BPP — or why pessimistic investors make great clients

There’s a gold mine waiting for advisers who seek out pessimistic investors. I’m not talking about survivalist kind of pessimism, just the kind that sees lead in every silver lining.
The bright side of pessimism was brought home to me in our recent webcast about the coming crisis in long-term care, during which one of our panelists, elder care attorney Harley Gordon, made an important point.
(It’s not too late to hear what Mr. Gordon and his co-panelist, physician and financial adviser Carolyn McClanahan, had to say; click here to register for the webcast and listen to it in its entirety).
His point is that no one, least of all men, thinks that something bad will happen to them. They’re optimists.
A heart attack? Never. A stroke? You’ve got to be kidding.
Since all that bad stuff happens to someone else, why buy long-term-care insurance? It’s a waste of money, since nothing will ever happen that will trigger using it. What’s more, having an investment nest egg will ensure that anyone can get through a rough patch.
Ha-ha, says Mr. Gordon, although in a much more persuasive and informed way. Because people are basically optimists (or have their heads in the sand, if you want to look at optimism more pessimistically), He doesn’t believe that fear or statistics or even reality will move someone to consider insuring against the stratospheric costs of long-term care.
He’ll go into the reasons why reason doesn’t prevail and what, as an adviser, you can do about that when he addresses the InvestmentNews Retirement Income Summit in Chicago on April 30-May 1, which I urge you to attend, because we’ll cover not only long-term care but lots of great stuff including the latest on withdrawal rates, taxation, IRAs and dividends, plus you’ll enjoy a rare behind-the-scenes tour of the Chicago Board Options Exchange.
So given the fact that most men are optimists and think long-term-care insurance is for sick wimps, let me tell you why my wife and I bought LTC policies a few years ago.
In essence, it’s because I’m a pessimist and subscribe to the bird poop principle: No matter where a bird poops, my car or I will be there.
In the case of LTC insurance, my wife reminded me that we had talked about it for a while and it was time to get off our duffs and buy it. Like most men, I figured that buying LTC insurance was a waste of money because we’d never use it. On the other hand, since I live by the BPP principle, I also was convinced that if I didn’t buy the coverage, we would desperately need it and wouldn’t be able to buy it.
Pessimism and fatalism, the driving forces behind BPP, won out. We bought policies, and I’m happy to say that the premiums keep getting sucked out of our checking account each month — a process that ensures we’ll never use the insurance and that it will be total waste of money.
The BPP extends to economics and investing, of course. Once, when talking to a research director at a regional brokerage firm, I heard of a seemingly great company that made an all-natural product designed to replace Styrofoam in packaging products. Its stock was cheap, so I bought some. Guess what? Fast-food restaurants are still wrapping hamburgers in those Styrofoam clamshells, and my hot investment became worthless.
The BPP insight: Whatever you think makes investment sense doesn’t.
Inflation or deflation? Don’t bet on either. If you subscribe to the BPP school, it will be the seemingly impossible combination of both that will do us in, destroying the purchasing power of whatever inadequate savings baby boomers like me have accumulated at the same time that liquidating onerous levels of debt will become impossible — sort of like Weimar and the Depression in one neat package. Sounds impossible? Well, who ever thought we’d see today’s 0% interest rates?
Advisers simply can’t go wrong aiming their efforts at affluent investors who believe the bad stuff happens to them. Simply preserve their capital and they will think you’re terrific. Make it grow a tiny bit — forget a home run, a couple of walks are fine — and you’ll be a hero.
Since it’s practically un-American to be pessimistic, BPP investors never feel a need to brag about their (or your) stock market prowess or to demand that you get them into a hot hedge fund or private-equity deal. And they’ll call you about some jerk on CNBC only to check that you’ve protected them from the calamity he’s predicting.
Of course, everyone is a pessimist after a market collapse. What you need to find are people who stay down when the market goes up. For that, maybe you should run an ad with a picture of bird flying over …

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