The Most Important Skill in Finance

The most important skill in finance has nothing to do with math.

Creating the best discounted cash flow models in the world won’t help you raise assets from prospective clients. No one really cares about your Microsoft Excel skills if you can’t explain what they’re good for.

Spreadsheets aren’t nearly as important as soft skills.

Warren Buffett once said, “The most important skill in finance is salesmanship.”

Everyone is in sales in some capacity.

If you want to get married you have to sell yourself to a prospective spouse.

If you want to get hired you have to sell yourself to a prospective employer.

If you want to sell a product or service you have to convince people that it’s worthwhile.

If you want people to buy into your ideas you have to sell them in a way that people understand them.

The best story usually wins outs.

In Gladiator, Proximo explained to Maximus, “I wasn’t the best because I killed quickly. I was the best because the crowd loved me. Win the crowd. And you will win your freedom.”

So Maximus became a showman. He had a story. He delighted the crowds. And he entertained.

It’s not just good storytelling of course. Good writers can sway your thinking but it’s not like authors rule the world either.

To be an effective communicator you have to understand who you’re talking to in the first place.

In his new book, Shut Up & Keep TalkingCNBC’s Bob Pisani discusses the importance of knowing your audience:

Thirty-two years ago when I started at CNBC, I had a major problem: I wasn’t sure who I was talking to. I was the Real Estate Correspondent, but I had no idea what the sophistication level of the viewer was. Did they know what a mortgage was? If they did know, did they know what a mortgage-backed security was?

It bothered me, staring into a camera not knowing who I was talking to.

So I invented a viewer.

She was 48 years old, lived in Minneapolis, and worked part-time as an accountant for MMM. She was married, with two boys, one of whom was 25 years old, had just gotten engaged, and was interested in buying a house.

She had basic knowledge of real estate — she knew what a mortgage was and a little about the process of buying and selling a home, but not much.

She was, for me, the perfect viewer. She knew a few things, but not too much. I knew at what level I could speak to her. I knew she would understand a mortgage, but I would have to explain a mortgage-backed security.

When I developed stories I considered what interested her, and I knew what level of sophistication I needed to use.

As Einstein once said, “If you can’t explain it to a six-year-old, you don’t understand it yourself.”

It’s no coincidence that most of the all-time great investors — Benjamin Graham, Warren Buffett, Howard Marks, Peter Lynch, etc. — had the innate ability to explain their investment process in a way that everyone could understand it.

A lot of people in the world of finance use jargon as a way to impress people. They assume big words and complicated explanations will prove their intelligence.

Smart people are often drawn to complex solutions because it feels safer. Complexity offers an illusion of control. Simple is harder because you have to actually understand the topics at hand in a way that goes beyond finance.

Obviously, sales and communication skills alone are not enough to land the plane.

You still have to deliver a good service experience and be an expert in your domain when managing other people’s money. But that’s table stakes.

The most important skill in finance is really a combination of complementary skills.

The secret sauce is some combination of:

  • an analytical brain.
  • an understanding of human psychology.
  • the ability to communicate your views in a way that people can understand them.

Easier said than done but that’s the goal.

Further Reading:
Selling Intangibles