The Big Mistake

A lot has been written about investment behavior.  Why does it matter?  First, we need to talk about what behavior is.

I’m not talking about what we could call social behavior. Most of the time, most of us are well behaved socially. Making a behavioral misstep with someone is usually fixable…and usually lacks long-term impact.  Possible to be smoothed over with a few considerate words.

Investment behavior is different.  It’s how we act in response to news, market movements, gossip, gut feelings.  It’s not how we feel.  Uneasy investment feelings are 100% part of life, normal and something we all experience.

A lot of us are pretty good at behaving the right way for months on end.  Unfortunately, that’s not good enough. Investing is unforgiving of even a brief lapse in “good” behavior.

Why?  Because what matters is staying away from The Big Mistake. Example: selling in COVID when the market dropped sharply in just two months…thereby locking in permanent losses vs. finding a way together with your advisor to deal with and not react to temporary market volatility.  And far too often, a single mistake of this nature leads into another, possibly more damaging Big Mistake…staying uninvested…waiting for a better time to reinvest.  I see this in portfolios I review.

(Not so) Fun Fact: we’re all wired to make behavioral mistakes.  All of us.  And our tendency is to make them at the worst possible moments.

The most important job we have here is to stand in between our clients and The Big Mistake.  We do it in large part through communication and education (which never ends…think of it as a periodic inoculation).  And most importantly, through each client relationship itself.