November 2019
Loss Aversion
Something we can all relate to is the pain of loss. We can also relate to the joy of victory or the pleasure we get from gaining something we value.
It has been shown in studies that the pain we experience far exceeds the pleasure we get from a similar gain.
We experience this in all areas of our lives. The one we can all relate to at the moment is the joy and agony experienced by players and supporters of teams at the Rugby World Cup (what a final we have).
We have readers from both England and South Africa on this newsletter. Both teams experienced great joy this past weekend, but if we reflect more closely we can see a curious phenomenon. The joy felt at the final whistle was quickly replaced with other emotions: What will happen next weekend? I knew we would win that! We still made too many errors!
By Monday morning the victory was almost forgotten, replaced by anxiety and high hopes for the final.
However, for the teams on the losing side, the pain is still fresh in the memory. For a team like New Zealand it may last up to 4 years!
The same emotions cloud our experiences with money and investments. Have you seen this show up in your clients' lives? How do you help them to manage the potentially destructive actions which flow from this?
Main Feature
Finding the Obvious [4 minutes].
So much of our work involves finding the obvious, the simple, the thing that's always worked.
The problem? Simplicity is incredibly hard to sell. Complexity flies off the shelf. Those of us fighting the good fight relish the challenge.
"Stripping investing down to the essential truths offers nothing sexy or original but it's timeless. It’s easier to understand, less difficult to manage, offers more flexibility, and brings fewer hidden risks, which means a lower chance of mistakes.
Simple investment strategies have proven over and over to simply work. Nothing could be more obvious."
Articles and Blogs
The Third Rule of Human Risk is... [9 minutes]. Just telling people to behave differently generally isn’t that effective.
Useful Biases [5 minutes]. Not all biases are bad, and we can become side-tracked obsessing over mental errors.
Wealth/Stack 2019: A Debut for the Ages [8 minutes]. A great review of the recent conference.
Behavioural Financial Advice Is Not A Soft Skill [4 minutes]. Financial planners who successfully do this will have clients for life.
Three Big Things: The Most Important Forces Shaping the World [18 minutes]. Demographics, wealth inequality, and access to information.
Serving Clients As 'Behaviorally-Enlightened' Fiduciaries [15 minutes]. Financial advisors are faced with new moral dilemmas that arise from attempting to incorporate behavioral insights into how they advise clients.
The night of magical living. And dying. How to relate to grief and loss and discover true meaning [6 minutes]. Real financial planning can change lives. And deaths.
Behavioral Bias On The Farm [4 minutes]. A story of loss aversion.
Our Moral Obligation to Save Clients from Themselves [4 minutes]. We have chosen to have a great responsibility.
Time The Market Game. We've all been tempted to think we can beat the market. This game makes it clear how difficult it really is. The alternative is to focus on what's always worked.
10 Charts About Retirement Every Retiree Should See [7 minutes]. A picture is worth a thousand words.
What Really Happens When You Become an Overnight Millionaire? [13 minutes]. What do your ultra-wealthy clients need from you?
Podcasts
We don't just feel emotions. We make them. [63 minutes]. There is a lot more to emotion than meets the mind.
Daniel Kahneman: Putting Your Intuition on Ice [66 minutes]. Your instinct isn't always your friend.
Five Minute Money Message [5 minutes]. Simple, but powerful, money truths.
Jeff Bezos on The David Rubenstein Show [45 minutes]. Is he the greatest businessman of our time?
Book Recommendations
The Great Mental Models: General Thinking Concepts by Shane Parrish. This first volume explains the nine most useful mental models.
Small Giants: Companies That Choose to Be Great Instead of Big by Bo Burlingham. What are you building?
Other
Psychology of the stock market. You're better off reading this than the latest economic forecast.
Encore
Generation Rent: How Millennials are Fueling the Rental Economy
Global Attitudes Towards Retirement
A Behavioral Economist Tries to Fix Email [8 minutes]
Avoiding 21st Century Twaddle [4 minutes]
The Life-Changing Magic of Having ‘Enough’ [4 minutes]
When should you trade time for money? [2 minutes]
The Regret Minimization Framework: How Jeff Bezos Made Decisions [3 minutes]
Articulating the Value of your Advice [3 minutes]
Subscriptions, Retainers, and BPS ... Oh My! [5 minutes]
What 'householding' means for advisers, and why it's the holy grail for technology [3 minutes]
Young People Are Going to Save Us All From Office Life [10 minutes]
