Of all of the painstaking research and analysis we do here at PWA, there’s an area of interest that holds huge sway over our approach to individual client portfolio management. An “area” that we believe has major implications in terms of the prospects for favorable long-term results on a client-specific basis. Call it risk tolerance, or perhaps behavioral finance, if you like; I think of it in terms of client predilections, preconceptions and degrees of impressionability.

We’re forever battling environmental forces. The CNBCs, Bloombergs and Fox Business Newss of the world, in my humble view, do potentially more harm than good on behalf of the everyday investor. It’s all about attention-grabbing and ad-selling. These networks trot out the characters that will inspire the most views, the most clicks and, thus, the most ad sales. Frankly, much of it is complete investment garbage.

Aside from the media, just the prevailing character of the market can provoke thoughts that would have an investor take a position that under different circumstances might not have even been considered.

For example, during bull markets (today) we find ourselves fielding client inquiries into the advisability of increasing their stock market exposure. Regular readers/viewers know that our analysis suggests that we remain in a compelling uptrend that — while volatility is a given — has us maintaining a cyclical tilt to our equity allocations. So, sure, present conditions would not preclude me from sympathizing with the timing of these inquiries. But I find some of them troubling nonetheless. Specifically those that come from clients whom my experience suggests are otherwise very conservative (risk averse) investors.

To those — in other environments — nervous nellies I ask: Would we be having this conversation if we were in a bear market? My concern being; we will one day be in a bear market, and, in that instance, we don’t want our client’s portfolio holding a degree of equity exposure that would have him/her losing sleep and forcing inopportune investment decisions. I.e., for some, their answer to my question should be “no, I don’t think we would”. But, alas, that’s not always what I get.

Truly, people become different people under different circumstances. You know what I mean: Enter any day sleep-deprived with a neck-ache and you’ll not notice the sun shining, the birds chirping or the flowers blooming — and the slightest provocation (or none whatsoever) will have you chewing the head off of a close friend or family member. Get a good night’s sleep, eat a good breakfast, a little caffeine boost maybe, and you love the rain, you love bundling up in your favorite wool sweater and you smile in the face of your would-be provocateur. The market’s up, you open your monthly investment statement and you think to yourself, dang, if I only had more in there! I’m calling Marty…


So, by all means, go ahead and make that call. But be prepared, you know what question I’ll be asking — particularly if I had to talk you off the ledge during the last market downturn.

Richard Nisbett in his intriguing and entertaining book Mindware: Tools for Smart Thinking nails it:

… the situations we find ourselves in affect our thoughts and determine our behavior far more than we realize . People’s dispositions , on the other hand — their distinctive traits , attitudes , abilities , and tastes — are much less influential than we assume.

Many of the most important influences on our perceptions and behavior are hidden from us . And we are never directly aware of the mental processes that produce our perceptions , beliefs , and behavior.