Knowledge or Feelings…Choose Carefully
I’m sure you’ve heard this term before: “The Smart Money”. Smart Money knows when to buy and sell and what to buy and sell. Everyone else sells low and then turns around and buys high. (Most investors fall into the latter camp.)
If you want to be Smart Money, then answer this question: “Going forward, will I act on how I feel or on what I know?”
People are hard-wired to pursue things that derive pleasure or offer security. When our brain senses fear or imminent pain, we run for the hills. In the real world, our decisions are often emotionally-driven. There are many instances when fact would still cause us to make otherwise irrational choices.
Then there are instances when we don’t want emotions to be part of decisions.
Let’s look at investments. We know that knowledge consistently outperforms feelings in the intellectual race. For example, investors win the investment game when they buy low and sell high – The Smart Money. Smart Money acts on what they know.
Yet most people do the opposite. They apply the same decision making filters for investing that they use when a successful outcome requires emotions or feelings . Smart Money uses different filters for investment decsions. Smart Money uses facts.
When meeting with clients, we deliver facts to back up what we’re talking about. We use a scientific approach to investing called “evidence-based investing.”
Investment decisions boil down to facts and stats. For investment decisions on behalf of clients, that’s what we rely on. Every time. Yet, interestingly, our clients’ emotions and feelings do play a significant role as we help them with goal setting, estate planning, risk management, and more. These important areas of discipline require emotion-based discovery by the advisor and emotional-based decisions by clients.
Sure we will almost always have some emotions tied to our investment decisions. It’s not realistic to think otherwise. However, all of us can make more room for knowledge in making financial choices. Let’s all be The Smart Money.