"...when the stakes are high and the choices are difficult, people will go out to hire experts to help them. The problem with this argument is that it can be hard to find a true expert who does not have a conflict of interest. It is illogical to think that someone who is not sophisticated enough to choose a good portfolio for her retirement saving will somehow be sophisticated about searching for a financial advisor, mortgage broker or real estate agent. Many people have made money selling magic potions and Ponzi schemes, but few have gotten rich selling the advice, "Don't buy that stuff." "
Richard H. Thaler was (today) awarded the Nobel Prize for Economics.
"The Nobel committee, announcing the award in Stockholm, said that he was a pioneer in applying psychology to economic behavior and in shedding light on how people make economic decisions, some times rejecting rationality." (NY Times)
"Professor Thaler said on Monday that the basic premise of his theories was that, "In order to do good economics you have to keep in mind that people are human."" (NY Times)
One of the most basic of human behavior's in the world of investing is the "recency effect", whereby we tend to project what has been going on in the recent past to our expectations of what we think is likely to go on into the future.
It took a long time for investors, rattled by the financial crisis, to get back to investing in equity markets, many only recently. But now, after 9 years of positive equity markets...
CNN Money's Fear & Greed Index is pushing its upper limit.
If my/our job (at High Rock) was to keep you fully invested at all times by telling you to stay invested (in order to be paid my commissions), then I would truly have a conflict of interest, especially when I am in the 8% of the Fear and Greed index who is actually fearful.
I guess I will never get rich being a contrarian (according to Professor Thaler), but hopefully, at some point, I/ we will be appreciated for looking out for our and our clients best interests!
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist