The political divisiveness that has percolated since the 2016 election continues to suggest that our ability to view issues from other perspectives is challenged. And that’s a problem not just for our politics, but for our financial lives as well. The allure of a narrow, one-sided perspective is in the simplicity and focus of its message. But that doesn’t make it accurate. As financial advisors, we spend a lot of time reading and thinking about cognitive bias, in other words, how our “hunting stories” may overstate our upside at the expense of the outsider’s objective interpretation.
What’s “conscious action?” Full disclosure: I made it up. But the idea behind it is certainly not mine, nor is it uniquely limited to use in my life or towards my values. In my mind, conscious action means doing what we know to be right, even if our efforts seem to do little to move the needle toward solving a problem.
Buying companies you know or whose products you use offers a persuasive sense of comfort to help combat the risk-taking involved in buying stocks. The strategy has even been touted by notoriously successful professional investors like Warren Buffett and Peter Lynch. Undoubtedly, many investors – including some of you reading this – have even made handsome profits buying the likes of Apple, Amazon, Google or Tesla in recent years. So is there something to this strategy? And if not, why does it seem to work?
Long View thinking is invaluable at Singer Burke as tax and financial planners, portfolio managers, and investors in private companies. We are constantly considering worst, best and middle-case scenarios for the economy, assets classes, business plans, and our clients’ income. We then try to prepare for all of the above.
I would suggest Scott Pruitt, the US Environmental Protection Agency Administrator, needs to change course. Despite his agency’s tens of thousands employees and multi-billion dollar budget, it is clear to me that he is not utilizing sufficient resources to consider the Long View, and I fear we will pay dearly for his short-sighted approach.
Given the massive polarization between Republicans and Democrats, I have been thinking a lot about how our personal views on the environment, social issues, economics and therefore politics can affect our world-views and possibly derail a rational and disciplined long-term investment strategy.
As I write this, the US stock markets are kicking off 2017 by reaching for record, all-time highs. So why doesn’t it feel like everyone is exuberant?
Why is the idea of change so powerful? Conventional wisdom would suggest that it offers a more pleasant alternative to a relatively unpleasant reality. But I would argue that it need not be so unequivocal. Change offers the illusion of control over situations which may be complex, opaque and alienating.
Generally one has two choices when responding to the question, “How are you?” The conventional option is to simply respond, “Fine. How are you?” and move on with life. The other choice is to respond honestly in some long, drawn-out monologue for which nobody really has the time or interest to hear. Often honest to a fault, I sometimes take the less conventional route and bore my friends to death.
I just returned from an amazing ski trip in France. My father-in-law has wanted to ski the Alps for the better part of four decades, and this year we made it happen. It was great to enjoy time with family and to meet fellow skiers from around the world. But I was struck by an encounter with a group who had “won” the eight day ski trip for free by signing up investment clients. This wasn’t their first such trip, either, as they had been highly successful in “bringing in assets.”
We are only one month into the New Year, but one in three of us who made New Year’s resolutions have likely already abandoned them. Which left me wondering: why are we so fast to give up on what we want? And with 34% of us making money related resolutions, can we really afford to call it quits? Certainly the market gyrations we’ve seen since last summer have played into my thought process. Very few people are likely to find reviewing their January brokerage statements to be a goal affirming process.