11/07/2022
“Investing May be Simple but it’s Never Easy”
Control over emotions is the key to successful investing.
Over the past three years many retail investors have felt like they were on a killer rollercoaster riding the ups and downs of a stock market impacted by the COVID-19 pandemic, geopolitical tension, an energy crisis, and now runaway Inflation. Given this degree of uncertainty and volatility, I am reminded of the statement by Warren Buffet, “Investing is Simple but not Easy”.
Investors may be asking themselves what should I do now as they watch their portfolio and retirement plans evaporate. While there is no one right answer to that question given each individual has his/her own unique needs. There are a couple things that I think every investor should keep in mind as they tread water in rough seas looking for safe harbor.
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I believe retail investors may benefit by receiving timely investment advice from an ethical, competent, unbiased Investment Manager. Investors would be wise to seek the council from individuals with a demonstrated track record of success who also carry recognized industry accreditations such as the Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) designations. It is important to recognize that Advisors and Investment Managers holding these professional designations will not guarantee your future investment success. Knowing you are trusting your life savings to an experienced ethical practitioner may give you some peace of mind as you make emotionally challenging decisions.
The second point I wanted to make relates to the notion that investing is never easy. Having advised many clients and their families over my career I can certainly attest to that statement. One of the reasons investing is so difficult is the strong emotional connection between an investors brain and their money. All Investors engage the decision-making process through a complex neurological process involving both their emotional brain and logical brain. When the emotional brain over rides the logical reflective brain a variety of unintended behavioral biases may lead to poor decision making.
Two common investing biases are the recency and regret bias. Individuals with recency bias tend to put greater emphasis on what is happening in the news today rather than staying focused on their long-term goals and objectives. The impact of social media chaos has certainly made this bias more difficult for people to manage but an unbiased objective advisor can certainly assist in helping investors make good long-term decisions when the market appears overly uncertain.
Regret bias may be fed by poor investment decisions made in the past and an inability to move forward based on new data. In effect investors become stuck in the past continually looking in the rear-view mirror unable to reset and drive forward in a positive direction. Regret bias can be paralyzing and destructive if taken to the extreme. Examining effective financial planning strategies with your advisor may be the ticket to long term investment success. While there are no guarantees when it comes to investing success, I believe a solid strategy, executed by competent advisors helping investors navigate volatile markets and inevitable emotional swings will help everyone make life a little simpler and easy.
Bill Ross CFP, CIM, MBA
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