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(NOTE: As truly frightening disaster scenarios approach, we present this as part of a series on how to manage emotions - yours and clients'. For reference see our recent posts here.
Littlefinger Quote #2
LF: “You know what I learned losing that duel? I learned that I’ll never win - not that way. That’s their game, their rules. Only by admitting what we are can we get what we want.”
Lesson 2: Know Yourself - Learn From Your Mistakes
Littlefinger is referencing a foolish decision he had made (an attempt to use brawn over brains when he was clearly more a "brain" type guy). It was born of anger and pride, as many bad decisions are.
But Little Finger learned from this (near fatal) mistake because he evaluated his actions and was honest about who he was.
In the same way investors need to be honest about who they are as investors. This means looking into their past decisions, particularly past mistakes. It’s not so much for insights into how the markets will behave, but for insights into how you will behave - to know yourself.
Important questions: How did you react last time/in similar emotional circumstances? What were your hot buttons? What do you wish you did differently, if anything? Market environments always differ. The constant is you. MarketPsych research has found that revisiting your past behavior, armed with self-insights is one of the hallmarks of great investors.
Few investors actually do this. Reliving mistakes means re-experiencing the pain they caused. But taking the time to reflect on past actions - and what and how you could have reacted differently - is how we gain the benefit of experience.
"Only by admitting what we are can we get what we want".
This sort of self-assessment requires… self-assessment.
Which is why MPI created the Investor Personality Assessment as a tool for advisors to understand their clients and help clients understand themselves.
What To Do: Have conversations with clients around how they've reacted in the past during emotionally charged environments (e.g., “Let’s take a look back now at the last time the market went into chaos. There will be lessons we can learn. What was it like for you? What decisions did you make? Were there things you did well? What were some things you would do differently?.)
This may feel uncomfortable, like poking at a wound. If it hurts, it is likely that this (emotional) wound hasn’t healed fully or properly. In This exercise will help it do so.
It can be worthwhile to note any painful emotions in the conversation, even using the above metaphor. This can be one of the best conversations you ever have with a client. It will move them towards closure. You can also ultimately frame it as empowering ("Here’s what we will do better next time").
What To Do: Have your client take the MPI Investor Personality Assessment. There is simply no substitute for self-knowledge in investing. Impress this value upon your clients and invite them to take the test as an integral part of their financial plan. It will not only lead to insights into your clients – including potential red flags such as panic propensity and risk vulnerability – but to great, relationship-deepening conversations as well. Investors who understand themselves and their investing style are more successful and more secure clients.
Quote # 3 coming soon.
In the meantime, our prayers go out to those in the path of the hurricane. We hope for maximum safety, minimal damage and a divine wind that blows Irma out of harm's way. As always...
Hey, let's be careful out there.
Frank Murtha, Ph.D.