandmother passed away about 10 years ago, she lived comfortably on my grandparents’ savings, pension, and dividend income. PEG, and a number of other holdings, provided stable, predictable income during her retirement and after my grandfather passed.
Disclosure: I inherited shares of PEG in 2007/8 but liquidated the shares and diversified among various other holdings. We do not currently hold PEG, except indirectly via index funds.
The F*ck Up
After nearly seven years in my first job out of college, I reached an initial nest egg about 3.5 times my annual salary at the age of 29. I didn’t realize this until after quitting my job and starting at a new employer. I decided to roll my pre-tax and Roth 401(k)s over to Vanguard, where Mrs. BD and I already held our Roth IRAs and some taxable investments.
Around this time, I began seeking investment income. Partially resulting from my past exposure to utility stocks, I loved seeing dividends and other distributions purchase additional shares. It became a kind of game.
I spent dozens of hours researching investment options. With a large lump sum saved away, I discovered I became eligible for the +$100k minimum funds at Vanguard. I thought, “Why the hell not? I saved and saved. So let’s put those one thousand Benjamins to work!”
After ~15 months in the Vanguard Utilities Index Fund (VUIAX), I was disappointed with my personal results and the reasons for why I invested in the fund. While the dividend income was great, my initial investment not only declined, but its value fluctuated greatly — especially as the holding reflected a large chunk of our net worth.
The results were not electrifying. There was nothing wrong with the fund; I just didn’t invest for the right reasons. I lost a lot of growth opportunity. More importantly, I abandoned the basic, effective investing principles that got us to where we were in the first place.
Stay Diversified: Although I invested in an index fund, our holdings were still in a very specific, unique segment of the US equity market. Yes, it’s arguably better than holding one or two utility companies and calling it a day. But the vast majority of our net worth was tied up in an extremely concentrated segment of the US economy.
Don’t Fall Into Stereotypes: Utilities and any other segment of the market may seem more stable, but you need to consider your personal needs. I just became obsessed with dividends and assumed utilities are:
- The best dividend payers, and
- Will likely never have any issues in market price as well as dividend distributions.
Wrong on both counts. Many other sectors pay better dividends (however one might define better). More importantly, no segment of the market is ever shielded from adverse conditions.
Be Mindful to Balance Various Investment Objectives: I missed a significant growth opportunity for nearly a year and a half. In hindsight, as no one knew the bull market would continue to roar, but I didn’t properly consider my risk tolerance, age, and other investment objectives. I just chased yield.
Overall, I made a number of assumptions based on prior events. Don’t forget past experiences and influences — just make sure you’re not blinded by them either.
2. Getting Grossed Out by the Net: $300k in Losses
During my first couple years in the workplace, I wanted to try client service/relationship management as well as project management. I started in operations or the “back office.” Colleagues said I didn’t have the educational background (i.e., didn’t come from an Ivy League school) or practical experience (couldn’t argue there). I couldn’t change where I went to school, so I got the experience within my role:
- I volunteered for additional assignments.
- I managed project process improvements without the title of project manager.
- I built relationships with clients and the heads of the “front office.”
Within a few years, I (1) ran my group area within the “back office,” (2) expanded the role of the group to include process change / project management, and (3) respectfully turned down an offer to formally join the “front office.”
I gradually molded my role into what I wanted it to become.
The F*ck Up
In early 2008, about eight months into my first job, my firm underwent two structured layoffs within a two-month period. During the prior summer, my group had 15 people, while my immediate team had five, including myself, my manager, and three others. After the second layoff, it was just my manager and me.
Among various other functions, our team processed settlements (e.g., wire transfers) related to foreign exchange (FX) transactions for institutional clients. One particular client settled their trades in a different manner on four days a year compared to other all other days. On the informally referred to date of international monetary month or “IMM,” which occurs on the third Wednesday of the third month of every quarter, the client settled their trades net instead of gross. Well, I didn’t know this, and I hadn’t processed any IMM-settling clients yet.
The day prior to settlement, out of pure curiosity, I even manually calculated out the cash flows and saw that all those large foreign currency balances netted down nicely to zero with only a USD balance remaining. But I’d been sending those payments out gross (e.g., all separately or 1 for 1) for the last two and a half months, so I assumed I should do the same again that day.
I came in the next morning to get my head chewed off by my manager, his boss, and our department head after we received dozens of emails and phone calls from our APAC and EMEA colleagues alerting us to very, very large non-receipts. Oops.
I instructed gross settlement; the client instructed net settlement (despite not confirming with us). I don’t recall the exact amounts, but I had released dozens of payment/receive wires, while the client ultimately sent a much smaller net USD payment.
Overall, hundreds of millions of dollars of currencies should not have moved. To make matters worse, it was around the Easter holiday, so a number of foreign banks were on holiday for a few days, further compounding potential overdraft fees. It was a long, long weekend.
Document Everything: This applies to any business or area. From a risk management perspective, the vast majority of errors occur in the months of July, August, and December. Why? The people who know how to do something, or do it every day, are out of office on vacation or holiday. Most people in the office either (a) have no clue that you perform a certain task at all, or (b) know that you do the task but don’t fully understand or know how to do it.
Also think outside of the workplace. What would happen if you weren’t around tomorrow? How would your loved ones do?
Be Overly Proactive: This might annoy some colleagues or clients. So you need to do it tactfully and in an appropriate manner. But don’t assume your client, colleague, or business partner knows what you’re going to do. Get it in writing; spell it out. Make it as clear and concise as possible.
Overlooking a simple detail or making an assumption can be costly. If something can be clarified by taking 3-5 minutes with a little extra due diligence, just do it. Dozens of hours can be potentially saved. Not to mention, no one knows how many hours others will be impacted by your mistake.
Be proactive. Just find an appropriate balance — whether with colleagues, family, or friends.
Don’t Become Complacent: It’s important to reflect and feel proud of what you’ve accomplished. But don’t let that hinder your work ethic, judgement, or drive. I really messed up; I’m surprised I didn’t get fired. But I fessed up and made suggestions to make the process better despite causing +$300k in losses.
Crazily, I got promoted less than six months later to my first formal leadership position as a team lead. Why? I was able to explain how and why I took the actions I did, as well as offer constructive suggestions to prevent someone else from making the same mistake. Granted, I was fortunate enough to be able to say I was following procedures as I’d been trained, but it was still not an excuse for screwing the entire settlement cycle for that quarter.
Overall, I f*cked up big time because I made assumptions. When you do mess up (and you will), just accept it, learn from it, and move on.
3. “I Love You, Babe, But It’s Okay to Be Single One More Tax Year”
Mrs. BD and I got married in May 2010. This gave us ample time to assess our combined tax situation. As previously shared, I ended up ramping up pre-tax 401(k) contributions the last two months of the year to lower our taxable income. I love Mrs. BD, but I didn’t love the additional tax burden we received as a result of being married.
The F*ck Up
Being a single guy with one job, no kids (i.e., dependents), no house, and no other financial obligations, I had a very easy tax situation the first few years out of college. I’d fire up TurboTax, have a beer, and get my filing done in no time.
Getting married changed that slightly. I just didn’t like the impact of now having higher income and the net result on our return. Alas, I thought I had an option. TurboTax asked something about whether or not I was married on or before December 31 that year. I read that to be a “no” because we didn’t get married on December 31. I interpreted this to mean, “If you’d like, you can still file as SINGLE for the year you actually got married.” Oops.
About six weeks later after talking further with Mrs. BD, I was at an H&R Block paying hundreds of dollars to submit an amended filing as MARRIED. Fortunately, we still had a couple of weeks before the April filing deadline.
Swallow Your Pride: I’m terrible with taxes. I’d be lost in the woods without TurboTax (and I’m still usually lost with it). Even with a useful tool, I still clearly messed up. If you’re uncertain, seek help. Ask questions. Surround yourself with people who are smarter than you.
Don’t Over Think Things: I literally read that question over and over and discussed it for days in my head on how to interpret the statement. I thought, “Oh, I have the option to file as single” based on my misguided interpretation of the question. What was I thinking?
Don’t Forget You’re Married: It’s real simple. And it will keep you sane — and safe — in more ways than one. Enough said.
Overall, I was stubborn and lazy. Don’t assume you know it all just because of your experience or knowledge.
Related: Resources & Motivation
Looking Back and — More Importantly — Ahead
All of us will continue to make errors and mistakes in the future. It’s reality. The likelihood and potential impacts of our f*ck ups are exacerbated by the size and/or number of assumptions we make.
We also learn and get better as a result of our mistakes. It’s never-ending as we continue to find our balance. However, just remember: “Assumption is the mother of all f*ck ups.”
Readers, what assumptions have you made that led to mistakes or errors? Are there any particular moments from your personal life or career that stick out the most? Any lessons learned you’d like to share?