How To Solve 10% Of Life’s Problems

I was recently reading this article on the effectiveness of D.A.R.E. programs nationwide (for those of you not aware, D.A.R.E. stands for “Drug Abuse Resistance Education” and is a nationally run program that involves local police officers stopping by the classroom to educate middle-school kids about the dangers of substance abuse).

The objective of the program seems harmless enough—after all, who could possibly be against drug prevention?—I’m not exactly going out on a limb by saying that most parents would rather see their kids grow up to deal in blocks of Coke stock purchased through a broker on The Street rather than keys of coke purchased from a guy on the streets.  Yet the studies show an uncomfortable truth that might be hard for D.A.R.E. advocates to acknowledge:

“Proponents seem inclined to ignore scientific research findings. “In Houston, Texas, where a study showed a shocking 29% increase in drug usage and a 34% increase in tobacco usage among students participating in DARE, the police chief defended it by saying he would use the results to ‘fine-tune the program to better serve the children.'” And he unashamedly promoted spending $3.7 million on DARE in the city.”

That is nuts. The actual numbers suggest that more people used drugs after taking a drug prevention class than they did before taking such a class.

My guess is that there are two reasons why this may be the case:

(1)  Some kids are sheltered (a lot of times, that word is used as a pejorative, but that is not my intent here), and the introduction of D.A.R.E. ends up introducing children to a world that they would not otherwise know exists. Generally, when we deliberately look to cause mischief, we are bound by the kinds of trouble we’re familiar with—but D.A.R.E. programs can inadvertently crystallize yet another forbidden fruit to add to the teenage tree of temptation.

(2)  This is the big one—most anti-drug advocates overstate their case. When I went through D.A.R.E., the officer made it sound as if drugs involved men in trench coats and brown bags peddling substances that would cause your life to spiral out of control after the first use. Well, when a kid goes off to college, shows up at a frat party, and experiments for the first time, he is going to think that the whole program was a sham when the only immediate side effect that he experiences is a penchant for Taco Bell.

A more honest conversation would go like this—in most states, the penalties for usage are harsh to the point where an unsympathetic judge can derail your life substantially in the short-term and create a blemish on your criminal record that can complicate your employment prospects for a good chunk of your life. Furthermore, most states have laws that allow a judge to sentence you as a dealer just for owning a modest accoutrement (because a prosecutor will argue this is proof of an intent to distribute), and that can really derail your life. You may disagree with the laws, but prisons are filled with men that think legislatures suck, and the conviction that the system is unfair does you little good when you’re sitting next to Bubba.

And even if you do not get caught, this Warren Buffett quote is highly relevant to the arena of substance abuse: “The chains of habit are too light to be felt until they are too heavy to be broken.” It’s not the first, second, or third time that you introduce new friends to your lungs and bloodstream that causes the problems, but rather, it’s when you reach a point where you can no longer say no. That is, the quicksand that takes you from periodic use to dependency is what should scare you and make you worry about throwing your life away. The rationale for avoiding usage altogether is that you don’t want to even flirt with that dangerous transition point. If you have the financial resources to spend $65 on an eighth, then it automatically means that you have the potential to do something damn impressive with your life, and you don’t want to lower the ceiling of your own potential.

In my opinion, that’s what an honest conversation would look like. Even if the message of D.A.R.E. officers is ultimately the correct one, the proponents overstate their case to the point where they lose credibility, causing teenagers to ignore the package of truth because it is wrapped up with shiny paper that is a hyperbolic falsehood.

Since I run a finance site, you are probably wondering why I am bringing the effectiveness of D.A.R.E. programs to your attention.

Look, everything is inter-related. Charlie Munger was dead-on right when he said there are about 100 mental models in life that can explain the entirety of the human condition. The reason why D.A.R.E. programs backfire could be directly applicable to how you run your household’s investments. The relevance is this: being able to extract some truth from well-meaning people (and institutional authorities) that speak in hyperbole is a very important life skill.

I’ll give you a finance-related example. If you follow my work on Seeking Alpha, you know I usually write about retirement investing, and more specifically, the advantages of owning high-quality dividend stocks. For the most part, I’m interacting with men three times my age, some of whom agree with me, and some of whom disagree with me.

Unfortunately, I’ve picked up a  couple of antagonistic fanboys along the way, and one guy would spend good chunks of his day arguing that people who followed my advice would end up poorer than the House of Judah after King Hezekiah showed off his wealth to the Babylonian envoys. With people like that, there is a strong temptation to say “Ahh, this guy hates my guts, so screw ‘em, he doesn’t have anything useful for me to read.”

That would have been a bad (though convenient) move on my part because in one of his articles dedicated to lambasting myself, he was pointing out how historically expensive certain food stocks were becoming. I had an outstanding buy order for Kraft stock (after the Mondelez spinoff) at the time, and his admonition made me reconsider and purchase the somewhat unknown healthcare stock Becton Dickinson instead. So far, it’s worked out well. Usually, that guy speaks in hyperbole when criticizing me, but I was self-aware enough (in that instant) to consider the merits of each criticism aimed at me that came my way.

Most of this hyperbole can be explained by what Charlie Munger calls “Cui et Quod Bono” syndrome. Basically, anytime someone tries to persuade you to do something, you should ask yourself, “Who benefits, and why/how?” That mental training tactic is a backdoor way that allows you to efficiently sort through truth and BS.

For instance, if an otherwise sensible financial planner is trying to get you to buy a mutual fund front-loaded with a 2.5% expense ratio, it is probably because he is getting a substantial commission for selling you that product. That easy money is the blinder that would cause a man with good investment instincts to give you bad advice.

Almost every person I have ever met in my life could be classified according to the following sentence: “He/she is a good guy/gal that is just trying to get a little something for himself/herself, and find some sense of enduring happiness.” Yet, the world is full of problems. And that is because incentive structures show up along life’s path that cause otherwise well-meaning people to overreach. The D.A.R.E. officer really wants you to refrain from usage, so he exaggerates the bad effects in an attempt to be more persuasive. Or, the financial advisor is about to send a kid to college, so he has to reach for commission by selling you products that take a little bit more of your money. Pay attention to the roadblocks that can incentivize others to deviate from the truth when interacting with you. You can get so much mileage out of asking yourself “Cui et Quod Bono?” anytime someone tries to persuade you or get you to do something. You can solve a small chunk of life’s problems by keeping that refrain at the back of your mind.