Our advisors utilize their experience and expertise and that of their colleagues to develop the best solutions for your complex personal and professional financial situations.
Actionable planning strategies to inform and guide your decision-making.
July 13, 2020
Years ago, when my son started first grade, his teacher gave us a “Getting to Know Your Child” questionnaire. She wanted to know our son’s interests in and out of school. She also asked us to describe three of his strengths and two areas where there was room for improvement.
I found it interesting that she wanted parents’ assessments of their children. I initially resisted the idea of sharing my son’s “weaknesses.” But then I realized, the more his teacher was aware, the more she could help him improve.
From a professional standpoint, it also made me realize that investors can make better investment decisions by taking time to reflect on their past actions and what drove those actions.
Behavioral finance tells us we all have ingrained biases—it’s part of human nature. The most successful investors are often the ones who recognize when they’re being influenced by such biases and make the conscious decision not to respond to them. As Warren Buffett says,
“Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ…Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
One bias I recognize in myself is called the familiarity bias, which is the tendency to choose options based on how familiar you are with them. In other words, to go with what you know. This bias can even extend to a particular experience. “I don’t like shopping at store X, so surely I won’t buy its stock.” If you give into this bias, you might miss out on potential opportunities that could help you achieve your goals.
Another common bias is the availability bias, which is the tendency to place more weight on information (or opinions) you hear (or see) more frequently as well as those delivered more dramatically. For example, it’s easier for the mind to recall “the market plummeted” than “the market declined.” In today’s politically charged world of 24-hour news channels, websites and bloggers, it’s not surprising that this bias plays a significant role in financial markets.
Lastly, confirmation bias is the tendency to seek out, believe, or give more weight to information that supports our current line of thinking and to ignore or discredit alternative opinions. For example, after buying a stock, many investors latch on to information that reinforces their decision and disregard negative information about the company.
Taking a step back and doing a self-assessment of your biases can be very beneficial in helping you avoid future missteps. Examine those instances when your decisions were detrimental to your success. You might also consider maintaining a “diary” of your thoughts and rationale to help you understand what influenced those decisions.
Self-assessments aren’t fun, but they can make you a better investor.
Please read important disclosures here.
Matt is a Partner in the Cleveland office and has over twenty years of experience working with families and business owners as a financial planner...
Ben Pace, Christian Thwaites and James Lebenthal
January 31, 2023 — Global equity prices rallied in January, as inflation continued to recede and investors’ hopes mounted for an end to central bank tightening cycles.
Michael B. Fischer and Frederic Behrens
January 22, 2023 — As part of Tax Cuts and Jobs Act of 2017, the U.S. federal estate tax exemption amount increased to approximately $12.92 million per individual or $25.84 million per couple (2023). As a result, many families are no longer subject to federal estate tax due to the high estate tax exemption amounts. However, several individual states […]
Steven J. Giacona
Partner & Market Leader
January 10, 2023 — As a CPA and financial advisor, clients often ask me for ways to reduce taxes. Since the enactment of the Tax Cuts and Jobs Act of 2017, which limited state and local tax deductions to $10,000, many clients, particularly residents of high-tax states such as New Jersey, New York and Connecticut, have raised the question […]
Theodore D. Schneider
January 10, 2023 — Our team at Cerity Partners is continually inspired by the efforts of charitable organizations and want to offer our assistance to boost planned giving campaigns. As experienced advisors in financial and philanthropic planning, we believe having focused discussions with potential donors regarding the following planned giving strategies are effective tools to encourage donors to complete […]
January 10, 2023 — It is increasingly common for individuals living in the United States or U.S. citizens living abroad to receive an inheritance from a non-U.S. person (for purposes of this article a non-U.S. person is defined as someone who is not a U.S. citizen, permanent resident or otherwise considered a U.S. domiciliary resident). Receiving an inheritance from […]
Curious about learning more? Let’s talk.
Tell us about yourself and your current financial situation without cost or obligation. Receive an introduction to a wealth management colleague, have a personal conversation, and get your questions answered.