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Cafemutual Confluence 2022 (CC 22) hosted international behavioural scientist and noted author Daniel Crosby who simplified the laws to build and grow wealth during good and bad times.
Here are the fundamental laws that you as an MFD/RIA can use and share with your clients for creating a successful investment journey.
MFDs/advisors were made for this…
Research suggests people who work with a coach/guide/advisor to make financial decisions do much better than those who don’t. People who have a four to a six-year relationship with a wealth advisor have 1.58 times the wealth of their peers who have done it themselves. And those who have worked with a wealth advisor for 15 years plus have nearly 3 times wealth.
A coach/guide/advisor keeps clients away from making panicked and ill-informed decisions. People who get such guidance are more prepared for retirement/emergencies and happier. They enjoy greater peace of mind.
Emotion is the enemy of good decisions
Research shows when you are under stress, panicked or emotional, you lose 13% of cognitive processing power/IQ (Intelligence Quotient). Remember the acronym HALT and never make a decision when you are Hungry, Angry, Lonely or Tired. Save big financial decisions for times when you are neither too high nor too low because being too excited or fearful about a financial decision almost inevitably amounts to a bad decision.
Because of what we have all been through these last couple of years most of us are very emotional and stressed. Take a step back, be slow and thoughtful.
Do less than you think you should
A study done on soccer goalkeepers looked at how they behaved when there was a shot at goal. Researchers found that goalkeepers stopped most goals when they just did nothing.
Likewise, even in markets, the thing to do is nothing. Noble laureate and researcher William Sharpe who talks about the power of buy and hold found that 82% of the time you need to get your buy and sell decisions right. Usually, the thing to do is nothing. While 82% of the time is very hard to do, doing nothing is very easy.
Trouble is opportunity
In the words of John Templeton - “The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.” Yet our minds are wired to do just the opposite.
During treacherous markets, many tell you what they think is going to happen next and talk about the crashing market. We tend to think less by talking to other people or relying on their opinions. To be successful, ignore the doomsayers and use 180-degree thinking.
Remember your ‘Why’
It’s not just about having more money, think about ‘Why’ you invest. Tie your investments to something in your life - a goal, a person or a value.
Research shows, while people were taking money out of stocks and most of the funds from 2007 to 2011, college savings funds/child’s educational funds continued to receive money. This is an example of the power of ‘Why’, where the goal gets bigger than fears.
Another research shows, people who were shown a picture of their children for five seconds before they logged into their bank account save more than twice as much as others. The picture reminded them what they were doing and why they took this journey in the first place.
Thus, a ‘Why’ is bigger than the fear of a bear market and supports great financial decisions.
Rules do apply to you
Here is an example cited in the book ‘Laws of wealth: Psychology and the secret to investing success’. A study looked at 700 men. Among these men, 95% thought that they were funnier than the average. 100% thought they were friendlier than average and 94% thought they were more athletic/fit than average. Though this is not how averages work, this happens during times of market dislocation.
While people know that market dips every couple of years and that they are supposed to be patient, they think this time is different or they know better. They tend to believe the rules do not apply to them.
Here’s a teaser of Daniel’s session. You can watch the entire video along with other CC 22 videos at a nominal price of Rs. 499 only. Simply write to us at fouzia@cafemutual.com and get ready to march towards Rs. 100 lakh crore.
