Mark Goulston, M.D.: Just Listen – Behavioral Finance

Why Do Smart and Wealthy People Get Out and Back In the Market and You Don’t?

Are you one of the many who waited too long to get out of the market and are now waiting too long to get back into it? Is this not the first time you’ve done this? Is this also a time when you’re kicking yourself for acting this way and jealously resenting those who get out and get back in sooner than you?

What is it that separates those who benefit from or at least seem to be able to ride out market volatility from those who stay paralyzed on the sidelines?

Is it smartness? Somewhat. Is it discipline? Of course. Is it courage? Possibly. But is it something more? Definitely.

Those who do better with the wide swings and through crises have clarity. They know that GE, Microsoft, Proctor & Gamble and Mattel are going to be around through thick and thin. They know when they are truly undervalued and worth buying. On the downside, they know when a real estate debacle is heading our way or when stocks are so overvalued that they just don’t make sense. And that is just the tip of the iceberg of what they see so clearly. These people don’t have the courage of their convictions; they have the courage of their clarity.

On the other hand, people like you and me don’t possess such clarity in the financial arena. Instead we depend, trust and rely on people who exude confidence based on their clarity.

It’s not that they are clear and you and I are not. You and I do possess clarity in the non-financial aspects of our lives and when we do, it is that area where our clients and customers depend, trust, rely and have confidence in us. My internist possesses clarity about diagnosing and treating the multiple illnesses I have had during my life. My accountant possesses clarity about my tax issues. As for me, I may have little clarity regarding finance, but I am remarkably clear in seeing and calling people on the b.s. that they are doing to others or to themselves and that prevents them and others around them from performing to their full capability.

Here’s the rub and what causes us to freeze. When we discover that the person we trusted, depended on, relied upon and had confidence in lacks clarity and stops exuding confidence, we stop in our tracks. When as confident as we once felt about someone is as doubtful as we turn out to feel; when all the reassurance we felt from what they were going to do for us turns into worrying about what they are going to do to us; and when we are no longer able to depend on them nor ourselves, we become and remain stuck.

Since it is clear that we can’t rely on ourselves, why then don’t we go find new advisors? Some of us do, but many of us hesitate because we are acutely aware that the new ones have also lost money for their clients. We think that maybe it’s better to stay with the devil you do know instead of the devil you don’t.

Then why don’t we reattach and recommit ourselves to our financial advisors and tell them to continue to advise and make decisions for us financially? Two factors get in the way: first, if we feel disappointed or let down by them, we are hesitant to now freely give them our trust and confidence; second, our advisors know the results we received have disappointed us and their being uncomfortable with confrontation causes them to be tentative when they interact with us. We often mistakenly read that tentativeness in our advisor’s manner as a lack of confidence or clarity when in fact it may be entirely based on their awkwardness of dealing with us, knowing that we have been disappointed in them or even angry.

What’s the best thing to do? Meet with your financial advisor. In your mind stop looking to them to say “I’ll take care of you” and stop your passively dependent position that may have been fine during financially up times. Instead look to them to explain their understanding of what has happened, why it might have happened, the best approach to take going forward and why that is the best suited for you.

I have done that with my financial advisor through downturns of the past decade and have not only found their understanding and clarity very centering and reassuring, but have actually discovered that I am teachable in an area (finances) where I thought I wasn’t.

Check out my interview with Dr. Patricia Fitzgerald on my about to be published book “Just Listen.”

Read more: Investing, Behavioral Finance, Personal Finance, Mark Goulston, Finance, Business News

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