Thinking in black and white will destroy an investor. As humans, we often think in black and white because our brains prefer decisions that automate daily tasks, a process psychologists call heuristics. It’s human nature to pick either “this extreme” or “that extreme”, but black and white thinking has no place in investing. Instead, investing needs to be thought of as a series of decisions that lie somewhere in between the clean-cut categories we create.
Risk tolerance, for example, is often categorized as either black or white. You’re either risk averse or risk tolerant. These categories, however, shouldn’t be limited to either or… there is a grey area in between. In a perfect world, investment advisors would know your exact reactions to fluctuations in your portfolio, and invest accordingly, in the best way possible that fits your needs. We dug deeper into this notion in our last article “Suitable Risk Is The Best Risk”, which you can read here.
There is also a tendency to think in absolutes when thinking about fees. We typically classify fees into two categories: expensive or cheap. Once again, that is black and white thinking. When contemplating fees, you should also consider what you get for your money, aka the value you receive from your investments. Is a low-cost mutual fund actually cheap? The fee on that fund has the potential to be expensive if you quantify what you get for that money. Just throwing money into anything that is cheap gives you the potential to underperform the market, which you pay for indirectly when investing in certain low-cost mutual funds and ETFs.
Our clients often ask us, “What do you think about the market?” Before we can even answer, we are pressured into picking a side, bull or bear. Most people have a bias, but under pressure, they are pushed into either a bullish or bearish extreme. However, any investor picking sides just because of outside pressure will distort their perception of the markets’ reality. We at Fogel Capital Management are mindful of the complexities of the market and encourage others to fight back when it comes to picking sides when viewing the market. Not everyone has to be 100% sure about the next recession to be a good investor.
At Fogel Capital Management, Inc., we understand that investment decisions come in many shades of grey, not just black or white. We make it a priority to customize investments to each client’s needs while delivering value. Our firm has over 20 years of investing experience and knows exactly how to utilize data to make investment decisions that fit your needs, not that pick a side. Call us today at 722-223-9686 for a free portfolio consultation on how we can find the perfect shade of grey for your investing needs.