In the current world there is so much information available on pretty much any topic. This information can be obtained through the old school methods of books or encyclopaedias (Remember having those or at school?), through to the internet and social media. You can be flooded if you subscribe to an email or follow through Facebook or Twitter – at the end of the day all this noise can end up making things more confusing and decisions harder. Even advice from well-meaning Uncle Joe at a family BBQ can just make it all more difficult.
A large part of my role as a financial planner is helping to provide sufficient, accurate information to your specific circumstances to allow you to make an educated, informed decision. An added benefit is that I can look at it from an unemotional viewpoint, presenting just the facts and figures behind the situation.
Clients find this approach comforting as they have received just the information they require, that is well researched and in a form that is easily understood.
So if you feel like you need some help contact me for a chat.
Jarrod Lewis
P: 03 5559 7111
P.S. Here is an article with some more detail on the confusion information noise can cause
Behavioral Finance: Self Delusion
One of the most common cognitive traps investors fall into is called representativeness. It describes our willingness to judge events by how they appear rather than by how likely they are to be. We use stereotypes or unrepresentative information at the expense of more accurate, yet complex, data.
The different way our minds treat information is described by behavioural psychologist Daniel Kahneman in the term “what you see is all there is”. In short, we jump to conclusions based on limited data. Much of the time, the coherent story we put together in our heads is close enough to reality. But at other times such shortcuts may lead us astray.
In a famous example of representativeness, behavioural psychologists Daniel Kahneman and Amos Tversky asked students how likely it was for an undergraduate, named Tom W, to be studying one of nine disciplines.
To one group they gave no further details. This group was then required to use accurate information about the popularity of those subjects to provide an answer. Another group was asked to make a judgment based on a description of Tom W as a logical thinker who lacked creativity.
When confronted with this description, Kahneman and Tversky found that people neglected statistical facts in favour of stereotypes and ranked Tom W. as most likely to be an engineer or a computer scientist. This was despite the fact that these subjects had fewer undergraduates than the humanities and social sciences. People were driven by the compelling narrative of the description of Tom rather than the cold logic of numbers.
Neglecting facts is something that can happen with investing. Super-normal profits and high growth rates are defended on the basis of new paradigms. In this way, a collective willingness on the part of investors to succumb to representativeness may explain investment bubbles.
With investing, recent experience of how things appear is often simplistically extrapolated into the future. Analysts, for example, consistently forecast high earnings growth for companies that have just delivered high earnings growth.
In reality, earnings growth is not necessarily persistent; rather, it tends to follow the business cycle. This blind-spot is a form of ignoring statistics; analysts and investors are looking for reasons for earnings to stay high.
This suggests that investors need to be careful when making decisions on how things appear. Rather than jumping to conclusions that appear intuitive, people should consider the appropriate information to ground their judgments. History suggests such caution makes for better long-term decisions.
Source: www.fidelity.com.au