Win arguments and negotiations

Surely this is useful in business and might help you get to your financial goal!


JUNE 19, 2013 by ERIC BARKER

6 hostage negotiation techniques that will get you what you want

hostage negotiation


How does hostage negotiation get people to change their minds?

The Behavioral Change Stairway Model was developed by the FBI’s hostage negotiation unit, and it shows the 5 steps to getting someone else to see your point of view and change what they’re doing.

It’s not something that only works with barricaded criminals wielding assault rifles — it applies to most any form of disagreement.

There are five steps:

  1. Active Listening: Listen to their side and make them aware you’re listening.
  2. Empathy: You get an understanding of where they’re coming from and how they feel.
  3. Rapport: Empathy is what you feel. Rapport is when they feel it back. They start to trust you.
  4. Influence: Now that they trust you, you’ve earned the right to work on problem solving with them and recommend a course of action.
  5. Behavioral Change: They act. (And maybe come out with their hands up.)

The problem is, you’re probably screwing it up.


What you’re doing wrong

In all likelihood you usually skip the first three steps. You start at 4 (Influence) and expect the other person to immediately go to 5 (Behavioral Change).

And that never works.

Saying “Here’s why I’m right and you’re wrong” might be effective if people were fundamentally rational.

But they’re not.

From my interview with former head of FBI international hostage negotiation, Chris Voss:

business negotiations try to pretend that emotions don’t exist. What’s your best alternative to a negotiated agreement, or ‘BATNA’?  That’s to try to be completely unemotional and rational, which is a fiction about negotiation. Human beings are incapable of being rational, regardless So instead of pretending emotions don’t exist in negotiations, hostage negotiators have actually designed an approach that takes emotions fully into account and uses them to influence situations, which is the reality of the way all negotiations go…

The most critical step in the Behavioral Change Staircase is actually the first part: Active listening.

The other steps all follow from it. But most people are terrible at listening.

Here’s Chris again:

If while you’re making your argument, the only time the other side is silent is because they’re thinking about their own argument, they’ve got a voice in their head that’s talking to them. They’re not listening to you. When they’re making their argument to you, you’re thinking about your argument, that’s the voice in your head that’s talking to you. So it’s very much like dealing with a schizophrenic.

If your first objective in the negotiation, instead of making your argument, is to hear the other side out, that’s the only way you can quiet the voice in the other guy’s mind. But most people don’t do that. They don’t walk into a negotiation wanting to hear what the other side has to say. They walk into a negotiation wanting to make an argument. They don’t pay attention to emotions and they don’t listen.

The basics of active listening are pretty straightforward:

  1. Listen to what they say. Don’t interrupt, disagree or “evaluate.”
  2. Nod your head, and make brief acknowledging comments like “yes” and “uh-huh.”
  3. Without being awkward, repeat back the gist of what they just said, from their frame of reference.
  4. Inquire. Ask questions that show you’ve been paying attention and that move the discussion forward.

So what six techniques do FBI hostage negotiation professionals use to take it to the next level?


1. Ask open-ended questions

You don’t want yes/no answers, you want them to open up.

Via Crisis Negotiations, Fourth Edition: Managing Critical Incidents and Hostage Situations in Law Enforcement and Corrections:

A good open-ended question would be “Sounds like a tough deal. Tell me how it all happened.” It is non-judgmental, shows interest, and is likely to lead to more information about the man’s situation. A poor response would be “Do you have a gun? What kind? How many bullets do you have?” because it forces the man into one-word answers, gives the impression that the negotiator is more interested in the gun than the man, and communicates a sense of urgency that will build rather than defuse tension.


2. Effective pauses

Pausing is powerful. Use it for emphasis, to encourage someone to keep talking or to defuse things when people get emotional.

Gary Noesner, author of Stalling for Time: My Life as an FBI Hostage Negotiator has said:

Eventually, even the most emotionally overwrought subjects will find it difficult to sustain a one-sided argument, and they again will return to meaningful dialogue with negotiators. Thus, by remaining silent at the right times, negotiators actually can move the overall negotiation process forward.


3. Minimal Encouragers

Brief statements to let the person know you’re listening and to keep them talking.

Gary Noesner:

Even relatively simple phrases, such as “yes,” “O.K.,” or “I see,” effectively convey that a negotiator is paying attention to the subject. These responses will encourage the subject to continue talking and gradually relinquish more control of the situation to the negotiator.


4. Mirroring

Repeating the last word or phrase the person said to show you’re listening and engaged. Yes, it’s that simple — just repeat the last word or two:

Gary Noesner:

For example, a subject may declare, “I’m sick and tired of being pushed around,” to which the negotiator can respond, “Feel pushed, huh?”


5. Paraphrasing

Repeating what the other person is saying back to them in your own words. This powerfully shows you really do understand and aren’t merely parroting.

From my interview with former head of FBI international hostage negotiation, Chris Voss:

The idea is to really listen to what the other side is saying and feed it back to them. It’s kind of a discovery process for both sides. First of all, you’re trying to discover what’s important to them, and secondly, you’re trying to help them hear what they’re saying to find out if what they are saying makes sense to them.


6. Emotional Labeling

Give their feelings a name. It shows you’re identifying with how they feel. Don’t comment on the validity of the feelings — they could be totally crazy — but show them you understand.

Via Crisis Negotiations, Fourth Edition: Managing Critical Incidents and Hostage Situations in Law Enforcement and Corrections:

A good use of emotional labeling would be “You sound pretty hurt about being left. It doesn’t seem fair.” because it recognizes the feelings without judging them. It is a good Additive Empathetic response because it identifies the hurt that underlies the anger the woman feels and adds the idea of justice to the actor’s message, an idea that can lead to other ways of getting justice.

A poor response would be “You don’t need to feel that way. If he was messing around on you, he was not worth the energy.” It is judgmental. It tells the subject how not to feel. It minimizes the subject’s feelings, which are a major part of who she is. It is Subtractive Empathy.

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to:

You are what you eat

I’m sure you’ve heard the saying “You are what you eat.” In many ways it is true; you need only look at the diet of an athlete and a couch potato to see that each looks much like what they eat. An athlete who eats chicken in rice is thin whereas a couch potato looks a bit like a soft & fatty cheeseburger.

Much in the same way, with finances you are what you eat. More exactly, you are what you think. This idea came to my mind as I was on break at work. I shuffled through some investments, made some options trades and netted about $250. As I sat back, happy with my financial gain, I looked around the room. Three of the other guys were playing fantasy football and comparing how many “points” they earned on Sunday’s games and one guy was gun shopping. Specifically, he was shopping for a Kalashnikov and he was calling out the prices that he found on each website. It seems that the going rate for an AK-47 is about $750 in America.

The next day, most of the guys were playing “fantasy football,” and my other colleague finally pulled the trigger on his AK purchase and gave his credit card number over to the tune of $750. I made another option trade, this time netting $500. He called over to me and told me that he bought the AK. I smiled and told him that I just made two options trades in the last two days for $750. In essence, he spent $750 and I made $750. The rest of the guys, they just spun their time along in football fantasy land.

As I talk to most of my colleagues, friends and relatives at parties and others that I meet here and there, I find that most people don’t focus or concentrate their efforts on finance. They are busy with fantasy football, golf, fixing up their pet car project or whatever else it is that people do when they aren’t working. I have my own hobbies: travel, writing, going to the movies, gym, etc. But, a good portion of my day (at least one hour) is spent studying finance. And it shows: I am financially successful. Now, if you don’t study finance, how can you expect to be financially successful? Just like the couch potato who eats and never exercises, as he is what he eats, your finances are what you think.

I might look at the markets for 6 or 7 days and never see a trade, but when one jumps out, I play it and make a few hundred bucks, its only because I’m studying the markets that I see the opportunities as they come up. My colleagues, well, they see good fantasy football and gun deals – but this won’t make them a million dollars.

If you want to grow your own million dollars, you need to be studying finance every day. You need to focus on it, think about it, you pretty much need to sleep with finance in your mind. If you invest in real estate, you should study real estate. If you are growing a car business, you should be thinking cars all day and night.

My point is, if you want to make a million dollars, you should be focusing on it every day, not on fantasy football or some other distraction. Remember, you are what you eat!

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to:

Lending Club

Once in a while I come across an idea that is so brilliant that I lament that I wasn’t the one who had thought it up.  When I first heard about “peer to peer lending,” I was a bit intrigued and I did some research.  It seems that the two largest companies are the Lending Club and Prosper.  After looking at both, I found the Lending Club’s website to be easier to use and their “deal” seemed better.  I studied, read their literature and decided to give peer to peer lending a try.  After some months enrolled in the program, I have found that the results match the advertisements and I bring the idea to you here so that you might be able to benefit from it.  I wish I had found it 5 years ago, I might have retired earlier!

First, let me explain peer to peer lending.

The typical Lending Club borrower is someone with credit card debt who is looking for lower payments.  Some credit cards charge 25% and if you have ten or twenty thousand dollars at very high rates, the payments can be crippling.  Even if you can make the payments, it is often difficult to pay down the balances.  Trying to obtain a second source loan, maybe from your local bank, will likely incur equally high interest rates.

The Lending Club offers loans to qualified borrowers and sets an appropriate interest rate and the borrower applies for a Lending Club loan just like they would for any credit card, revolving charge line or car loan.  The Lending Club credit department verifies basic information like credit scores, employment verification and (sometimes) income levels.  If the loan is “approved” by the Lending Club credit department, the loan is placed for funding on the company’s website.  The website lists loans, not unlike you find products on eBay, and investors (you and I) can purchase these loans.

The Lending Club collects a fee, typically about 1% of the loan and payments to do the credit check and verifications and to process the payments.  Having done personal and business loans, I know how much work it can be.  They definitely earn their fee and I am happy to pay it!

The biggest problem with investing in loans is that you must often need a LOT of capital.  AND, you have a HUGE risk if the loan defaults.  If some person is paying 25% on a $20,000 loan, you could loan them $20,000 at 16% and give them a chance to pay their bill down much quicker and save a lot of money in finance charges.  But, what if they default?  You just lost $20,000.  For a large corporation like Visa or Master Card, this is not a problem as they have hundreds of thousands of loans.  If their default rate is 10% and they are collecting (on average), 20% in interest, they still clear 10% in finance charges.

And here is the brilliance of the Lending Club.  You don’t have to buy the whole $20,000 loan, you can buy a fractional share!  The minimum investment in any loan is only $25.  With an investment as small as $2500, you can purchase 100 loans.  If you average 14% notes that have a expected default rate of 4%, you will (all things considered) average about 9-10% return on your money.

Quick disclaimer:  I made my purchase with the Lending Club based on my financials.  I am merely explaining how the company works.  I cannot say if this type of investment is appropriate for you.  Be sure to check with your accountant and/or financial planner and ALWAYS: don’t invest more than you can risk.  Also, Lending Club loans are 3 to 5 years.  Do not invest money that you will need in less than 3-5 years.  This kind of investment is appropriate only for long term investment capital (in my opinion, your IRA or Roth IRA account is a good place to start).

The Lending Club reports that they only “approve” about 10% of the loan applications that they receive.  I have attempted to “purchase” loans that were in funding that later failed one or more of the credit verifications (the applicant exaggerated their income or they failed to send in key documents as required to process their loan).  It was actually a good feeling when, sometimes, half of the loans that I attempted to purchase were disqualified during underwriting: my money was returned to my account to use to select another loan.

“Dipping my toe in the water,” I decided to fund a Lending Club account with $5,000 from one of my IRA accounts.  I opened my account in September and the results have been as advertised.  In the top photo, I have made a screen capture of the main page of my account.  In it, you can see the annualized rate of return on my portfolio of loans (not including default rate), how much interest I’ve received (in a little over two months), the value of my account (up to $5,150.53 from $5,000 ), the amount of capital that is applied to loans that are being approved, how much accrued interest I have made (but not yet paid), a listing of my loans and if they are current or late, and a summary of the payments I have received to date.

I am sure I will receive some feedback that lending money to unsecured borrowers is dangerous.  Really?  Visa and Master Card do it every day and make millions.  The way to limit risk is diversification: spread your money out and if any one, two, three or four loans go bad, you make up the difference on your loans that pay on time.  Think about how much your bank savings account pays you now.  .25%?  .50%?  Maybe if you are lucky, .80%  In about 2 1/2 months with Lending Club, I have returned 3% on my money.  OVER TIME, the additional 10%, 12% or 16% you earn on an account like this will most likely exceed your loss rates through defaults.

Loans are packaged in A, B, C, D, E, F and G categories.  The A paper has the less risk and typically pays about 6%.  The Lending Club provides some statistics and I have copied that page below.  In the bottom left you can see the expected returns for each of the credit grades, the expected default rate and the overall expected yield.  I have primarily purchased B-F paper.  Looking at the return after default, I think that the A and G provide the lowest yield to risk ratio.  Really, the biggest risk to a portfolio of Lending Club loans is another recession like we had in 2008.  I figure, that in a situation like ’08, someone with good credit (A paper) is just as likely to get laid off as someone with mediocre credit (D or E paper).  If I can earn a greater yield before the next economic hard times, why not make my money work for me while the economy is doing alright?

After I successfully invested my $5,000, I began receiving payments a little after 30 days.  My monthly payments are approximately $150.  Of that, $100 is a return of capital (the borrow is paying down the principle of the loan) and $50 in interest.  With the $150 I receive in payments each month, I am able to buy bits of 6 more loans at $25 each.  In the screen capture below, I segregated my loans into the initial investment and then the monthly accrued interest that is used to purchase additional notes.  The monthly payment amount for the initial purchase increases each month as I receive payments on the loans purchased with interest.  In this way, my money compounds and continues to work for me.  I plan to add an additional $5,000 at the end of the year and perhaps make a larger investment next Spring.

The amount of money you receive in interest can have an ENORMOUS difference on your net worth over time. If you do not already know the “Rule of 72,” you should understand how it works. Take the number 72 and divide by the interest rate and you will know how long until your money will double.If you are getting a 1% return in a savings account, your money will double in 72 years. Most get less, perhaps .5% – so, your money will double every 140 years. Subtract taxes and inflation and you are actually losing money. THE ONLY WAY TO GROW YOUR MONEY is to beat inflation after taxes are taken out.If you pay 30% in taxes, you must earn a MINIMUM of about 6.5% return to beat inflation.If you earn 7%, your money will double every 10 years. At 10%, your money will double every 7 years.Most people make the mistake thinking that 10% is only 3% more than 7%. Over time, this can be a costly mistake.

Lets say you invest $10,000 at 7% and $10,000 at 10% for periods of 20 years.

The 7% money is going to to double twice:
$10,000 initial
$20,000 year 10
$40,000 year 20

The 10% money is going to do much better:
$10,000 initial
$20,000 year 7
$40,000 year 14
$80,000 year 21

In almost the same amount of time, gaining only 3% more in interest DOUBLES the amount of money you earn. At 15%, your money will double every 5 years and the results are staggering.

$10,000 intial
$20,000 year 5
$40,000 year 10
$80,000 year 15
$160,000 year 20

And you wonder why Visa and Master Card make so much money? My point is this: don’t be afraid of investing in (what you may consider) “risky” investments that pay more than your local FDIC bank. Earning .25% return on your money with an inflation rate of 4% means that after taxes, you are losing 4% a year.

Not bad, you think? After 10 years, you’ve lost 40% of your purchasing power. The possibility of a 20%, 30% or even 40% default rate on consumer credit lending doesn’t sound so bad when compared to a guaranteed loss of 40% in a bank savings account? If every 5 or 10 years, you have a small or even moderate loss lending money in an account like this, the years you earned 15% will more than make up for it. You don’t think that Visa and Master Card put their money in FDIC insured banks do you? They are making millions on credit card loans.

What the Lending Club does, it allows you to undercut some of Visa’s business, give the borrower a good break on their interest rate and make a healthy profit for yourself. If a borrower with $10,000 in credit cards at 22% is still a “good risk” for Visa, they should be a GREAT risk for you at 16%!!!

Below is a “typical” loan sheet of a loan that I purchased. You can see the amount borrowed, the loan % rate, the length of the loan, how many payments I’ve received so far, the next scheduled payment and the payment history at the bottom. A great thing about the Lending Club is that the payments are auto-deducted from the borrower’s account. No worry about the customers forgetting to mail their payment, if the money is in the account, it automatically drafts to Lending Club. I will see that the payments due today are “in process” and about 5 days later, my account will be credited with the interest and principle.

Here is a screen capture from the long list of notes that I have purchased.  Here you can see the loan number, which “portfolio” I have saved it to, how much I invested, the note credit rating, the interest of the note, the term length of the note (36 months or 60 months), how much is outstanding in principle, the monthly payment I receive for the note, the day of the next scheduled payment and the note status.

And this last page is a typical loan listing from the borrower.  This page explains how much is to be borrowed, the amount of payment, the borrower’s income and employment information, why they want the note and all sorts of other information.  I like to see a borrower who has been on the job some time and who has a low credit line utilization.  With this borrower, they have spent about 57% of their credit card maximum.  I don’t like anything about 60%  I think that a borrower who is at 95% of their credit line might be using their credit cards for “living expenses.”  This gives me feelings of default and I avoid this.  You can set your parameters and screen for all sorts of debt, income and employment factors as well as the overall credit worthiness of the borrower (A, B, C paper etc).

I am quite impressed with the professional look and navigation of the Lending Club website.

If you have some long term capital that is inflating away in an FDIC bank, you may consider investing some of your capital towards your goal of someday becoming a millionaire.

Good luck!

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to:

Make a Goal

One of the most important steps – and perhaps the most overlooked step to wealth building is the setting of specific goals.  I once read an article – it has been years so don’t quote me on specifics.  The article quoted a study of college students, graduates and working professionals.  It asked if the study subjects wrote down their goals.  Most people had goals but this study was looking at the difference between those who wrote their goals and those who just had them in their heads.

The results of the study were interesting; if I remember correctly, 80% of the people who wrote their goals were successful in attaining them whereas only 20% of those who did not write their goals were successful in attaining them.  This observation echoes the same findings that Napoleon Hill had in his book “Think and Grow Rich.”

It is very important to write down your goals.

In November 2004, after I had read Napoleon Hill again (I had read it twice back in my college days), I sat down and wrote out my goal.  It was an ambitious plan and I did not know if I would accomplish it or not but I wrote it down.  I’ll have to admit, I didn’t read it twice aloud daily like I was supposed to.  Perhaps I read it a few days a week and sometimes I would forget for a week or two.  But I would always come back to it, visualize it, fantasize about it and try – as hard as I could – to will it to happen.

It read:


I, Samuel, will have in the bank, $1,000,000 – one million dollars, cash, by 30 November 2012.  For this amount of money, I will give my time, effort, energy, liberty, ego, family, relationships, friendships, freedom, hard work, travel, recreation and hobbies; I will use all of my determination, nuance, skill or anything else necessary to make this goal a reality.

I can already see myself in possession of this money.  As I close my eyes, I can already see this amount of money in the bank.  It is as sure as there.  I will attain this goal.  I will focus on this goal and all of my actions will drive me towards this end; I will conduct myself in a way that is compatible with the successful attainment of this goal.  I will forgo and ignore all distractions that take my attention and efforts off of this goal.

I will read this statement, aloud, twice daily, morning and evening, until this goal is a reality.

I surpassed the $1,000,000 cash mark on 5 August 2012, about 3 months before my goal date.  There were many months (years) where I thought I wouldn’t make it.  Especially after the 2008 stock market crash.  I lost over $100,000 in one month.  Many of my work colleagues freaked out and abandoned the market and put their money in FDIC insured accounts.  I re-read my goal and thought about it and realized that this was a once in a lifetime opportunity.

I piled what cash I had left into the Dow Pro-Shares Ultra fund (leverages the Dow Jones Industrial average 200% – if the Dow is up 10%, you’re up 20%, if it is down 10%, you’re down 20%).  Then, I took out a margin loan with my broker and plunked down some more in this fund and some other blue chip stocks.  For the entire year 2009, I put every last paycheck I had into good stocks that I thought were severely undervalued.

I received an application for a Discover Card & it invited me to “transfer balances” interest free for 6 months.  I thought, “Why not,” and put down my brokerage as a creditor – I did have a margin loan after all.  Sure enough, Discover mailed them a $20,000 check.  This freed up $20k in margin allowing me to buy more stock.  I then called up my Visa card and asked if they would send me “some of those balance transfer” checks.  They were happy to oblige.  My account climbed about $400k from Fall 2009 til Spring 2010.

During the French Revolution, one of the frogs said, “Buy when there is blood in the streets.”  How true that is.  If you want to be rich you have to be bold when others are scared.  You have to think outside the box.  You have to seek the advice of wise people (I pay more in financial newsletter subscriptions than I ever paid for any membership or subscription and it has paid off 100 fold).

Back to goals.  Have you written your goals down yet?  If not, 80% chance you won’t make your goal; you probably will not become a millionaire.  Better to write your goals and be in the 80% club!

Good luck!

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: