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"You can't go back & create a new beginning,
but you can begin to change the ending"
- Brian Solis (Business Media Author) |
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How We Think - Mental Biases, Blind Spots, And All
Our thought sequences, the way we engage and make decisions is an evolutionary work in process. We rely largely on mental short cuts that sometimes skip over the analytical segments of decisions. Nobel Laureate Daniel Kahneman of Princeton has a new book, Thinking, Fast and Slow, in which he describes the mental mistakes we all make on a routine basis. The title derives from the 2 systems (what he calls "the machinery of the mind") we use to make choices- one (the intuitive) is fast and the other (deeper memory) is super slow.
This is important to understand since we are often dealing with critically important concepts such as how much risk to accept; how much we can withdraw from our portfolio in retirement; if the stock market is a reasonable place to invest, etc. All of these are concrete and analytical based but our minds often attack the question from the intuitive or emotional side. Many of these decisions are made using deeply imbedded stereotypes that literally defy logic. One distinctive mark of the faster, automatic brain function is it is simultaneously intuitive and quite often, wrong. This is sometimes referred to as "not thinking". Click here if you'd like to test your brain with one of Kahneman's examples.
Closely related to these "kinks of the mind" is our desire to exhibit some illusion of control over the future. It is critically important that investors acknowledge the unpredictability of the future despite an entire subset of financial services firms set up to promise some element of control. It simply is not so. Stock analysts, economic soothsayers etc. may indeed make a correct call here or there but that success isn't repeated often...it is usually random. Taken one step further, even if such talent existed, we can't identify it in advance. That doesn't stop investors (and their brokers/advisors) from continually seeking the mythical investing Holy Grail (ala Black Box).
We help clients "think" about financial decisions in order to improve the likelihood of good outcomes. We are pleased to sit down with friends or colleagues who might benefit from our approach and render a second opinion on their existing financial efforts.
- James E. Wilson, CFP®
 My Blog
A Call to Action:
In two weeks, we will discuss the "Looking back and moving ahead"- the importance of sticking with a strategy
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WealthRx® is J.E. Wilson's unique wealth management process, designed with successful physicians in mind. Learn more. Contact 