06 Aug How to have the edge over most investors
Some investors are always looking for an edge. They seek out information on the best sectors or funds to invest in. But they usually overlook the most important advantage of all — and that’s controlling their behaviour. A video on the Bloomsbury Wealth YouTube Channel.
Transcript: Robin Powell and Carl Richards/ Author & financial adviser
RP: Some investors are always looking for an edge. They seek out information on the best sectors or funds to invest in. But they usually overlook the most important advantage of all — and that’s controlling their behaviour.
CR: There’s this hyper-focus on performance. And it’s always performance of investments. When you open the newspaper, or you see it on the financial pornography network on the TV, they always talk about the performance of investments. What we don’t realise is that there’s a big difference between an investment and an investor. If you buy an investment for ten years and hold it for the whole time period, and don’t add or take any money away, you get that investment performance. But nobody does that. That’s the dilemma. Of course we want the best investment we can find. Of course. But the challenge is, even when we own the best investment, our behaviour gets in the way.
RP: The problem is: we’re almost hard-wired to do the wrong thing at just the wrong time. So, for example, we pile in to a particular stock or cryptocurrency, when we see others making money from it. Or we panic when markets fall. For Carl Richards, that’s the most important reason of all for hiring a financial adviser.
CR: Managing investor behaviour is really one of these crazy, maddening things. It seems so simple… but not to be confused with easy. It’s not that we don’t know – there are so many other areas in our lives where this is true. Knowing is easy, doing is often hard. We can point at health, we can certainly point at diet. We all know what we should do. Doing it is quite hard, and so you don’t hire a financial adviser because you don’t know what to do. Some people do, some of us don’t even want to know! But most people don’t hire a financial adviser because they don’t know what to do – they certainly don’t hire a financial adviser because they’re dumb – you hire a financial adviser to be the thing between you and poor behaviour.
RP: Managing our behaviour seems relatively easy when markets have been going up. It’s only when we’re in the eye of the storm that we’re reminded how hard it really is.
CR: We all have blind spots, and this is the most profound thing you’ll hear all day, you can’t see your own! By definition you can’t see your own, so a financial adviser – a good one, a real one – is just there to remind you, first to clarify where you want to go, and then remind you of what you said when you’re thinking of doing something silly. And investment behaviour is particularly one of those things because it feels like we’re hard-wired to do things that are against our own self-interest. A good financial adviser can say, “let’s just back up, and remember…” and help walk you in off the ledge feel like jumping.
RP: So, if you want to have an edge over the vast majority of investors, stop scouring the media for the latest stock tips. Focus instead on your own emotions and your behavioural biases. Keeping those in check will give you a huge advantage.
Disclaimer — The information in this video does not constitute advice or a recommendation, and you should not make any investment decisions on the basis of it. If you do however require advice please do not hesitate to contact Bloomsbury Wealth.