Finally- My Portfolio Decision

[hrux]

The one thing that jumped out at me is you are paying 1.25% in fees between the funds and the advisor.  That's a stiff headwind to overcome, especially in periods where good returns are hard to come by.

I agree on the fees. They must come down over time to increase the odds of long-term success. Under the current circumstances however, I believe it is worth the price. However, do I trust the index selection commitee at S&P or the static PP, or Rob Arnott, Steve Luethold, Steve Romick, John Hussman, and Mohmed El-Erian to direct my portfolio in this environment. For me that's an easy decision but for others active management is taboo.

[hrux]

I would probably want to talk to a few of the advisor's other clients as well, preferably those who had been with the advisor for at least a few years.

It might give me a comfort level if I talked to others who had actually lived with the advisor's strategies through some difficult markets.

...if I were in the market for active management, that is.

Appreciate the advice very much and for what its worth I plan to maintain a PP outside of the advisor and will compare results for a few years.  If I do not like what develops then will convert accordingly.  Also, I did speak with a few clients and know them personally so I did not go into this blind.  The clients did lose 8% in 2008 however have been with the firm since 2000 and have decent risk adjusted returns.  This has been an extremely difficult decision and I still question what I'm doing however do not feel comfortable dedicating 100% to any single investing strategy and believe in strategy diversification.  One fund that I also like is GTAA.

[Gumby]

The one thing that jumped out at me is you are paying 1.25% in fees between the funds and the advisor.  That's a stiff headwind to overcome, especially in periods where good returns are hard to come by.

I agree on the fees. They must come down over time to increase the odds of long-term success. Under the current circumstances however, I believe it is worth the price. However, do I trust the index selection commitee at S&P or the static PP, or Rob Arnott, Steve Luethold, Steve Romick, John Hussman, and Mohmed El-Erian to direct my portfolio in this environment. For me that's an easy decision but for others active management is taboo.

But how is that an easy decision when the overwhelming active management portfolios do not even beat the S&P 500, over the long term, when expenses, fees and taxes are factored in?

Perhaps Meir Statman has found the answer when he postulates that many individuals would rather have the status and perceived well being of active management rather than the proven higher long term returns of indexing:



There's no way the fees are going to come down much, if at all. Active management will always cost a lot more than indexing, period. Always has, always will.

[MediumTex]

The comment that gold may be held as "insurance" is interesting.  Insurance against what?  I assume insurance against the other assets in the portfolio underperforming, which would make me want to incorporate it into the original strategy as more than an afterthought.

By insurance  the advisor means insurance against systemic collapse, not other assets underperforming. Short of systemic collapse, gold is not the only way (or maybe even the best way) to protect a portfolio.

Have any of the other funds he recommended quintupled in value in the last 10 years?  That's what gold has done, and without a systemic collapse.  Don't believe the anti-gold hype.

The managers the advisor has designated as flexible core have the ability to hold gold as part of their allocation. He currently does not have a dedicated position outside of that at this time.

I have little faith in active management, and it's not because I think that investment managers are not smart, clever and well-informed people.  The crystal ball game is just too tough for anyone, IMHO. 

If you haven't heard it, this a good Buffet quote on gold. "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

It would depend on what period of time you were looking at.

Berkshire Hathaway stock, for example, is lower today than it was five years ago, while gold is up around 100%.  Over that time period, I would take gold every time.  Over another time period I would take stocks.  The trouble is, I don't know which time periods are going to favor which assets, that's why I have to own all of the PP assets all of the time.

Do I really want to permanently allocate 25% of my entire portfolio to gold?

If you want the safety and security that the PP offers, yes.

If I was in the business of selling you actively managed investment strategies, though, I would view gold like Superman views kryptonite and do everything in my power to keep you from investing in it.

[MediumTex]

Heather,

Did I read correctly that you are going to be running a PP as well as the portfolio you described in the OP?

Are there any other strategies you are going to be using simultaneously? 

What methodology did you use to decide how much to place into each strategy?

Also, I didn't see an answer to my question about how your money has been invested during the last several years when you have been trying to decide on an investment strategy.  Can you provide more information about that item?  I'm just curious about what you have recent experience with.

One of the many minor points that trouble me is it sounds like this investment advisor is someone you already knew, as well as some of his clients.  In this situation, it is often harder to fire the person if things are not working out as planned.

On the fee front, what reason do you have to believe that fees are going to go down in the future?

I hope you are making a decision that you will be comfortable with, but so far what you have told us you are doing makes me very nervous.  As I said before, I work with these kind of money guys all the time, and I know how good they are at telling their stories.  The thing that always bugs me, though, is the look on their faces when I ask if their advice comes with a warranty. 

[hrux]

MT,
Again, very much appreciate your input and insightful thoughts.  I will attempt to answer a few of your questions below.

Heather,

Did I read correctly that you are going to be running a PP as well as the portfolio you described in the OP?
Yes, I made a last minute decision to not turen over the entire portfolio to the advisor and plan to keep 10% of my assets in a PP managed by myself.  I would like to evalaute both approaches over a period of time in order to see what I am comfortable with.  There is no logic betwen the 10% PP and 90% variable split.

Are there any other strategies you are going to be using simultaneously? 
No- other then two 529 plans for my children whereby will invest in a 50% stock 50% bond split.  I would be curious in hering one's thoughts on 529 plans and if it is possible to invest in a PP in any state's funds?

What methodology did you use to decide how much to place into each strategy?
None.

Also, I didn't see an answer to my question about how your money has been invested during the last several years when you have been trying to decide on an investment strategy.  Can you provide more information about that item?  I'm just curious about what you have recent experience with.
I was 90% stock (typical boglehead portfolio) up until 2008 and then went 50% stock and 50% cash since the crisis.
 
One of the many minor points that trouble me is it sounds like this investment advisor is someone you already knew, as well as some of his clients.  In this situation, it is often harder to fire the person if things are not working out as planned.
Understand the concern here however I am not tied to this advisor on a personal basis so any changes would not be an issue although I hope none are necessary.

On the fee front, what reason do you have to believe that fees are going to go down in the future?
I trust the advisor to do what's right given the market envioronment however there are no guarantees.

I hope you are making a decision that you will be comfortable with, but so far what you have told us you are doing makes me very nervous.  As I said before, I work with these kind of money guys all the time, and I know how good they are at telling their stories.  The thing that always bugs me, though, is the look on their faces when I ask if their advice comes with a warranty. 

[hrux]

"Even average Joes like myself figured out that the Fed and such things as the repeal of M2M were all that mattered in this market."

So if this is true, wouldn't it have been prudent to overwieght stocks and not subject 25% of your PP portfolio to certain 0% returns in cash? Seems to me that you believe you can predict the future.

I don't believe I can predict the future.  But I don't argue with men who throw trillions of dollars at the market.     On my own I would have a very conservative portfolio.  Because of what Ben is doing, I add a little more risk.  The risk as I see it is greater in being out of the market than in it.  But I don't believe this will last forever.  Printing money to mask serious problems generally does not work out well. 

It doesn't matter that the rally is manufactured and based on a house of cards.

Here is another problem that I have with blind index exposure to the market under all circumstances. Do I really want to expose 25% of my portfolio to something I describe as a house of cards? Not with my money...

In my case, I feel having 25% exposure to stocks is "insurance" against my naturally conservative bent to overdo bonds and precious metals.  I am not 100% in PP, in fact, I'm just starting out.  But there is not a day that goes by that I see the value in having all four asset classes.  They all hedge each other.  Harry's formula is not perfect, and there are times when everything correlates, but having had a lot of exposure to funds that short equities, I'm much more comfortable with funds/portfolios that don't short, but rather use other asset classes to hedge each other.  Short-selling is very difficult to do and I've found that most managers that short tend to be overconfident in their ability to predict market swoons.  They usually end up riding a number of rallies up, and eroding all their gains.

Everyone has to find their comfort level and I have no problem with taking an active approach for a part of my portfolio.  So I probably have fewer problems with your portfolio than the others here.  I also don't have a lot of problems with "too many" funds because you hedge manager risk that way.  And while some of the ERs are steep, if the managers truly add value, I wouldn't have a problem with that either.  But I personally feel the funds you listed include too many that are new and haven't proven their ability to weather multiple types of markets.  Market-neutral and absolute-return funds are the latest rage these days since everyone wants to invest in a hedge fund without having to put up $5M.  But the caution here is that hedge funds as a group have not done well in the past couple of years...for some of the reasons I've already mentioned.  They were too bearish; they imposed their own "will" on the market thinking they were better than the market, and thus missed out on most of the equity run, only piling in at the last minute of each rally.  Add to that that they had on large percentage of short positions and you can imagine the damage that caused those funds during this historic bull run.  Some of the same strategies the hedge funds used are now being used in the market-neutral and absolute-return funds being offered to retail investors.  So far, their record is not great, and in some cases it is awful.  In other cases, it's too soon to tell.  I don't see a problem with adding one or two of these funds for spice, but if it were my portfolio, I would round it out with funds that have a longer track record and would add in some PRPFX as another diversifier.  Than go from there.  That's just my 2 cents from the peanut gallery and probably all that it's worth.   ;D

Edit:  I just read you will have part of your portfolio in PP, so I feel better already. 

KevD- thanks for the comments and sincerely wish everyone the best of luck!  I have learned much from this forum and will continue to contribute where I can.  Hopefully both my new strategy and the PP turn out well.  Personally I have a hard time placing 100% of my assets into any single strategy.  The gold and treasury run has me quite scared and the PP is not likely to produce the same returns the next 10 years as the last 10 years.

[hrux]

Very timely article by Kiplinger.  Obviously I tend to agree that the PP may suffer in its returns the next 10 years...

http://www.kiplinger.com/columns/fundwa ... ccess.html#

[AdamA]

"Very timely article by Kiplinger.  Obviously I tend to agree that the PP may suffer in its returns the next 10 years..."

Who knows...the whole point of the PP is that you don't have worry about these predictions. 

It's just as possible that we'll be re-reading that article 10 years from now and laughing about how the PP outperformed again...then again, maybe not.

Adam

[MediumTex]

Very timely article by Kiplinger.  Obviously I tend to agree that the PP may suffer in its returns the next 10 years...

http://www.kiplinger.com/columns/fundwa ... ccess.html#

That's a strange article.  It says that PRPFX may lag going forward, but doesn't really say why.  Articles like that one always frustrate me because there is so much to say about the PP, and yet the article always seems to somehow miss all of the really interesting aspects of it.

Not to mention that we have yet another PP-related discussion in the financial media with no mention of Harry Browne. 

[AdamA]

That's a strange article....Articles like that one always frustrate me...

If there's one thing I learned early in life, it's that nothing is ever correctly reported in a newspaper article
: )  

[LNGTERMER]

Here is my two cents regarding the PP- Just to add to the excellent analysis provided by everyone- best of luck on whatever you choose.
This a bit of preaching to the choir but here it goes:

The PP accepts the one obsolete fact which is no one knows the future. That means at the time you are making your decision you do not know all the factors that will impact the outcome. In a hindsight that is obviously is not the case, for instance one can now say investing in Apple in 2005 was an obvious and great opportunity. At the time though the decision was pure gamble. Even Steve Jobs would not have known the outcome. As Clive has pointed out many times decision making when you do not know all the factors is governed by the mathematical function that describes the chances of a blind man trying to locate the circumference of a circle from its center. When choosing a stock or a fund your are making a guessing decision about the management or the fund manager. When the manger is making his choices is also doing the same.

Secondly it identifies like assets and categorized them accordingly. It's clear that stocks as a category are correlated. Take today for instance TSM is down and so is every other slice. Correlation matters because risk is directly proportional to your exposure. And it is controlling the risk that will make you money not chasing performance.
The third thing is it identifies is the cost of fees to your portfolio.
The forth thing is the effectiveness of simplicity.

I personally stopped investing in mutual funds long time ago because mostly they are not designed to make you money. There are obviously some passive funds that are an exception though.

Does the PP have weaknesses? Yes. There is no perfection. One of the weaknesses is the ownership of assets when they might be in a multi year slump. However, whatever remedy that might be employed I do believe it involves building on the strengths of the PP not on its abandonment.

I wrote the above partly to share how I arrived at the PP. I fully implemented the PP last June, I have made a few tweaks of my own but the spirit of the PP is intact in my portfolio and I am happier than I ever was in my 12 years of investing. I can't thank enough the many people on this board for their generosity of spirit for sharing their insights and knowledge.

[MediumTex]

Lngtermer,

I wonder if you could share any of the process you went through in getting acclimated to the PP?

I think the first few months of using the PP can be unsettling because you don't really have anything you are cheering for.  Whatever the market gives you is what you take.  This differs from the experience of most investors who steadily hope for whatever market conditions their strategy is premised upon.

When I was first getting started I had many moments where what actually happened in the markets was far different from what I would have guessed was going to happen.

Sometimes you can be exactly right about a market thesis, but wrong about timing, which is often the same thing as being wrong about the whole call.  The PP provides good protection from this "right call/wrong timing" problem.

[LNGTERMER]

MT,
The adoption process of the PP was very easy for me. I have been investing for a while now and along the way made every error possible. My luck matches exactly the chart of the NASDAQ . Along the way I self educated myself on system development and once I stumbled into the PP I started testing it and was amazed on how it performed. So, I discovered that it works first before I fully understood why. Understanding the PP took me a bit longer and the gold part was the trickiest part since I was brought up on the conventional wisdom that sees stock/funds as the universe of investing. I read that big bogleheads thread and I was amazed with craigr's arguments and excellent articulations and then somewhere in middle you started appearing and kept adding to craigr's points. That thread was truly enlightening.

As I said I learned system development but regardless on how hard I worked my simulations always lost, and believe me I programmed thousand of permutations of the accepted theory. I basically started to understand that you cannot win and that even if you thought you won it was an illusion because many of the stocks you are working with are survivors and not necessarily the ones you would have chose in real life. Also the random successes in stocks are also misleading. A single success works against you since it lures you to a false sense of safety.

Needless to say the PP worked like a charm without trying too hard or making any exceptions.
The conclusion I arrived at was that the success of the stock market is not replicate-able reliably but the PP might be.
I think many of us have arrived at this from different angles.

[Gumby]

There's no way the fees are going to come down much, if at all.

There is now at least one Index ETF (Euro STOXX 50) that by generating revenues from security lending has been able to cut their total expense ratio to ZERO percent http://www.indexuniverse.eu/europe/news ... 0-etf.html

Clive, I was talking about active management fees. Not indexes. I don't believe that active fund managers are going to give themselves much of a pay cut five years from now or ten years from now. It's wishful thinking. Active fund managers will always have a reason to justify their higher fees. And they can't bring their expense ratios down to the levels of index funds.

The chances of finding an actively managed fund that beats the market over the long term — after fees and expenses — are slim to none. It's been proven time and time again. Yet people fall for the salesmanship of active fund managers and investment advisors every day. It's their job.

Think of all the people who signed up for active management in 2000 or 2003 and said to themselves, "Well, I just feel so much more comfortable with active management during these difficult times." Fast forward 7 to 10 years and most of those people have lost a lot of money in real terms once they factor in their annual advisor fees.

[Lone Wolf]

That's a strange article.  It says that PRPFX may lag going forward, but doesn't really say why.  Articles like that one always frustrate me because there is so much to say about the PP, and yet the article always seems to somehow miss all of the really interesting aspects of it.

The thesis seems to be that of course Everybody Knows that we are entering a huge bull market in stocks that will last the entire decade.  If that is the case, then the PP will certainly underperform the stock market, just like it did in the mid-late 80s and the 90s.

The problem, though, is that we "know" no such thing, and neither does the smartest investment advisor out there.  Are we on the cusp of the next great equities bull market?  Or are we stuck in Nikkei's 25 years of hell?  Nobody actually knows the answer to this.

Also, on the point of the article not saying enough interesting things about the PP, I do sort of feel like the elegance of the approach is much, much less evident in the PRPFX allocation.  All that stock-picking, the weird real estate allocation, the Swiss France holdings... much less elegant and much harder to explain.

In addition, I don't feel like the PP family of funds really emphasizes that the future is unpredictable in the way that Browne did.  His whole argument was that we can only predict certain macroeconomic relationships between assets and even these we are very unlikely to be able to time effectively.  I don't feel like I hear this out of the fund when they discuss their strategy.  Perhaps I'm just not listening closely enough.

[Storm]

I think the first few months of using the PP can be unsettling because you don't really have anything you are cheering for.  Whatever the market gives you is what you take.  This differs from the experience of most investors who steadily hope for whatever market conditions their strategy is premised upon.

This is very insightful, MT, and mirrors my experience with the PP.  Prior to the PP I was invested primarily in gold and silver, and a little bit of index funds.  During the first few months of the PP I found myself still cheering for gold as it went up, and feeling somewhat disappointed about bonds as they have taken a beating lately.  I have gone through a bit of a reality shift lately where I don't really cheer for any one asset.  Sure, the market has been great lately, and gold has taken a few hits, although it seems to be recovering nicely.

I guess the real sea change for the PP investor is to go from the gambling mentality of hoping for a winner and praying you don't pick a loser, to the more steady approach of indifference.  If gold drops $25 an ounce in one day I'm no longer thinking "ouch, I hope it recovers."  I'm now thinking "meh, it will all even out in the end."  This is actually quite a relief.

[Storm]

The thesis seems to be that of course Everybody Knows that we are entering a huge bull market in stocks that will last the entire decade.  If that is the case, then the PP will certainly underperform the stock market, just like it did in the mid-late 80s and the 90s.

The problem, though, is that we "know" no such thing, and neither does the smartest investment advisor out there.  Are we on the cusp of the next great equities bull market?  Or are we stuck in Nikkei's 25 years of hell?  Nobody actually knows the answer to this.

Wolf, I would argue that because "Everybody Knows", it is very likely that something entirely different will occur.  There is a direct correlation between QE liquidity injections and the stock market rising.  There is also a direct correlation between QE and commodity speculation.  When money is free, all kinds of bubbles are created.  From where I sit, P/E valuations are approaching dot-bomb levels.  Earnings are only rising because of all the jobs that have been cut, not because of real consumer demand.

There could be any number of catalysts that would trigger another market collapse:  European sovereign debt crisis, muni debt crisis in the US, disruption of the oil supplies in the middle east due to food shortages based on increased commodity prices (caused by speculative trading with QE money), the bursting of the real estate bubble in China, and pick from a handful of other bad scenarios.

The way I see it, it is highly unlikely that one or more of these black swan events will NOT occur.  That is to say, when the probability of each one of a hundred events is small, the probability of any one of them happening is large.

[Lone Wolf]

Wolf, I would argue that because "Everybody Knows", it is very likely that something entirely different will occur.  There is a direct correlation between QE liquidity injections and the stock market rising.  There is also a direct correlation between QE and commodity speculation.  When money is free, all kinds of bubbles are created.
...
The way I see it, it is highly unlikely that one or more of these black swan events will NOT occur.  That is to say, when the probability of each one of a hundred events is small, the probability of any one of them happening is large.

You nailed it.  It's the combination of "Everybody Knows" and the fiesta of quantitative easing\global currency debauch that really worries me.  It seems to me that this would create an environment that has more than the normal levels of frothiness (and is thus even more volatile and unpredictable from day to day.)  That strikes me as an environment in which you want to hedge against everything.

[craigr]

The problem with picking active managers is that you are removing yourself one more level from your investments. You have now taken the problem from, for instance, "Stocks are going to go up." or "Stocks are going to go down." to something else. That something else is trying to predict what the manager of the fund is going to do with the assets that may be going up or down unpredictably. They may wake up one day and decide to do something very unprofitable for reasons you may not agree with after the fact.

What happens is the game changes into one of trying to pick the right winning horse and the right *jockey* to put on that horse. Two very hard decisions. Whereas the passive index investor simply owns the entire race track and takes his cut on the action of the other gamblers.

[moda0306]

The problem with picking active managers is that you are removing yourself one more level from your investments. You have now taken the problem from, for instance, "Stocks are going to go up." or "Stocks are going to go down." to something else. That something else is trying to predict what the manager of the fund is going to do with the assets that may be going up or down unpredictably. They may wake up one day and decide to do something very unprofitable for reasons you may not agree with after the fact.

What happens is the game changes into one of trying to pick the right winning horse and the right *jockey* to put on that horse. Two very hard decisions. Whereas the passive index investor simply owns the entire race track and takes his cut on the action of the other gamblers.

Craig,

The Jockey analogy was one of those short quips that can fundamentally change how someone looks at something.  Very well put.

[LNGTERMER]

The problem with picking active managers is that you are removing yourself one more level from your investments. You have now taken the problem from, for instance, "Stocks are going to go up." or "Stocks are going to go down." to something else. That something else is trying to predict what the manager of the fund is going to do with the assets that may be going up or down unpredictably. They may wake up one day and decide to do something very unprofitable for reasons you may not agree with after the fact.

What happens is the game changes into one of trying to pick the right winning horse and the right *jockey* to put on that horse. Two very hard decisions. Whereas the passive index investor simply owns the entire race track and takes his cut on the action of the other gamblers.


Craig,

The Jockey analogy was one of those short quips that can fundamentally change how someone looks at something.  Very well put.

Well put craigr, just think how difficult it is for blindfolded dude to pick a random point in a single dimensional space and then ask him to pick another point in a multi dimensional space. The more independent variables you introduce into the equation the more your error increase. Error here is synonymous to risk i.e loss of money.

So what are the facts that we know:
1- That correlation matters.
2- Diversification matters and slicing a single asset is not diversification
3- Fees matter
4- Simplicity matters, there is a reason why everything that is beautiful in nature is simple.

If we are all governed by the same laws of physics then picking another person to manage your money simply means delegating the responsibility but not the consequences. If pulling triggers, i.e buy/sell decision points is your problem then this does indeed add value to you, however if you are seeking extra performance then you have simply increased the equations variables by one more.

Unless this person has an advantage over regular mortals for instance an alien that can transcend the laws of physics or has a notch up over the Homosapien brain then I would simply stick with what works. That is me, and no preaching intended.

What is the PP doing:
1- Keep the value of your money, i.e buy gold to hedge fiat currency.
2- Keep betting on the productive parts of the economy, i.e all stocks.
3- Get a premium by loaning those who can pay you back. LT
4- Sleep at night. i.e smooth the ride with cash cushion.

Simply put you are following the money, but in a safe manner. If you want to improve on this then build on them

[Gumby]

The gold and treasury run has me quite scared and the PP is not likely to produce the same returns the next 10 years as the last 10 years.

If Harry Browne had a nickel every time someone said that over the past 35 years... When you get right down to it, this seems to be the main reason people can't stomach the PP.

I can relate to that statement. I said the exact same thing when I was thinking of starting my PP. I couldn't find one "expert" who said I should be buying those assets. I remember that I even felt sick the day I placed my order for LT Bonds — even though I knew how the PP worked. But, after a few weeks, I relaxed — just as everyone said I would. And once I read Fail Safe Investing and listened to Harry Browne's investment radio shows, I felt even more confident in the strategy. (Thanks craigr for archiving those recordings! And many thanks to MT, craigr, Clive and others for their guidance.)

It's hard to put aside human emotion, so people knock on the doors of advisors instead. I get it. Even though the expenses make it fiscally irrational, I get it. Some people just need bang their heads against a wall for a few years before they realize what's best for them. I know I did.

[MediumTex]

Some people just need bang their heads against a wall for a few years before they realize what's best for them. I know I did.

Think of it as tenderizing the mind..sort of marinating it so that it's prepared for the truth of the PP to really sink in.

I wandered in the investment forest for almost 20 years before finding the PP.  I envy those who discover it earlier and have the wisdom to act on it.  It makes the rest of life that much easier to navigate.

I've never met an old person who said he/she wished they had speculated more with their life savings.  We all know plenty of people who probably wish they had speculated less.

[LNGTERMER]

Some people just need bang their heads against a wall for a few years before they realize what's best for them. I know I did.

Think of it as tenderizing the mind..sort of marinating it so that it's prepared for the truth of the PP to really sink in.

I wandered in the investment forest for almost 20 years before finding the PP.  I envy those who discover it earlier and have the wisdom to act on it.  It makes the rest of life that much easier to navigate.

I've never met an old person who said he/she wished they had speculated more with their life savings.  We all know plenty of people who probably wish they had speculated less.

The way I see it there are two problems that affect ones investing, and I think both have been touched on by people on this board:
One is the way we learn which is essentially by trial and error. This process is literally guided by two distinct brains, which are relics of our evolution. The Homosapien thin layer hugging the mammalian brain which is capable of rational thought and the reptilian brain that is guided by instinct and emotion. It seems the emotional part that is triggered by raw basic stimuli such as pain reinforces the process of learning. When we experience an event and we feel pain for instance it reinforces the rational thought so the thing you knew rationally suddenly sinks in and makes sense. That is why people do not act on information they know or keep making the same mistakes even though they know the answer rationally. This of course is not the only reason. I think wisdom is partly the process of making many mistakes and then having the solution sink in with time.

The other is seeking comfort in others whenever we are faced with a situation that is new, mysterious or complicated. We assume that some one must know the answer and we seek them. We convince ourselves that they will indeed act in our best interest a completely irrational act. Then we take solace in them watching over us and hence delegate. This must have been an evolutionary adaptation of some kind, but at it's core it contradicts our other trait of curiosity and need to explore. This weakness is what makes people vulnerable to witch doctors of all sorts who claim a direct line to something not available to others. When it comes to ones money it's deadly.

So, in addition to the laws of physics we are also constrained by the limitations of our makeup. In my humble opinion understanding ones shortcomings including those that we share with the rest of our species are essential if one want to improve his/her lot in life.