3 Lessons Why “Assumption Is The Mother of All F*ck Ups”

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. It’s on assumption.

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.

F*ck Up #1

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 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!”

Vanguard fund snapshot of VUIAX
Source: Morningstar

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 opportunities.

More importantly, I abandoned the basic, effective investing principles that got us to where we were in the first place.

Related: How We Got To Averaging +$1,000 a Month In Passive Income

Lessons Learned #1

These still stick out to me on an almost daily basis.

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.

Related: 5 Ways to Balance Account Types To Balance Life’s (Un)known Milestones

2. Getting Grossed Out by the Net: $300k in Losses

During my first couple of 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.

Related: 2018 Goals Overview: What Do You Want To Do This Year?

F*ck Up #2

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 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.

Gross Settlement Example
This represents a GROSS settlement example. A foreign exchange spot or forward trade is simply an exchange of two cash flows (the currency bought and the currency sold) on an agreed-upon future date at a predetermined rate. So if two counterparties entered into three trades to exchange one currency for another on the same settlement or value date (the days that currencies are physically exchanged), there would be a total of six currency transfers: two per trade, representing each buy/sell. Source: Balanced Dividends
Net Settlement Example
Netting or net settlement involves the combining of pays / receives and results in fewer wires than Gross settlement. Netting also has the potential to eliminate the need for cash movements as well. Example: If two counterparties both owe each other 10,000,000 euros, they can agree to net that down to zero and not move any euros (as the buy/sell offset one another). Source: Balanced Dividends

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.

Related: My 20 Year Addiction – 9 Things I’ve Learned

Lessons Learned #2

There are too many to list – especially from a career perspective. Here are the ones that still linger in my head.

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 the 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.

Related: Just a Pet? Why We Spent $10,000 In 10 Days

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, judgment, 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”

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 didn’t love the additional tax burden we received as a result of being married.

F*ck Up #3

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 and interpreted this to mean, “If you’d like, you can still file as SINGLE for the year you actually got married.” Oops.

I couldn’t find the image from TurboTax 2010, but I clearly didn’t read the definitions to the question asking about my marital status. Regardless, always consult with a tax professional no matter how trivial a matter might seem. Source: TurboTax

About six weeks later after reviewing further, I was at an H&R Block paying hundreds of dollars to submit an amended filing as MARRIED.

Fortunately, I still had a couple of weeks before the April filing deadline.

Lessons Learned #3

These make me smile a bit, but they were some of the hardest to accept (except the last one, of course).

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 a reality.

The likelihood and potential impacts of our f*ck ups are exacerbated by the size and/or the 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.

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?


Related:

Tax Reform & Your PFUI: Applying the 10 Heuristics

FTW! Is it Possible to Invest for Today AND Tomorrow?

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19 Replies to “3 Lessons Why “Assumption Is The Mother of All F*ck Ups””

  1. Hi Mike, I chased high yields back in my earlier dividend investing days (2005-2008). Well the great recession and 2008-9 bear market showed me who was the f-ing boss. Most of the higher yields got cut with corresponding capital losses. I focus much more on moderate yielding stocks with better growth potential now. It’s not fool proof, but I just don’t need the risk anymore that come with high yielding stocks (6%+). I have many more f-ups, but I won’t bore you. Tom

    1. Hi Tom – thanks for sharing. 6%+ yields do seem tempting, but do have the problem of longevity. – Mike

  2. Nice lessons here Mike. $100K in utilities wow!

    I’m even worse than you. I knew about the marriage tax penalty we’d pay and did it anyway. I’ll say that the extra cost was worth it! These days we actually get a benefit for being married which is nice.

    1. Hey Jason – thanks for your comment. The exact figure I initially put in was around $110k. I had concerns about maintaining the minimum balance, so I thought the 10% cushion would have been sufficient. – Mike

  3. Hi Mike I have so many F*ck up moments when I was younger. But all those mistakes (I call them life’s tuition) has made me better at investing and I would like to think I won’t have any big mistakes now.

    1. Hi Steve – I like your term! Life’s tuition is a great analogy or name. And agreed – f*ck ups do make us better, assuming we pay attention to the valuable lessons made available. – Mike

  4. i call those investing mistakes like chasing yield in an MLP my MBA from the school of hard knocks. might have cost me 40k but what would it cost to go to wharton and still have to learn that lesson when you get out?

    1. Hey Freddy – thanks for your input. Good point about the sources of lessons learned. There are plenty of ways to gain valuable experience. Sometimes hands on is the quickest and the cheapest (depending on how one looks at it). – Mike

  5. Mike, great article but , fortunately or unfortunately, I have bigger f*ckups than you. The largest by far was being much too conservative during the “roaring 90’s”. Market was climbing like hell but with young kids and wife I was very conservative with my investments due to fear of a major correction.

    1. Hi Captain – thanks for your comment; glad you liked the post.

      Opportunity cost can be difficult to measure. Admittedly, my adventure into utilities was a bit of that as well. I’m not sure of your timing, but hopefully your conservative approach at least positioned you well ahead of the tech bubble.

      Thanks again for reading. – Mike

  6. “The results were not electrifying.” Pun intended, since these were utility funds?

    Really, though, that one sounds more like an opportunity loss rather than a plain-old loss. I used to be heavily invested in Vanguard’s dividend appreciation index because I LOVE dividends. And by used to, I mean less than a month ago. Switched most of it to total stock market with a smaller amount in the total bond market. Eventually I want to get some total REIT market, but not quite yet.

    1. Hi Joe – thanks for your input. Yes, bit of an intended pun (albeit, not a good one!).

      Agreed – it was primarily an opportunity cost vs a major realized loss overall. With income returns, I only lost maybe 3-5% by the time I moved out of the fund vs my initial investment.

      Interesting move you highlighted. Overall, the total stock market index is solid choice. Obviously well diversified and rock-bottom expenses. We’ve previously been holders of a few total funds at some point in the past. We currently hold the Vanguard domestic (US) REIT index fund as well. Related: https://www.balanceddividends.com/landless-landlording-how-and-why-we-use-reits/

      Thanks again for reading. – Mike

  7. Everyone F$*ks up, it is how you bounce back that defines character. These are all pretty modest in comparison to many situations. Thanks for sharing with us.

    I think that when we admit our mistakes to a pubic audience we make sure we never make them again!

  8. Yes we definitely learn and learn well by doing. It’s the cost of education. You could read these things in a book but until you try them yourself and loose some of your hard earned money or opportunity lost to make money, do you really remember them. My investing mistakes are crystal clear in my mind and I’ve made a few over the years, luckily you only have to make a few really good decisions and stick to them to make up for all the mistakes.
    Great article!

    1. Hi Bob – thanks for your comments. The cost of education is a great way to put it. Another good point you made is sticking with a few good decisions. Thanks again for reading. – Mike

  9. Oh wow, that’s some expensive f-ups! But what doesn’t kill you, makes you stronger 🙂

  10. Mike,

    This is a really good article about your f**k-ups. I had a huge one back in 2014 I’m not going to talk about on my blog because it was painfully dumbbbb. Lesson learned. I now have a due diligence form I use to scout businesses.

    As for your tax error, whoopsies. I got married in May 2010, too. I do my own taxes. It didn’t cross my mind to not recognize the union in the year it occurred. Though Mike, I think TurboTax made the changes in their lingo for you – “legally married on December 31, you’re considered married for the full year and you must therefore file as either married filing jointly or married filing separately”. J/K.

    Later!
    HP

    1. Hey HP – thanks very much – appreciate the comments.

      Due diligence is important 😀 – a good point you mentioned. I’ve learned this as well.

      Haha, appreciate the turbo tax update! I see that question every year and still grumble to myself and shake my head 🙂 .

      Thanks again! – Mike

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