investor behavior

Why Not Both?

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We keep reading a curious idea promoted by some in the financial industry. It goes like this: “Managing investor behavior is the key task for advisors, not managing investments.”

That framework assumes there is a choice between one or the other. There are two flaws in the assumption. It does not have to be an either-or deal. And some fraction of people don’t require babysitters for their natural investment behavior, which is effective.

We believe in BOTH of these roles. It may be true that raw human nature is generally counterproductive to sound investing. (Behavioral economists tend to think so.) Our theory and experience says that the attitudes and behavior of individuals can be deliberately shaped to their benefit—and ours.

What may apply as a general principle to all people does not necessarily apply to you as an individual. You have free will. And we believe people can learn.

So we spend a great deal of time and effort talking to you, and communicating about the mindsets and strategies and tactics we believe are effective. But that is only part of the job.

Legendary investor Charlie Munger said, “We wouldn’t be so rich if other people weren’t wrong so often.” By avoiding stampedes in the market, we may sidestep a poor situation that others are getting into. And by seeking the best bargains, we are looking for holdings that others may be wrong about.

In other words, two of our fundamental principles about investment management are founded in a belief that investment selection matters because people are often wrong. We see investor behavior as a creator of opportunities for our clients—not a problem to be managed. Clients, we keep saying you are special: this is why. We believe your investment behavior is exemplary.

Knowing what you own and why you own it, operating in accordance with sound principles and strategy, makes it easier to behave effectively. These things reinforce each other.

Manage behavior, or manage investments? It isn’t either-or—we need to pay attention to both. Clients, if you would like to discuss this at greater length, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.