One observation I’ve made after more than 30 years working in the Financial Services industry is that not all smart people are successful investors. Many people are very analytical, and while this quality serves them well in many ways, it can be a hindrance to successful investing.
A number of factors play into this phenomenon. Here are seven ways you can miss out on financial opportunities by being too analytical.
1. Focusing on details instead of on the bigger picture
Often, very analytical people, such as engineers and consultants, who want to know and understand the minutiae seem to miss the bigger picture. They are more concerned about the details than a more successful overall result that may not make sense to them.
2. Overestimating your ability
Another phenomenon we witness is that sometimes, brilliant people feel they have figured out something, and then if markets move up, they believe their gain is due to their own intelligence when, in reality, the result is not due to any analysis but to simple market movements.
3. Taking too long to make a decision
In addition, highly analytical people often have trouble committing to anything quickly. They move slowly into a strategy, not wanting to commit until they are certain. By the time they act, they have missed most of the upside.
4. Bypassing strategies you don’t understand
A lot of factors that are fundamental and based on human behavior cannot be modeled. For example, some people realized huge gains at the beginning of the COVID-19 pandemic by investing in travel companies that were not profitable and whose value was down when the pandemic started. Meanwhile, some brilliant, analytical people experienced losses when buying growth companies because their valuations did not make sense from a traditional standpoint — or did not work in the past. Times change; what made sense in the past may not apply today.
5. Focusing more on asset selection than on asset allocation
We believe, and the facts support, that asset allocation is more important than asset selection. Being in a mediocre investment in the right place is better than being in the best investment in the wrong place. We cannot time markets, but we can rebalance and reallocate. It’s important to avoid getting too focused on each investment, or even on overall asset selection.
6. Monitoring the wrong metrics
Many brilliant people focus on what they perceive as an expense, whether internal or external. As a result, they end up stepping over dollars to save dimes. The only number that truly matters is net return after fees, expenses and taxes.
7. Failing to step back and let the professionals do what they do best
People miss opportunities when they act on their own perceptions of what they think should make sense instead of following historical trends and deferring to the experience and knowledge of their financial-advice teams. If someone is smart enough to hire professionals and then trust them, that’s all that is needed. As the saying goes, “If I am the smartest person in the room, then I am in the wrong room.”
Your job is to excel at what you do, and our job is to help you build real wealth while managing taxes. You would not go to a surgeon and tell him or her how to perform your operation (hopefully). Although many people tend to default to doing what is comfortable, it is beneficial to step out of your comfort zone and trust your medical, tax, financial and other advisors. When working in your chosen profession, it is good to know everything you can and to do only what you understand. It is also good to surround yourself with people you trust. When investing, trust the folks you are working with — whether it’s us or anyone else.
Some of the most brilliant people I know do very poorly as investors, and their net worth reflects it (not that building monetary wealth is everything, but that is a goal for many people). Conversely, a number of very successful clients who have built multimillion-dollar businesses and portfolios are not highly educated or business-savvy, yet when they partner with us, they experience success. The key to success in these cases is that the clients focus on what they do best, and enjoy, let us do our job.
How We Guide Our Clients to Financial Confidence
Our team does very detailed analytics on your plan and the investments we work with. But our work goes far beyond analytics. We also apply our knowledge and experience and consider a myriad of factors to assess, analyze and discover which strategy is appropriate for your situation, based on your personal needs and vision. It is sort of like scratch cooking with experience vs. trying to follow a new recipe for the first time.
The reason we continue to be recognized by Barron’s, Forbes, Crain’s and other respected financial publications is not because of some great investment-picking ability. It is because we can help build real wealth over time for clients who trust us and use our knowledge and experience to their benefit. We are heading into a more volatile market environment with factors we have not seen in 20 years, like rising inflation and interest rates. This environment will be great for those who take advantage of the opportunity, and it will hurt those who don’t. To benefit, we will need to move quickly and decisively, and we need to avoid procrastinating or suffering from “paralysis by analysis.”
Do you want to play with some funds to satisfy your analytical curiosity? Go for it! Set up a separate account, and we will be happy to provide our thoughts. We will listen to what your goals and vision are and then build a plan for you. The key is to let us do our job with regard to your overall planning and core wealth management!
If you are working with us, we appreciate your trust. If you are working with other financial advisors, we recommend that you trust them and let them do their thing. We are always happy to provide a second opinion.
In 2022, we are accepting only those new clients who we can best serve. We are happy to speak to your family or friends without cost or obligation, regardless of investible assets. For other’s our team minimum is $500,000 and my personal investment minimum is $1 million. To be a successful partnership our clients must trust us and give us the freedom to manage their funds for their benefit on a discretionary basis. If we are not a good fit for you we can often refer you to someone who may be. We want to make sure that we are a good fit for what you want to do and vice versa. Your vision is our priority; simplifying your life and improving your lifestyle is our mission.
Randy Carver, CRPC®, CDFA®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc,. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2021. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy at email@example.com.
The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Past performance is not indicative of future returns. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.