Knowing vs Doing

I really enjoy playing the game of golf. Now that it’s starting to warm up after a long winter, I’ll find my mind drifting to the golf course at random points throughout the day. If I’m ever standing for an extended period of time without anything to do with my hands, I’ll subconsciously start practicing my golf swing.

The funny thing about golf is it has such a hold on me, and many others, despite being a devilishly difficult and fickle game. During one round you can hit the ball beautifully and feel on top of the world, only to discover the very next week that in the intervening days you’ve somehow forgotten how to swing a golf club.

“One reason golf is such an exasperating game is that a thing we learned is so easily forgotten, and we find ourselves struggling year after year with faults we had discovered and corrected time and again.” — Bobby Jones

There’s always something to improve on, but golf can never be mastered. Perhaps that’s why I like it so much. As legendary golfer Arnold Palmer once said:

“Golf is deceptively simple and endlessly complicated; it satisfies the soul and frustrates the intellect. It is at the same time rewarding and maddening – and it is without a doubt the greatest game mankind has ever invented.”

The other day I was practicing with a friend and helping him out with his swing. After working on some swing mechanics for a while, he turned to me a bit frustrated, and said:

“I know what my swing should look like in my head and I know what I need to work on, but it’s so hard to actually do it.”

Well, isn’t that the truth.

This is true for many aspects of life, but especially accurate when it comes to financial success. Personal finance is not a hard science—it’s a soft skill where how you behave is so much more important than what you know.

Morgan Housel gives a great example of this in his book The Psychology of Money.

Ronald Read lived in rural Vermont and lived about as low-key a life as you can find. He worked as a gas station attendant for 25 years and as a janitor at JCPenny for 17 years. A friend recalled that his main hobby was chopping firewood.

It wasn’t until Read died in 2014 at the age of 92 that he made national headlines. In his will, the former janitor left $2 million to his stepkids and more than $6 million to his local hospital and library. In 2014, almost three million Americans died and fewer than 4,000 had a net worth of over $8 million.
People were baffled. Where did Ronald Read get all of that money?

As it turned out, there was no secret. He simply saved and invested what little he could for decades and his tiny savings compounded into more than $8 million. That’s it.

A few months before Ronald Read died, another man by the name of Richard Fuscone was in the news. Fuscone was everything that Read wasn’t. He was a Harvard-educated Merrill Lynch executive with an MBA and was included in a “40 under 40” list of successful businesspeople. He earned enough money to buy multiple homes, including an 18,000-square-foot home in Connecticut.

However, when the 2008 financial crisis hit Fuscone was forced to file for bankruptcy due to high debt amounts and illiquid assets.

Richard Fuscone had considerably more education and experience with finances than Ronald Read did, yet Read amassed far more wealth in his lifetime.

“No one wakes up thinking, ‘I am going to make bad decisions today.’ Yet we all make them. What is particularly surprising is some of the biggest mistakes are made by people who are, by objective standards, very intelligent. Smart people make big, dumb, and consequential mistakes.” — Michael Mauboussin

In what other industry does someone with no college education, no formal financial training or experience, and no high-end connections outperform someone with the best education, the best training, and the best connections?

It’s impossible to think of Ronald Read performing a heart transplant better than a Harvard-trained surgeon or designing a skyscraper superior to a highly trained architect.

Yet, these stories happen all the time in personal finance and it all comes back to the fact that behavior and temperament matter far more than technical smarts.

Despite all of the financial knowledge and information we now have at our fingertips, there is no evidence that it’s made us better at managing our own money.

Because just as with swinging a golf club, knowing how to swing and actually hitting consistently good golf shots are two very different skills.

Thanks for reading!