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- Wiley
More About This Title Negotiating Your Investments: Use Proven Negotiation Methods to Enrich Your Financial Life
English
Negotiating Your Investments is an in-depth guide to applying the principles of negotiation to your personal finances. With expert insight into the before, during, and after of a successful negotiation, you'll learn how to prepare for and conduct important financial discussions with an eye toward getting the best possible outcome. The book contains practical, actionable guidance toward pursuing what you really want, and tools that can greatly improve your chances of getting it. Clear, concrete advice describes how to influence the other side, avoid being taken advantage of, and direct the conversation to your advantage.
As a rule, investors fail to negotiate over financial matters, to their great detriment. Improving returns, or reducing fees, by a mere 1 percent per year can make a remarkable difference in your bottom line. For example, a million dollar investment that returns 7.5 percent rather than 6.5 percent, over 30 years, will put an extra $2.1 million dollars in your pocket. On the other hand, that much money could easily go straight into someone else's purse. With that much money at stake, good negotiating practices become extremely valuable. Negotiating Your Investments provides the skills and tools you need to hold your own at the negotiating table while offering advice you can put to work immediately. Topics include:
The elements of negotiation – identifying goals, interests, commitments, alternatives, and powerPreparation, information exchange, bargaining, and closing and commitment – the four phases of negotiationAsymmetric information, conflicts of interest, professionalism, and whom to trustInvestment vehicles and the economic science that lies behind wise investingHard economic truths involving past results, rational market pricing, diversification, interest rates, and the effect of costs on investment returnsWhile the focus is on personal finance, the book also includes techniques, analysis, and examples drawn from award winning negotiation courses. It explores the basic theoretical models of bargaining in depth. With Negotiating Your Investments, you'll gain the skills and confidence you need to be smarter, and get better outcomes, in both your financial affairs and the many other negotiations you conduct every day.
English
STEVEN G. BLUM is an expert negotiator who works with corporations, individuals, and nonprofits to refine their negotiating techniques. He is a principal in the firm of Steven G. Blum and Associates, LLC, and has conducted seminars in the Executive Education Programs at the University of Pennsylvania and Harvard Law School. He has been teaching in the Department of Legal Studies and Business Ethics at the Wharton School of the University of Pennsylvania for over twenty years.
English
Prologue xv
Acknowledgments xxi
Introduction xxiii
Part I: What the Best Negotiators Do 1
Chapter 1 What Is a Good Outcome? 3
Identify Truly Good Outcomes and Don’t Get Distracted 6
What Makes for a Good Outcome? 7
Chapter Summary 10
Notes 10
Chapter 2 Interests, Options, and Goals 11
What Do You Really, Really Want? 12
Shared Interests 13
Dig Deep to Explore Underlying Interests 15
Don’t Settle for Win-Win 16
Options 17
Structure the Deal to Meet Their Needs, Too 18
Work with Them to Create More Value 20
Chapter Summary 22
Notes 23
Chapter 3 Fairness 25
What Is “Fair”? 25
Move beyond Market Value to Measure Fairness 27
Chapter Summary 27
Notes 28
Chapter 4 Communication to Build the Kind of Relationship You Want 29
Set Relationship Goals 30
Choose Communication Tools Carefully 30
Work to Create the Atmosphere You Want 32
Focus on What You Want to Tell Them—and How 33
Use Active Listening Techniques 34
Good Negotiating Process 35
Be Aware of the Power Dynamics—and Consider Changing Them 35
Plan a Process That Will Lead to Good Outcomes 37
Chapter Summary 38
Notes 39
Chapter 5 Thinking about Commitments 41
How Tight Are the Bindings? 41
When Should We Be Bound? 43
Degrees of Commitment 44
Commitment Is Not Just about the Ending—Consider It throughout the Process 46
Many Little Agreement Steps 46
Chapter Summary 47
Note 47
Chapter 6 Best Alternative: Where Your Power Comes From 49
Step 1—An Inventory of Your Possible Alternatives 50
Step 2—Identify Your BATNA 51
Step 3—Strengthen Your BATNA 51
Step 4—Estimate What the Other Side’s BATNA Might Be 53
Step 5—Consider Whether You Can Weaken the Other Side’s BATNA 53
Work to Shape Their Perceptions 55
Be Careful Not to Rely Too Much on BATNA, Especially Where Relationships Are Important 56
Chapter Summary 57
Notes 58
Chapter 7 The Preparation Phase 59
Where Do We Hope to End Up? 59
Consider the Substantive Issues 60
Then Consider the Relationship Issues 60
You Want Good Substance and Good Relationships—But Don’t Trade
One for the Other 61
Set High, Achievable Goals 62
Who Are These People Who Will Soon Be Sitting Across from Us? 62
Chapter Summary 63
Notes 64
Chapter 8 The Exchanging Information Phase 65
Ask Lots of Questions 66
Strengthen Your Bonds with the Other Parties 67
Gather Up All the Facts That They Are Willing to Share 68
Managing the Danger That They May Lie to Us 69
Chapter Summary 70
Note 70
Chapter 9 The Bargaining Phase 71
Work to Increase the Pie—and to Claim a Fair Slice 72
Use Conditional Language to Explore Trades That May Create Value 73
Propose Terms Favorable to You—But Defensible as Fair 75
Make Small Concessions Slowly and Deliberately—and Insist on Fairness 75
Be Resolute about Claiming Your Fair Share 76
Chapter Summary 77
Notes 77
Chapter 10 The Closing and Commitment Phase 79
You Want Promises They Are Sure to Keep 80
Create Scarcity to Enhance Their Enthusiasm for the Deal 80
Prepare to Be Patient 82
Chapter Summary 82
Notes 83
Chapter 11 The Problem with Agents 85
Sometimes Employing an Agent Is Wise 85
Often Employing an Agent Is Foolish 86
Are the Agent’s Interests the Same as Yours? 87
Chapter Summary 89
Note 89
Part II: Applying Negotiating Principles to Investing 91
Chapter 12 Why Is Investing Really Just Another Type of Negotiation? 95
Investing Is Similar to Other Big-Ticket Negotiations 95
Do Not Be Fooled into Thinking It Is Something Other Than a Negotiation 97
Different Types of Investing Negotiations 98
Chapter Summary 101
Chapter 13 What Is a Good Outcome Regarding Your Investments? 103
The One Investment Goal That Almost Everyone Shares 104
Your Investment Good Outcome Is Uniquely Your Own 104
Should You Narrow Your Investment Goals? 108
Chapter Summary 109
Notes 110
Chapter 14 The Problem of Conflicts of Interest 111
Incentives Matter 112
Some Conflicts Other Than Money 113
Chapter Summary 114
Note 115
Chapter 15 The Problem of Asymmetric Information 117
They Know Much More Than You Do about the Tricks of the Trade 117
Knowing More Creates Tremendous Opportunity to Take Advantage of Others 118
Chapter Summary 120
Notes 120
Chapter 16 Whom Can You Trust? And Why? 121
Be Extremely Careful about Whom You Trust—and How Much 121
You Can Work Well with People without Trusting Them 123
You Can Trust Those Whose Best Interests Make Them Trustworthy 123
Chapter Summary 125
Chapter 17 Professionalism: Who Is a True Professional and Why? 127
The Traditional Professions’ Struggle with Society’s Need for Trustworthy Help 127
The Traditional Professions Don’t Always Succeed—but They Must Always Try 128
Reclaiming Professionalism 129
Chapter Summary 130
Chapter 18 Use the Power of Your Alternatives 131
Alternatives When Making Direct Investments in Actively Traded Securities 132
Alternatives When Investing Through Intermediaries 133
With So Many to Choose from, You Can Demand What You Want with Confidence 136
Chapter Summary 137
Notes 137
Chapter 19 Knowing Your Interests and Theirs 139
Understanding Your Own Interests 139
Thinking about Their Interests 142
Interests That Can Lead You Astray 146
Chapter Summary 148
Chapter 20 Many Different Possible Options for How to Structure the Deal 149
Trade Their Interests for Yours 149
Work Together to Create Packages of Interests 150
Find the Best Investment Deal among Many 151
A Few Cautions 153
Chapter Summary 154
Chapter 21 Insist on Using Objective Standards of Fairness 155
Gather Your Measures of Fairness 155
Beware of What They Call Fair 156
Keep Your Eyes on Profitability and Transparency 157
Demand a Fair Division of All the Value That the Deal Creates 158
Do the Math on Fees and Costs 158
Pay Only for Services That Provide You with Value 159
Chapter Summary 160
Notes 160
Chapter 22 Plan the Type and Tone of Communication You Want 161
Communication to Enhance Your Understanding 161
Communication to Make Things Clear to Them 162
Create the Tone and Atmosphere You Want 162
Chapter Summary 163
Note 163
Chapter 23 Think about Relationship Goals 165
A Good Working Relationship Need Not Be Personal 165
Pay Attention to Power Dynamics 166
Special Concerns about Financial Advisors 167
Chapter Summary 167
Notes 167
Chapter 24 When to Commit—and to What 169
Avoid Getting Locked In 169
Pay Attention to the “When” of Commitments 171
Chapter Summary 172
Chapter 25 The Four Phases of an Investment Negotiation 173
The Preparation Phase of Investing 173
Gather New Data Continuously 175
The Exchanging Information Phase of Investing 177
Plan to Put Them at Ease 178
The Bargaining Phase of Investing 180
Propose Ways for Them to Meet Their Most Important Interests 181
Let Them Know the Things on Which You Cannot Compromise 182
Be Aware of Their Salesmanship Skills 182
The Closing and Commitment Phase of Investing 183
Build In Your Ability to Check on Them and to Get Out 183
Get Everything in Writing 184
Chapter Summary 187
Notes 187
Part III: The Economic Truths You Need to Know to Be an Effective Investor-Negotiator 189
Chapter 26 Nobody Can Consistently Beat the Market 191
The Markets Are, for the Most Part, Rational 191
Don’t Confuse Random Chance with Skill 192
Stock Research Offers Little Value 195
Chapter Summary 198
Notes 198
Chapter 27 Past Performance Does Not Guarantee Future Results 201
No One Can Predict the Future 201
Chapter Summary 202
Chapter 28 The Concept of Present Value 203
What Is Tax Deferral Worth? 204
Present Value and Life Insurance 204
Present Value and Money-Back Guarantees 205
Present Value and Comparing Investments 205
Chapter Summary 206
Chapter 29 There Is Really Only One Interest Rate 207
Higher Rates Reflect Higher Levels of Risk 207
Risky Investments Involve a Danger of Losing Much of Your Principal 209
Chapter Summary 210
Chapter 30 There Is No Such Thing as a Free Lunch—Except Diversification 211
Why You Want to Diversify 212
Chapter Summary 212
Chapter 31 Diversify Across Every Asset Class 213
Be Honest with Yourself about Your Risk Tolerance 214
How to Achieve Diversification of an Investment Portfolio 215
Diversifying Asset Classes beyond Stocks 216
Use Time to Further Diversify 219
The Efficient Markets Hypothesis 220
Some Practical Advice on Choosing Specific Categories of Index Funds 221
Chapter Summary 222
Notes 222
Chapter 32 We Know What Has Happened in the Past 223
The Historical Average Return on Stock Investments Is a Very Good Result 223
Seeking Higher Than Market Returns Is Called Gambling 224
Chapter Summary 225
Notes 225
Chapter 33 Costs Are Important—They Reduce Your Returns 227
Higher Costs Result in Lower Returns 227
Many Investments Carry Expenses That Are Just Too High to Be a Good Deal 228
Figure Out How Much You Are Paying to Those Who Lay Hands
on Your Investments 229
How You Can Minimize Costs 229
Chapter Summary 231
Notes 232
Chapter 34 Investments to Avoid 233
Variable Annuities 233
Hedge Funds 233
Derivatives 234
Callable Bonds 235
Convertible Securities 236
High Costs, Complexity, and Creative Geniuses 237
Chapter Summary 238
Notes 238
Chapter 35 How Much Is at Stake? 241
The Impact of the Fees You Pay for Advice 243
The Need for Action 245
Chapter Summary 246
Note 246
Afterword: What is a Good Outcome in your Financial Life? 247
Selected Bibliography 249
About the Author 253
Index 255
