It’s widely accepted nowadays that investment outcomes are, to a great extent, determined by psychological factors. To put it another way, how we behave as investors is crucially important. A video on the Bloomsbury Wealth YouTube Channel.
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Transcript: Robin Powell & Daniel Crosby/ Psychologist & author
RP: It’s widely accepted nowadays that investment outcomes are, to a great extent, determined by psychological factors. To put it another way, how we behave as investors is crucially important. Dr Daniel Crosby, a psychologist specializing in investing, says there are three important rules to remember. The first is to focus only on things within your control.
DC: When people learn that I work in finance, I reliably get a couple of questions. I get questions that are almost universally about predicting the future, and I get questions that are almost always out of people’s power to control. So we’ll get questions like, what will the president do or the Prime Minister do? What will happen with the spread of the virus? What will happen with this war? What will the Federal, what will the Fed do, with interest rates. The things that matter, to you crossing your financial finish line are things like remaining long term in your outlook, being patient, being well behaved, maximizing your own human capital, and maximizing that engine of your wealth. So people really need to take that power back to own this fact that we control the most important variables, in our financial lives, and leave the worrying about the unknowable to other folks.
RP: The second rule that Dr Crosby likes to remind investors about is to stay calm after market downturns, and perhaps even see them as an opportunity to buy stocks more cheaply. In other words, you need to take a very long-term view.
DC: We get a market correction just about as regularly as you get, you know, your birthday or Christmas or or Hanukkah, right. It’s very, very regular how much these things happen. And yet the financial news media talks about them as if they’ve never happened before, and as though it’s the end of the world every time it happens. So you have to just, understand that you’re probably going to get a 10% dip every year. You’re probably going to get a 20% dip every couple of years. And every decade or so, you’re going to get a really nasty 30 to 50% dip in the market. And understanding that and inoculating yourself against that volatility on the front end, I think is a good way to prepare for it.
RP: Dr Crosby’s third rule is not to base your base your decisions on opinions — either your own, or other people’s. A systematic approach — for example, automating regular investments in index funds — is a far better option.
DC: One of the things that that people get wrong most is thinking that human genius, human intervention and and human discretion, can be additive to our financial lives. And we see that almost universally, they are reductive and not additive. We want to believe in our own greatness and that our own effort can add value. But money management is just one of those places where simple rules tend to beat human discretion and sort of in the moment, decision making again and again.
RP: In short, focus only on things you have control over. Stay calm when markets fall. And invest systematically. Do those three things, and you’ll give yourself a much better chance of achieving your goals.
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.
