Austin: Sometimes you learn by walking around. A few days ago I was returning home from my regular four-mile walk around Lady Bird Johnson Lake in downtown Austin. It was a great day, bright but almost cool. I talked with Coleen, the homeless, wheelchair-bound woman often found in the middle of the First Street Bridge. Then I finished the walk, heading home with a stop at a Whole Foods salad bar on the way.
That’s when I saw something weird.
Beyond the checkout, I spotted three people at one of the lunch tables. No food on the table. Instead, a woman sat across from a couple. She was intent on explaining something. She pointed to tables of figures.
I had never seen someone trying to make a financial product sale at a supermarket. From what little I could see, the product was a fixed index annuity. If you haven’t had an invitation to a free educational dinner to explain the wonders of this product, you have been living a profoundly sheltered life.
The woman was still talking when I left the store.
Then it hit me. The epiphany. The sudden, knockdown realization that we need to buy financial products in exactly the same way that food writer Michael Pollan says we should buy food if we are to live a long and healthy life. And we need to do it that way for pretty much the same reasons.
If you haven’t heard of Michael Pollan or read any of his books, let me explain. He doesn’t write cookbooks. He is best known for writing about the changing nature of food, the industrialization of food and what it has done to our health.
I started reading him while I was on a diet. To cut down on salt, sugar and fats I had started to read the nutrition labels on foods. In short order I learned that the entire carbonated beverage aisle was really just a distribution channel for sugar. Other aisles were salt distribution channels, devoted to selling salt in entertaining forms such as potato chips, tortilla chips and peanuts. And sometimes--- as in the sweets aisle with its salted caramel--- sugar and salt are combined.
But it got worse. Reading the nutrition labels on canned goods, I found lots of sodium in humble beans, and plenty of sugar in others. If you go up and down the aisles of a supermarket, and then make the mistake of reading the nutrition labels, you’ll quickly simplify and rename most of the aisles to “salts,” “sugars” and “fats.” Buy from those aisles with abandon and you are on a one-way trip to ill health.
Which brings us back to Michael Pollan and investing.
One of the reasons I admire supermarkets is that they are miracles of logistics. According to the Food Marketing Institute, for instance, a typical supermarket now offers 42,000 items for sale. Not all are food, of course, but 42,000 items is enough that we’ll have more choices than we can handle. (If you are a stranger to supermarkets, just visit one and count the varieties and flavors for jams, pickles, salsas or yogurt. If you are skeptical, see how many yogurt labels you need to read before you find one without corn syrup.)
Until I started reading labels I found the bounty of supermarkets exciting and charming. I loved the idea that so many companies worked so hard to provide the many foods I loved. Better still, it was all in one big, convenient place. What’s not to like?
A great deal, it turns out.
Pollan’s most masterful solution is simple. In his book “Food Rules: An Eater’s Manual,” he tells us to “shop the periphery of the market and stay out of the middle.” The fewer labeled and packaged products you come home with, the healthier you will be.
The same applies to financial products.
If it is complicated; if it needs to be explained by someone sitting at a lunch table; if it’s proprietary; if it’s only available from certain companies; and if it makes claims about your future financial health, don’t buy it.
Instead, go to the periphery of the market where all the least processed, least complicated, least expensive financial products can be found, fresh every day.