Override Your Human Tendencies and Become Better at Investing.

The following is adapted from Money off the Table by
Tony Sablan, Nika Kabiri.

Back in Thailand, after the market had tanked and I lost much of my earnings, I made a few minor adjustments to my portfolio. I sold some of my assets, which made me feel better because I felt like I did something. I closed my laptop and decided that the dip was temporary and that everything would soon even out. I decided that, worst-case scenario, my retirement would come later than I thought. Not ideal, but I’d be fine.
I walked to the beach, ordered a drink, laid in the sun, and put it out of my mind.

But every day after that, for many days, I checked my portfolio and saw no recovery. I kept trying to convince myself that I knew what I was doing; the market would course-correct and I’d be back on track. But it didn’t happen. And as time went on, I felt less and less hopeful.
Then I realized I had to get real. No matter what I thought I knew, or how smart I thought I was, something wasn’t quite right. I’d lost confidence. I faced the fact that I wasn’t the investment hot shot I thought I was. I was wrong in believing that the market would quickly adjust to where it was before. I was wrong in thinking the best course of action was to sell a few stocks and wait it out.

I had to get radically open-minded about my situation.
And my situation was this: I had all the information I needed. I knew about diversifying and re-allocating. A year earlier, a seasoned wealth advisor had given me a plan that would have increased my likelihood of seeing steady, long-term growth.
I basically had, in my hands, the blueprint for a smart investment strategy, but I rejected it. I didn’t think the rules applied to me because I believed I had all the facts.

But I didn’t have the right mindset. And in the end, that’s what really counted.
It was rough to admit that I hadn’t been facing reality. Rude awakenings are called “rude” for a reason. But with eyes widely opened and my ego thoroughly humbled, I finally reached out for help.
It was then that a good friend recommended I talk to his financial advisor. I made an appointment and hoped his help would get me on track. When I met with him, it felt like fate. As it happened, he was the same guy I had met at that networking event some time ago — the one who drew me a custom-tailored plan that optimized my chances of retiring by age forty.
You know the plan…the one I turned down. Because it was dull and unexciting, and because I knew so much better.

But this time, I was open. He set me up with a diverse portfolio, one more resistant to unexpected market fluctuations than the one I had. He signed me up for whole life insurance that would grow to where, by the time I had a family, they’d be provided for in case times got tough, or if I didn’t make it home one day. He didn’t try to impress me with promises of high returns, quick results, or guaranteed earnings.

But most importantly, he reset my mindset.

He educated me on why certain assets should be in place, and how each asset acts differently in different situations. Most importantly, he provided me with a holistic plan that took life’s ups and downs into account.
As he explained to me why I needed to invest in the assets he recommended, it dawned on me that it wasn’t my knowledge that failed me. It was the way that I had been processing that knowledge. I had been acting confident in my investment decisions, but my decisions weren’t made with real confidence at all.

That moment was the start of a growth journey that continues to this day. This journey has led me to gather incredible insights about how people approach investing and how they make investment decisions. It led me to become a wealth advisor so I could help other people create holistic plans with the right mindset. It has driven me to understand why so many people — all with access to so much information about investing — could get it wrong. Including me.

My journey also led me to share my thoughts and experiences with my friend and co-author Nika Kabiri, JD PhD, a social scientist who has spent over twenty years studying human decision-making in a variety of contexts, and who teaches Decision Science at the University of Washington. Through my conversations with her, I came to understand that at the core of the investor’s mindset lies the problem of uncertainty, and that when human beings are faced with uncertainty, their brains can perform in sub-optimal ways. Even without uncertainty, our brains can lead us in the wrong direction. If we can identify when, how, and why we go astray; be mindful enough to override our less-than-ideal decision-making tendencies, and establish a plan to protect us from our imperfections, we can make much better decisions.
This is true of all decisions we make in life, and it’s definitely true about investing.

The only reason I’m not destitute today is because I made a choice to let go of my old mindset. I chose to be radically aware of the basic human tendencies that lead to errors in judgment. I chose to be on the lookout for the many social pressures that influence human decision-making.
Today, I no longer care about being “a badass” or “a genius.” I work hard to ignore the noise of social pressure and normative expectations. I pay attention to how my limited brainpower forces me to take mental shortcuts and succumb to biases, and how my emotions sometimes get the best of me. Instead of using hubris to cope with the stress of uncertainty, I work to get real about my options and their consequences, which has opened me up to making better choices with confidence.

To learn more about investing and changing your mindset you can find Money off the Table on Amazon.

Tony Sablan is one of the top financial advisors from the Pacific Northwest area. He has worked with business owners, dentists, physicians, closely-held businesses, and employees from large software, technology and aerospace companies.

Nika Kabiri has spent more than twenty years studying how people make decisions. She has a PhD in Sociology from the University of Washington and a JD from the University of Texas. She teaches Decision Science at the University of Washington and is Founder and Owner of Kabiri Consulting, LLC.