“Don’t tell me what you think, show me your portfolio”. This is what you should say to a stock trader. Most advisors, therapists and consultants have no downside in giving their advice. They have no skin in the game and that’s something to be aware of.
Skin in the game means having incurred risk, monetary or otherwise, by being involved in achieving a goal. Nassim Taleb wrote a book about this topic. He claims that nobody should put others at risk without having harm to themselves.
In general, skin in the game comes with conflict of interest. Beware of the person who gives advice, telling you that a certain action on your part is good for you while it is also good for him, while the harm to you doesn’t directly affect him.
- Stock traders take their cut when your investments make profit. But when you lose, it doesn’t affect them.
- Dietitians charge for advising a diet. But when it doesn’t work, it doesn’t affect them (and you might even come back).
- General practitioners get paid for helping patients, not based on results. When they give wrong advice, it doesn’t affect them (and you might even come back).
- Consultants charge ridiculous amounts of money to give advice, but when it turns out it didn’t work it doesn’t affect them.
When a house collapsed in ancient Mesopotamia, killing the owner, the architect himself was sentenced to death. Small chance that this architect hid risks in the foundation. That’s skin in the game.
In earlier times rulers often fought in their own wars. A Roman emperor risked to get a spear in his chest on the battlefield and die. A stark contrast to today’s banking CEOs, who have nothing to lose while collecting their bonuses.
So do not pay attention to what people say, only to what they do, and be aware of how much of their lives they are taking at risk before you follow their advice.