Our Brain And Our Behavior, Part One
If you have ever watched a youth soccer game, you’ve seen it. Basically, the players observe where everyone is headed (towards the ball), and follow suit. It doesn’t matter where the ball is located on the field or what position the child is in–they’re going after it with all their might! While it’s cute to watch, this cluster of uniformed chaos creates a hive of activity and works against them, making it difficult to move down the field.
In soccer, this behavior becomes less of an issue over time as the player learns the sport. In the world of personal finance, this type of behavior is referred to as herd mentality, a type of “behavioral bias”, and may not go away over time. And unfortunately, your own behavioral biases are often the greatest threat to your financial well-being.
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Waypoint Wealth Management
Are You Prepared For The Next Correction?
If you enjoy a good read, we’d recommend Warren Buffett’s annual Berkshire Hathaway shareholder letters. While financial reports are rarely much fun, Buffett’s way with words never ceases to impress. His most recent 2016 letter was no exception, including this powerful insight about market downturns:
“During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy.”
This actually is a good time to talk about scary markets, since we haven’t experienced a severe one in a while.
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Waypoint Wealth Management
A World of Opportunities
How do we measure the world? Thinking only in terms of a country’s landmass can distort investment decisions. Directly comparing the markets of all nations produces some surprising results. Measures such as population, gross domestic product, or exports do not directly indicate the size or suitability of investments in a market.
This following illustration is one of our favorites and shows the balance of stock (equity) investment opportunities around the world. The size of each country has been adjusted to reflect its total relative “capitalization.”
Click here to view an enlarged version
Of course, the world is in motion— > SEE MORE
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Waypoint Wealth Management
Should We Track an “Index”, or Follow the Evidence?
Legend has it, a pharmacist named John Pemberton was searching for a headache cure when he tried blending Coca leaves with Cola nuts. Who knew his recipe was destined to become such a success, even if Coca-Cola® never did become the medicine Pemberton had in mind?
In similar vein, when Charles Dow launched the Dow Jones Industrial Average (the Dow), his aim was to better assess stock prices and market trends, hoping to determine when the market’s tides had turned by measuring the equivalent of its incoming and outgoing “waves.” He chose industrials (mostly railroads) because, as he proposed in 1882, “The industrial market is destined to be the great speculative market of the United States.”
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Waypoint Wealth Management
What Are Three Things That Retirement Software Can’t Account For?
You’re getting ready to finally “retire”. We’ve run the numbers with you, looked at various calculations and determined when to begin Social Security. We looked at how your taxes will change, where that money will come from, and even how they will be paid. We’ve reviewed your allocation and strategy for portfolio income and how that fits into the plan. We told you that you are financially independent, that you won’t need to worry and you can enjoy this next chapter of life with full abandon.
But you’re still uneasy.
There is still something on your mind that’s worrying you. You’re comfortable with the financial aspects of this change, but you just aren’t sure how your life is going to look on the other side of this decision. > SEE MORE
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