“I coined the term “behavior gap” to label the gap between investor returns and investment returns, and I started drawing the sketch you see here on every whiteboard I could find.” – Carl Richards, author, The Behavior Gap
Carl Richards is a certified financial planner, founder of Prasada Capital Management, a portfolio design firm and an acclaimed author about behavioural finance. Richards believes investments don’t make mistakes, investors do. Investment success is not so much about skill as it is about behaviour and the extent you can control your behaviour when investing or staying invested for the long-term. These concepts are not really revolutionary but they are extremely well-described in Carl’s book, The Behavior Gap. Here are some of my favourite parts from this book.
On “picking your poison”:
“We often treat fear and greed – the primary drivers of most big behavioral mistakes investors make – as flip sides of the same coin. But they’re really two very different emotions. It’s important to figure out which emotion is the bigger issue for you.”
On what comes first:
“Find investments to populate your plan. This comes at the end of the planning process. You would never spend time researching and debating whether to travel by plane, train or car until you figured out where you were going.”
On taking advice from others, professional or otherwise and market forecasts:
“Advice and forecasts are often distractions from our real task: getting to know ourselves and our goals, making choices aligned with those goals, and adapting to the surprises that are bound to come along.”
On market information and the noise it creates:
“Something crazy is always happening on the other side of the world, but what does that have to do with you? You can’t do anything about it. You – and the world – are better off if you focus on what you can do.” “Focus on your personal economy and stop worrying about the global one.”
Richards has many more straight-talk financial gems in his book so to get your FREE copy of The Behavior Gap all you need to do is to enter the giveaway below. I’ll draw one lucky reader at random in a few weeks and send the book to you for summer patio reading. Thanks for entering the draw and good luck!