Mindful Decision Making

Last week I attended the Advisor Group ConnectED conference in Las Vegas. I both spoke at the conference and attended a few of the educational sessions. It was great to be with approximately 3,000 other advisors in person. There was a sense of normality to it all.

At the conference, I spoke on Mindful Decision Making. I was sharing concepts from a recent decision-making checklist I created for advisors in The Behavioral Finance Network. For this blog post, I want to go over one key point and tie it into a recent CNBC headline.

Mindlessness & Mental Shortcuts

There is simply too much information for us to process it all. Our brain relies heavily on mental shortcuts and intuition to live efficiently and effectively. These are our default responses to just about every piece of data and stimulus that comes our way. As much as we would like to analyze situations, it requires significant and purposeful effort to engage the cognitive brain – and keep it engaged.

We are awful at asking reflective questions that can help us better understand the data/information we received. We seldom ask questions such as, “Where did this idea come from?”, “What is the bias or spin the reporter is putting on it?” or “What information are they purposely not sharing?” We don’t ask these questions because they require us to think deeply and put forth a lot of effort. It’s much easier to just go with what comes quickly and move on with our day.

A Real-Time CNBC Example

CNBC recently led with the following headlines:

  • “Just 31% say now is a good time to invest in stocks, the lowest since 2016”
  • “79% judge the economy as just fair or poor, the most since 2014.”

What is your initial reaction upon reading these? For most people it is fear. It screams that perhaps it is time to raise cash. And if an investor was already concerned about increasing inflation, market valuation or other headlines spewed by the media, it further confirms the need to go to cash.

But what if we take a step back and think for a second? It is clear what the media is trying to do – evoke emotion. This isn’t difficult to discern since that is a proven tactic to get people to tune in and click on articles. What are the headlines not telling us? How the market has performed since then.

So how has the market performed since 2014 and 2016 respectively? Excellent! Because opinions of the market are often contrary indicators, this can actually be a positive for the equity investor. If anything, the point of real fear should be when over 80% of investors believe the market is a great place to be. That would bring us back to 1999 again.

What may initially be a headline that evokes fear and concern can turn into a more thoughtful analysis of what is going on and help the investor remain calm and analyze the information in a rational manner. Helping your clients practice mindful decision making is an important value that is worthy of your time and attention.