NEW YORK, NY--(Marketwire - July 16, 2009) - As individuals struggle to claw back to
financial health in the aftermath of the crash, the smartest thing they can
do is think twice -- and adopt a healthy dose of skepticism when it comes
to accepted best practices.
That's according to
David Adler, behavioral finance expert and
author of the brand new
Snap Judgment: When to Trust Your Instincts,
When to Ignore Them, and How to Avoid Making Big Money Mistakes (FT Press,
July 2009). He argues that seemingly "smart moves" often aren't --
because they're based on flawed snap judgments. While intuition and
instinct work well for certain kinds of decisions, such as evaluating a
relationship or restaurant, his work shows that sound decisions regarding
numbers and money require more deliberate thinking and layers of reasoning.
"Our economic catastrophe can, in part, be attributed to a collective snap
judgment. We're paying the price for money decisions that, intuitively,
seemed correct in the moment. For instance, the mortgage and credit crisis
are, largely, the result of financial institutions' thinking mainly about
their own performance and profits rather than the health of the system --
and how the system's overall health can ultimately make or break their own
health," said Mr. Adler.
He added, "If you want to put your financial health on the right track, be
skeptical of all best practices and pay close attention to your second
thoughts about your first impressions."
Mr. Adler and
Snap Judgment (
www.snapjudgmentbook.com) point out
flaws in typical money and investment decisions -- and provide guidelines
for "de-biasing" decision making so it can be more effective. Mr. Adler is
available to engage in a conversation about instinct and money -- and
avoiding bad decisions on the way to financial and economic recovery.
During a discussion he can address such decision "traps," issues and
insights as:
- Dealing with Losing Stocks: Seemingly Reasonable Behavior Isn't.
People often believe they're being calm and intelligently
"counter-intuitive" by holding onto losing stocks "until they come back."
The reality is that losing stocks generally continue to lose because of
momentum -- and winning stocks continue to go up because of momentum. So,
in effect, people tend to sell winners and hold losers. "Watch out
for this tendency," Mr. Adler says.
- Listening to Stock Analysts' Buy and Sell Recommendations: Better to
Ignore Them. By the time one has seen an analyst's buy and sell
recommendation, chances are the market's already factored it into the
stock's price. So, the rating isn't helpful. But analysts can add value
under certain circumstances if you know what to look for: Mr. Adler says
the moment an analyst changes a recommendation is when to take a look at
the stock.
- Presuming Your Broker Thinks Like Your Accountant. The
investment returns that brokers generally discuss (for regular, non-tax
deferred accounts) are somewhat meaningless or misleading -- unless they're
described in an after-tax context. Always ask about the after-tax scenario.
- The Funds Your Investment Plan Literature Says Are Prudent: They
Probably Aren't. The much-touted, "safer-bet" target-date mutual
funds that offer a mix of stocks and bonds tailored to the investor's
age, wealth and risk tolerance have, during the downturn, actually often
done worse than index funds.
- Public Consensus of the Market's Direction: Betting For or Against
It. The public consensus of the direction of the market is, according
to Snap Judgment, generally wrong. So, being contrarian to your
instinct may not be a bad policy...
- Waiting for a Mutual Fund to Turn Around: It Could Be Forever.
According to Snap Judgment, mutual funds can persist in
underperforming the market for years. But it is rare for a fund to
outperform the market for more than three months, making the choice of a
mutual fund a really tough decision and one most people don't fully think
through. "Waiting for a mutual fund to 'come back' is a bad snap judgment,"
Mr. Adler says.
- Realizing That Annuities Are Expensive: So What? People tend to
eschew annuities because of the expense. These people often forget their
potential need to use some of their money (in retirement) for consumption
of goods and services (like housing and food) and only focus on their lump
of money -- i.e., what they've accumulated. Because of their insurance
aspect, annuities can fund a level of eternal consumption.
To arrange a conversation with
David Adler and/or receive a copy of
Snap Judgment: When to Trust Your Instincts, When to Ignore Them, and
How to Avoid Making Big Money Mistakes, please contact Itay Engelman at
Sommerfield Communications, Inc. at 212-255-8386 or
Itay@sommerfield.com.
About David Adler
David E. Adler is the author of
Snap Judgment: When to Trust Your
Instincts, When to Ignore Them, and How to Avoid Making Big Money Mistakes
(FT Press, July 2009). Adler is a frequent contributor to Barron's,
the contributing high-net-worth writer for Financial Planning Magazine and
has written for Institutional Investor, Psychology Today, and the New
Republic. He was recently awarded a grant by the CFA Institute Research
Foundation to conduct a study of tax awareness in investment decision
making by wealth managers. Mr. Adler was educated at Oxford University and
Columbia University and holds an M.A. in economics from Columbia.
Contact Information: Contact:
Itay Engelman
Sommerfield Communications, Inc.
212-255-8386
itay@sommerfield.com