Finance
Eliminating emotional behaviors leads to sounder financial decisions
The founder of behavioral finance, Nobel laureate Daniel Kahneman, recently passed away. His work has made a huge difference in helping me understand how emotions can interfere with more rational decisionmaking.
It hasn’t stopped me from, at times, making nonsensical financial decisions of my own, but it has helped me pause so I can minimize them. Here are some behaviors or biases we all probably share:
- We have said to ourselves, “When this investment gets back to even, I am going to sell it.” This is silly. The investment doesn’t care what we paid for it. We should objectively be looking at each investment on its own merits regardless of what we paid for it. But it is psychologically hard to take a loss and rewarding to grab a gain, so we have held on to bad investments and crossed our fingers that we will eventually save face. Importantly, this applies to individual stocks, not asset classes (small or large stocks, international stocks). In time, asset classes should mean revert, but stocks (and currencies) don’t. With asset classes, peel from your winners and give to your losers. With stocks, let your winners run and trim from them when they are too much of your portfolio, then invest in something that you think has potential.
- We have sometimes said no to something that we don’t want to do today, but said yes to it if presented as a future endeavor. When the event eventually shows up on our calendars, we regret it. This is discounting the future. Before saying yes to something, try to picture yourself preparing for it and decide if it is something you really want to do.
- We have gone out of our way to save $5 on a $50 item but not to save $5 on a $500 purchase. Why? The ignored numbers are even larger on big purchases. We often look at the percentage of the transaction rather than actual dollars we are saving.
- In his book “Thinking Fast and Slow,” Kahneman wrote, “When people believe a conclusion is true, they are also very likely to believe arguments that appear to support it, even when those arguments are unsound.” Good we’ve never done that, right? Right.
We are never going to eliminate our biases, so the key is to slow down and better manage our choices when we recognize we are making a high-stakes decision.
Spend your life wisely.
Ross Levin is the founder of Accredited Investors Wealth Management in Edina. He can be reached at ross@accredited.com.
Today’s installment of campaign-related news items from across the country.
* When it comes to campaign finance laws, both parties’ campaign committees have faced restrictions on how much money they could spend in coordination with candidates’ campaigns. Those limits are now effectively gone.
As MS NOW’s Jordan Rubin explained, “The Supreme Court’s GOP-appointed majority ruled for Republicans in their campaign finance challenge to restrictions on political parties spending on ads with input from the party’s candidate.”
A Punchbowl News report added that the ruling, written by Justice Brett Kavanaugh, “handed Republicans a massive win” and is likely to “usher in the biggest change to campaign finance law since the Citizens United decision.”
The same report went on to note that Tuesday’s high court ruling “allows for unrestricted coordination between candidates and party committees. That means committees, like the NRSC or the DCCC, can run unlimited TV ads with allied candidates. More importantly, they can also buy those ads at the much cheaper rate offered to candidates. … Tuesday’s SCOTUS ruling will also eradicate the need for independent expenditure arms at party committees.”
Republicans already enjoyed a significant financial advantage over Democrats. The Republican-appointed justices just made it easier for the GOP to capitalize on that advantage.
* In Colorado’s closely watched Democratic primaries, incumbent Sen. John Hickenlooper fended off a challenge from the left, but some of his colleagues weren’t as fortune: Democratic socialist Melat Kiros ended long-serving Rep. Diana DeGette’s career in Denver’s congressional district, while state Attorney General Phil Weiser scored a major upset by defeating incumbent Sen. Michael Bennet in a gubernatorial primary.
* In the race for North Carolina’s open Senate seat, former Democratic Gov. Roy Cooper leads former Republican National Committee Chairman Michael Whatley in the latest New York Times/Siena poll, 50% to 43%, pointing to a possible pickup opportunity for Democrats.
Google Cloud and FactSet, a provider of data and artificial intelligence solutions to the financial markets, plan to jointly develop AI agents designed to assist with portfolio operations, deal advisory and corporate finance.
Tuesday’s Supreme Court ruling changing certain federal campaign finance limits could make a big difference in the battle for control of Congress this fall, giving Republican candidates who have been getting outraised by opponents direct access to more party cash.
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