You are previewing Negotiating Your Investments: Use Proven Negotiation Methods to Enrich Your Financial Life.
O'Reilly logo
Negotiating Your Investments: Use Proven Negotiation Methods to Enrich Your Financial Life

Book Description

Get smart about personal finance with the art and science of negotiation

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 power

  • Preparation, information exchange, bargaining, and closing and commitment - the four phases of negotiation

  • Asymmetric information, conflicts of interest, professionalism, and whom to trust

  • Investment vehicles and the economic science that lies behind wise investing

  • Hard economic truths involving past results, rational market pricing, diversification, interest rates, and the effect of costs on investment returns

  • While 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.

    Table of Contents

    1. Coverpage
    2. Titlepage
    3. Copyright
    4. Dedication
    5. Contents
    6. Prologue
    7. Acknowledgments
    8. Introduction
    9. Part I: What the Best Negotiators Do
      1. Chapter 1: What Is a Good Outcome?
        1. Identify Truly Good Outcomes and Don’t Get Distracted
        2. What Makes for a Good Outcome?
        3. Chapter Summary
        4. Notes
      2. Chapter 2: Interests, Options, and Goals
        1. What Do You Really, Really Want?
        2. Shared Interests
        3. Dig Deep to Explore Underlying Interests
        4. Don’t Settle for Win-Win
        5. Options
        6. Structure the Deal to Meet Their Needs, Too
        7. Work with Them to Create More Value
        8. Chapter Summary
        9. Notes
      3. Chapter 3: Fairness
        1. What Is “Fair”?
        2. Move beyond Market Value to Measure Fairness
        3. Chapter Summary
        4. Notes
      4. Chapter 4: Communication to Build the Kind of Relationship You Want
        1. Set Relationship Goals
        2. Choose Communication Tools Carefully
        3. Work to Create the Atmosphere You Want
        4. Focus on What You Want to Tell Them—and How
        5. Use Active Listening Techniques
        6. Good Negotiating Process
        7. Be Aware of the Power Dynamics—and Consider Changing Them
        8. Plan a Process That Will Lead to Good Outcomes
        9. Chapter Summary
        10. Notes
      5. Chapter 5: Thinking about Commitments
        1. How Tight Are the Bindings?
        2. When Should We Be Bound?
        3. Degrees of Commitment
        4. Commitment Is Not Just about the Ending—Consider It throughout the Process
        5. Many Little Agreement Steps
        6. Chapter Summary
        7. Note
      6. Chapter 6: Best Alternative: Where Your Power Comes From
        1. Step 1—An Inventory of Your Possible Alternatives
        2. Step 2—Identify Your BATNA
        3. Step 3—Strengthen Your BATNA
        4. Step 4—Estimate What the Other Side’s BATNA Might Be
        5. Step 5—Consider Whether You Can Weaken the Other Side’s BATNA
        6. Work to Shape Their Perceptions
        7. Be Careful Not to Rely Too Much on BATNA, Especially Where Relationships Are Important
        8. Chapter Summary
        9. Notes
      7. Chapter 7: The Preparation Phase
        1. Where Do We Hope to End Up?
        2. Consider the Substantive Issues
        3. Then Consider the Relationship Issues
        4. You Want Good Substance and Good Relationships—But Don’t Trade One for the Other
        5. Set High, Achievable Goals
        6. Who Are These People Who Will Soon Be Sitting Across from Us?
        7. Chapter Summary
        8. Notes
      8. Chapter 8: The Exchanging Information Phase
        1. Ask Lots of Questions
        2. Strengthen Your Bonds with the Other Parties
        3. Gather Up All the Facts That They Are Willing to Share
        4. Managing the Danger That They May Lie to Us
        5. Chapter Summary
        6. Note
      9. Chapter 9: The Bargaining Phase
        1. Work to Increase the Pie—and to Claim a Fair Slice
        2. Use Conditional Language to Explore Trades That May Create Value
        3. Propose Terms Favorable to You—But Defensible as Fair
        4. Make Small Concessions Slowly and Deliberately—and Insist on Fairness
        5. Be Resolute about Claiming Your Fair Share
        6. Chapter Summary
        7. Notes
      10. Chapter 10: The Closing and Commitment Phase
        1. You Want Promises They Are Sure to Keep
        2. Create Scarcity to Enhance Their Enthusiasm for the Deal
        3. Prepare to Be Patient
        4. Chapter Summary
        5. Notes
      11. Chapter 11: The Problem with Agents
        1. Sometimes Employing an Agent Is Wise
        2. Often Employing an Agent Is Foolish
        3. Are the Agent’s Interests the Same as Yours?
        4. Chapter Summary
        5. Note
    10. Part II: Applying Negotiating Skills to Investing
      1. Chapter 12: Why Is Investing Really Just Another Type of Negotiation?
        1. Investing Is Similar to Other Big-Ticket Negotiations
        2. Do Not Be Fooled into Thinking It Is Something Other Than a Negotiation
        3. Different Types of Investing Negotiations
        4. Chapter Summary
      2. Chapter 13: What Is a Good Outcome Regarding Your Investments?
        1. The One Investment Goal That Almost Everyone Shares
        2. Your Investment Good Outcome Is Uniquely Your Own
        3. Should You Narrow Your Investment Goals?
        4. Chapter Summary
        5. Notes
      3. Chapter 14: The Problem of Conflicts of Interest
        1. Incentives Matter
        2. Some Conflicts Other Than Money
        3. Chapter Summary
        4. Note
      4. Chapter 15: The Problem of Asymmetric Information
        1. They Know Much More Than You Do about the Tricks of the Trade
        2. Knowing More Creates Tremendous Opportunity to Take Advantage of Others
        3. Chapter Summary
        4. Notes
      5. Chapter 16: Whom Can You Trust? And Why?
        1. Be Extremely Careful about Whom You Trust—and How Much
        2. You Can Work Well with People without Trusting Them
        3. You Can Trust Those Whose Best Interests Make Them Trustworthy
        4. Chapter Summary
      6. Chapter 17: Professionalism: Who Is a True Professional and Why?
        1. The Traditional Professions’ Struggle with Society’s Need for Trustworthy Help
        2. The Traditional Professions Don’t Always Succeed—but They Must Always Try
        3. Reclaiming Professionalism
        4. Chapter Summary
      7. Chapter 18: Use the Power of Your Alternatives
        1. Alternatives When Making Direct Investments in Actively Traded Securities
        2. Alternatives When Investing Through Intermediaries
        3. Chapter Summary
        4. Notes
      8. Chapter 19: Knowing Your Interests and Theirs
        1. Understanding Your Own Interests
        2. Thinking about Their Interests
        3. Interests That Can Lead You Astray
        4. Chapter Summary
      9. Chapter 20: Many Different Possible Options for How to Structure the Deal
        1. Trade Their Interests for Yours
        2. Work Together to Create Packages of Interests
        3. Find the Best Investment Deal among Many
        4. A Few Cautions
        5. Chapter Summary
      10. Chapter 21: Insist on Using Objective Standards of Fairness
        1. Gather Your Measures of Fairness
        2. Beware of What They Call Fair
        3. Keep Your Eyes on Profitability and Transparency
        4. Demand a Fair Division of All the Value That the Deal Creates
        5. Do the Math on Fees and Costs
        6. Pay Only for Services That Provide You with Value
        7. Chapter Summary
        8. Notes
      11. Chapter 22: Plan the Type and Tone of Communication You Want
        1. Communication to Enhance Your Understanding
        2. Communication to Make Things Clear to Them
        3. Create the Tone and Atmosphere You Want
        4. Chapter Summary
        5. Note
      12. Chapter 23: Think about Relationship Goals
        1. A Good Working Relationship Need Not Be Personal
        2. Pay Attention to Power Dynamics
        3. Special Concerns about Financial Advisors
        4. Chapter Summary
        5. Notes
      13. Chapter 24: When to Commit—and to What
        1. Avoid Getting Locked In
        2. Pay Attention to the “When” of Commitments
        3. Chapter Summary
      14. Chapter 25: The Four Phases of an Investment Negotiation
        1. The Preparation Phase of Investing
        2. Gather New Data Continuously
        3. The Exchanging Information Phase of Investing
        4. Plan to Put Them at Ease
        5. The Bargaining Phase of Investing
        6. Propose Ways for Them to Meet Their Most Important Interests
        7. Let Them Know the Things on Which You Cannot Compromise
        8. Be Aware of Their Salesmanship Skills
        9. The Closing and Commitment Phase of Investing
        10. Build In Your Ability to Check on Them and to Get Out
        11. Get Everything in Writing
        12. Chapter Summary
        13. Notes
    11. Part III: The Economic Truths You Need to Know in Order to Be an Effective Investor-Negotiator
      1. Chapter 26: Nobody Can Consistently Beat the Market
        1. The Markets Are, for the Most Part, Rational
        2. Don’t Confuse Random Chance with Skill
        3. Stock Research Offers Little Value
        4. Chapter Summary
        5. Notes
      2. Chapter 27: Past Performance Does Not Guarantee Future Results
        1. No One Can Predict the Future
        2. Chapter Summary
      3. Chapter 28: The Concept of Present Value
        1. What Is Tax Deferral Worth?
        2. Present Value and Life Insurance
        3. Present Value and Money-Back Guarantees
        4. Present Value and Comparing Investments
        5. Chapter Summary
      4. Chapter 29: There Is Really Only One Interest Rate
        1. Higher Rates Reflect Higher Levels of Risk
        2. Risky Investments Involve a Danger of Losing Much of Your Principal
        3. Chapter Summary
      5. Chapter 30: There Is No Such Thing as a Free Lunch—Except Diversification
        1. Why You Want to Diversify
        2. Chapter Summary
      6. Chapter 31: Diversify Across Every Asset Class
        1. Be Honest with Yourself about Your Risk Tolerance
        2. How to Achieve Diversification of an Investment Portfolio
        3. Diversifying Asset Classes beyond Stocks
        4. The Efficient Markets Hypothesis
        5. Some Practical Advice on Choosing Specific Categories of Index Funds
        6. Chapter Summary
        7. Notes
      7. Chapter 32: We Know What Has Happened in the Past
        1. The Historical Average Return on Stock Investments Is a Very Good Result
        2. Seeking Higher Than Market Returns Is Called Gambling
        3. Chapter Summary
        4. Notes
      8. Chapter 33: Costs Are Important—They Reduce Your Returns
        1. Higher Costs Result in Lower Returns
        2. Many Investments Carry Expenses That Are Just Too High to Be a Good Deal
        3. Figure Out How Much You Are Paying to Those Who Lay Hands on Your Investments
        4. How You Can Minimize Costs
        5. Chapter Summary
        6. Notes
      9. Chapter 34: Investments to Avoid
        1. Variable Annuities
        2. Hedge Funds
        3. Derivatives
        4. Callable Bonds
        5. Convertible Securities
        6. High Costs, Complexity, and Creative Geniuses
        7. Chapter Summary
        8. Notes
      10. Chapter 35: How Much Is at Stake?
        1. The Impact of the Fees You Pay for Advice
        2. The Need for Action
        3. Chapter Summary
        4. Note
    12. Afterword: What Is a Good Outcome in Your Financial Life?
    13. Selected Bibliography
    14. About the Author