Pawleys New Years’ Resolution Advice

Happy 2014! I used to take the New Year very seriously, and have successfully upheld several promises or resolutions. December is a time when I put my nose to the grindstone and work on business objectives and strategy for the year, and also put thought into what I can do to improve my mind, body and spirit in the coming 12 months. This year, in a spate of weakness, I have committed to “temporarily” give up sweets, deserts and deep-fried food. An admitted sugar and french-fry junkie, this temporary ban on sweets and fried food will help kick-start a good year. I have reserved the right to lift the ban when I chose, and will do so sometime in early 2014. This is a text-book study of how NOT to set a resolution or plan to improve health! 🙂

As 2013 came to a close, I watched Facebook, Twitter, and the news feeds as all the large financial firms put forth their checklists of financial to-do’s for the New Year. Nestled within all of this information you can also find several predictions for what the stock market will do in 2014, and forecasts for the economy. Last week during a client meeting, the topic of Congress arose, and in a quick moment of frustration I blurted out “I do not care what happens in DC” (of course I care!). I have said over and over that I work to build portfolios that will perform well in a myriad of economic and market environments. By building a sound portfolio of quality investments, you will more likely reach your financial goals. I do not make predictions, because it is an incredibly risky strategy and virtually impossible to do accurately on a consistent basis. The economic cycle grows and then contracts, and repeats itself over and over again. The cycle takes years to process, and while it is important to understand where we are historically, I think it is more important to build an investment process that selects high-quality stocks, bonds and mutual funds. We have no control over what will happen in DC, outside casting our votes during election time and making our voices heard. It does not change the fact that everyone still needs to invest, and have a long-term strategy to work towards financial goals. But it certainly makes for good conversation, as does trying to dissect the stock market and economy. Financial and news organizations are more than happy to provide us with enough information to choke a Budweiser Clydesdale horse.

Herein lies the problem…we are news junkies. Now, instead of just reading the morning paper and gluing ourselves to the television for just an hour to watch the nightly news, we are bombarded 24×7 with information that hits our computers, tablets and phones. It is fun to gather knowledge, but when it comes to your investments, it can become a huge distraction. I have referred to these times overs the years as “cupcake moments.” It is akin to being on a diet and having that chocolate cupcake tempt you (my personal favorite, with white frosting). Reading negative news stories about your favorite stock can make you stomach sink, but often has little to do with how the stock will preform for the year. Likewise, it is fun to watch a stock price pop, driven by a singular news event, but this can lull us into euphoria, and cloud objectivity.

Resist temptation, and resolve to give up getting rattled by the bombardment of both good and bad news that can distract you from your long-term plans.

© 2014 Pawleys Investment Advisors, LLC. All rights reserved.

The Conscious Investor – Compliments of Pawleys

Imagine you are enjoying your morning coffee on your beach house porch, reading the Wall Street Journal. As you flip through the sections, the headline grabs you that your beloved pharmaceutical company has failed a critical step in its newest blockbuster drug trial. You own several hundred shares, thus a huge knot forms in your stomach. You decide to abandon your morning beach view, head back to the kitchen, and flip on CNBC to check on the market. Right in your face is the breaking news that one of your biggest stock holdings, a well-known industrial company, has had an accident at one of its manufacturing facilities, and the stock has plunged dramatically. Now the knot in your stomach starts to take over your entire body. The next breaking story involves the bankruptcy of a municipal healthcare project located in a state completely across the country, but since you hold several municipal bonds in your portfolio, you start to wonder if they will encounter trouble as well. Now investing does not feel like very much fun.

The world is filled with random events that are well beyond your control, and if you have spent time investing, you know that economic and market news can be the source of euphoria or disaster. Where investors go wrong, however, is by allowing their emotional response to these events to cause their minds to go into a tailspin. The thoughts that swirl around in your head can become consuming and distract you from your original purpose.

Quiet your mind, grasshopper. We cannot change the randomness of events, or the action of the stock market. What we can control is our response to those events and work towards quieting our minds. The markets may seem bumpy at times, but the economy and markets actually behave in very consistent ways. The inconsistency comes in the form of how investors respond. If you have a solid, systematic process that focuses on the selection of high-quality stocks and bonds, you will be better positioned to respond like a cool cucumber in times of turmoil. An objective, systematic investment plan and research process is critical, but if you have done your homework all that remains is to keep the faith and belief in your work.

Controlling your emotions is one of the single most important factors in becoming a successful investor. Conscious investing with a quiet mind will take you to the next level and enable you to enjoy the wonderful simple things in life, such as the view of your favorite beach.

© 2013 Pawleys Investment Advisors, LLC. All rights reserved.

Investor Neuroimaging – The Pawleys Perception-Thinking Matrix

Wouldn’t it be cool to see a scan of your brain each time you made an important financial decision? You could learn what areas of your brain light up, and use the feedback to make better decisions in the future. Well, since hauling around a neuroimaging machine would be impractical, it is more reasonable to explore some of the personality traits that influence investment decisions. I’ve written on the topic of emotion and investing, so let’s take it to the next level. There are 2 key pockets of behavior that play a role in how investors make decisions. Personality traits are not inherently good or bad, and I am not advocating judgement or criticism, or even that people should change the way they are wired. But by gaining a better understanding of yourself, you will see that in a random and inconsistent world, your responses and behavior are actually quite consistent. This is why you may look at the actions of someone else as completely ridiculous, while to them it seems quite natural. As a blind skier guide, I learned the different ways that adults learn – thinker, feeler, seer, doer. Understanding these learning-style differences helped me become a more effective instructor. I also learned how to vary my approach and style in managing employees using the different Myers-Briggs personality types – introversion/extroversion, sensing/intuition, thinking/feeling, judging/perceiving. Simple generally trumps complexity, so I’ve organized the investor traits that into two key areas:

Perception: Those driven by perception follow feeling and intuition. The Perceiver likes to interpret surroundings and add meaning to things, and often stays open and thus not completely committed to ideas.

Thinking: Those driven by thinking utilize logic and concrete experiences from the past. The Thinker needs data and consistency and may have trouble dealing with ambiguity.

Both profiles can be outgoing or more reserved, and may have varying levels of awareness of themselves and the world. These personality factors help us understand why we feel more comfortable in certain circumstances, and great discomfort in others. These factors also give insight into how people react and behave, because we all strive to get back to our most comfortable way of living in the world. Adrenaline junkies just don’t feel right unless they are chasing their next adventure, while introverted philosophical types prefer solitude and quiet. Most of us fall somewhere in between.

Investors and react to various economic and market environments in different ways, and there are strengths and draw-backs to both types.  Enjoy, and hopefully this will help you become a more self-aware investor and improve your performance!

Pawleys Investor Perception-Thinking Matrix

© 2013 Pawleys Investment Advisors, LLC. All rights reserved.