This story comes from a client who is a very successful trial attorney and was embroiled in a bitter legal battle. His case involved late nights and loss of sleep because of tight deadlines, a contentious judge, and other difficulties that won't be mentioned to protect the guilty. In short, the stakes were high and the war raged with full intensity.

If you've never worked with trial attorneys it is worth noting how difficult their business really is. These people are warriors who fight big-stakes battles. The process is emotional and contentious – not exactly a process where concepts like balance and fulfillment enter the equation. It is full out war that results in victory or defeat. Period.

Anyway, this story is about the client turning to me in the depths of battle and asking for some perspective that could bring peace and balance to this process. Not an easy task, but below I share with you a highly edited version (to save you time) of that discussion.

Now you may be asking what does a trial attorney's life have to do with me? The truth is we are all warriors whether entrepreneurs, investors… or trial attorneys. We are all fighting our battles to win and this message is relevant for all warriors in pursuit of success – which probably includes you.

I hope you find it helpful…

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Step 1: Playing for victory…

You are a warrior and this is war. The key to victory is strategy. In every battle the outcome is determined by one or two key strategic moves. Your job as the general is to figure out what the key strategic moves are that will lead to victory and focus primarily on those. Do not let the hype and intensity of the moment distract you with superfluous, energy wasting nonsense. Focus on what is critical to victory. Determine those elements and focus for the win.

The other thing about a warrior is he fights to the death. Commitment and persistence are as important to victory as is strategy and training. Burn the ships in the harbor and leave no viable escape route so that victory remains the only acceptable solution. I have won many a battle through persistence alone against superior foes. Persistence rules the day in grueling battles such as this. Fight full-out all the way to the last breath.

Step 2: Life Perspective…

With that said, let's be real – this is just a 'game' you are playing. It isn't life. When you are 65 and holding your grandson in your arms this battle will mean nothing. From the perspective of your death this battle is about as significant as a gnat on the African continent. You are much bigger than your success or the games you play. Keep perspective.

Step 3: Putting it All Together…

Play to win because that is what you are there to do. Play smart and play full out or don't bother playing at all. But also play with the perspective and healthy distance that this particular battle does not define your life or who you are. This battle is important and worthy of a full-out fight and you will do your best to win; yet, a healthy irreverence may bring just the confidence and distance necessary to turn the tide and assure victory.

Like all things in life the key is balance. The warrior lives in the present moment and is completely enraptured in the game. He plays full out because that is how games should be played. Yet, wisdom tells you it is exactly that… just a game. The world will go on. You are bigger than the games you play. Never forget that – in victory and defeat.

Play to win, but play with perspective.

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Let me know your thoughts in the comments below…

For example, a financial coaching client became interested in a closed-end fund claiming to duplicate the performance of the Dow Jones Industrial Average while paying a 10% annual dividend. The problem is the claim of stock market-like returns with dramatically higher yields doesn't smell right. You can't get something for nothing so there has to be more to the story. The very characteristic meant to lure you in (high yields with stock market-like returns) should make you extremely cautious.

In this post I want to share with you the investment principles I taught my client when examining this investment as part of a new series highlighting coaching client success stories…

To begin, the first thing you want to notice about this investment is the attempt to offer above market returns. This is a classic sales strategy you will run across frequently that should always be a warning sign. Investment reality in a competitive marketplace dictates there can only be three ways to achieve above market returns...

1. A competitive trading advantage that captures exploitable market inefficiencies in excess of transaction and administration costs (this is the only good reason – all the remaining reasons are bad).
2. Taking above market risk (which provides no long-term advantage unless #1 above is valid ).
3. Investment fraud where the promoters are simply lying and misrepresenting in an attempt to dupe you.

This particular investment was an exchange traded fund offered by a big-name investment firm. This means the investment has passed the regulatory scrutiny of both the banking regulators and the securities laws. For these reasons, it is highly unlikely to be outright investment fraud but more likely a case of slick salesmanship.

Why? Because there is a huge market right now for any investment offering high yields because interest rates are artificially low so that retirees can't make ends meet with normal yields. Many investors are desperate for higher returns and are taking inappropriate risks to earn adequate income from their portfolio.

So if it's not outright fraud (#3 above) then let's consider the odds that above market returns are the result of a competitive advantage (#1 above). The fact that it's offered by a big-name, retail investment house and the portfolio is filled with the most popular and widely researched 30 stocks in the U.S. reduces the odds of a competitive advantage sufficient to produce a gross yield advantage of 10% (transaction and administrative costs must be factored in to give a net) down to basically nothing… zero-zilch-nada. There simply aren't a lot of market inefficiencies in the most widely held stocks, and certainly there aren't enough exploitable inefficiencies to produce an extra 10% annual yield.

That leaves us with principle #2 – risk profile – as the most probable explanation. I believe this investment has a risk profile that not one investor in 100 will figure out or understand. The organizers are using complicated options and derivative contract strategies to produce the excess yield. The end result is likely what is called a "fat-tail risk" – which means in layman's terms that everything goes fine 95% or more of the time but blows up during times when the markets have extreme price moves thus eliminating any long-term advantage.

Again, this can be very complicated stuff when you get into these esoteric investment products using derivatives. The salesman will over-simplify the situation by claiming stock market returns with safe, high yields because a confused investor will not buy. He has to make it sound simple to get the sale; however, you know better because there is no free lunch on Wall Street. There is always a reason. Unfortunately, the salesman will get away with his claims because so few investors have the statistical and investment background to ferret out the implications (or financial advisers, for that matter)  or understand the legal disclosures and risk profile.

And if the fat-tail risk isn't the problem then another place to look would be in "correlation risk". In other words, the marketing materials claim the investment will perform "similar" to the Dow Jones Industrial Average but what exactly does that mean? There is going to be "basis risk" or tracking error where the performance won't be identical to just owning the 30 stocks outright. How much that basis risk costs you in the future cannot ever be known with confidence due to the fat-tail risk cited above, but you can at least check historical performance very closely to discern how well it tracked in the past. Watch carefully for the consistency of the tracking and where it fails. The failures will provide important clues.

These are just two of the most obvious risks that I wanted to mention, but there may be others as well.

In summary, the first thing to learn whenever an investment is sold with above market returns is that you must check further by performing thorough due diligence. Claims for above market returns is always a warning sign to dig deeper. When examining this particular investment we saw the above market return is not likely explained by outright investment fraud or competitive advantage due to its specific characteristics. That leaves a poorly understood risk profile as the likely culprit necessitating more thorough due diligence to resolve.

Anyways, I hope this line of reasoning proves as helpful for you when considering some of the esoteric investment alternatives produced by the financial services industry today as it did for my coaching client. As he builds his portfolio he will be much better prepared to analyze these types of investments in the future as a result of this education. Similarly, you will run into this stuff as you build your wealth so I thought it was important to share these principles with you as well. I hope it helps.

Please let me know your thoughts in the comments area below…

You Might Also Like…

• Deadly Dozen Investment Mistakes To Avoid: Reveals the 12 most dangerous investment mistakes that keep you from financial success.
• Five "Must Ask" Due Diligence Questions: Learn the five due diligence questions that can help you avoid losing investments before they cost you money.
• Top 26 Warning Signs Of Investment Fraud: How to uncover even the best disguised investment fraud before it costs you money.
• How To Find Financial Advice You Can Trust: Learn 12 essential questions that can separate good financial advice from bad.

In a newly published article titled "Financial Coaching vs. Financial Advice" I explain in detail how each profession operates and what you can reasonably expect from each service. In a nutshell, financial advice seeks to sell you a fish so you can eat for the day; whereas, financial coaching teaches you how to fish so you can independently get all the fish you want for the rest of your life.

In this new article on financial coaching I show you how:

• Traditional financial advice has failed to serve consumers adequately.
• Financial coaching is focused on your education; whereas, financial advice is focused on investment product sales.
• Traditional financial advice has an inherent conflict of interest that biases the information you receive; whereas, financial coaching has no such conflict of interest.
• and much more…

In fact, I provide a table detailing 14 key differences between financial coaching and financial advice. This table has been copied on other web sites and cited in magazines (it came from my old web site years ago) so you may want to check it out. In one glance you can become clear on the differences between financial advice and financial coaching so that you can decide how to best utilize each service.

I hope this helps, and please let me know your thoughts by leaving a comment below.