Behavioral investing with Dr. Daniel Crosby

Key takeaways:

  • [5:20] Dr. Daniel Crosby is the Chief Behavioral Officer at Orion Advisor Solutions and he says emotional connection is a major behavioral bias in dealing with money. 
  • [8:23] He advises investors to be aware of the negative impact that biases can have on investments. 
  • [20:47] Dr. Crosby addresses the issue confronting several investors who fail to stick with the fundamentals of diversification and portfolio construction? 

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Dr. Daniel Crosby, Chief Behavioral Officer at Orion Advisor Solutions, a tech powerhouse designed to bring together bleeding edge technology and wealth management, says there is a multitude of factors that go into an individual’s investment choices.

The current market backdrop according to Crosby, is creating a host of challenges for investors, from understanding biases and how to act as well as the behavioral biases that come into play in the decision making processes. 

As the Chief Behavioral Officer at Orion Advisor Solutions, Dr. Crosby has seen challenges that are unique to financial advisors and different from the average individual or institutional investor.  He considers some of their moves every bit as dumb as the moves that everyday investors make, and the headlines often state that financial advisors aren’t great with their own money, even if they are managing their clients’ money well. 

There is research out of Canada to suggest that people who have a long term relationship with an advisor have 2.73 times the wealth of their same income peers that are DIY investors, and as Crosby puts it, the human condition is that we’re better able to advise and we’re better able to assist when we have a level of distance and a level of objectivity.

According to Crosby, emotional connection is a major behavioral bias in dealing with money.  In his latest book The Behavioral Investor, Crosby highlights the meta biases that break down to ego, attention, emotion, and conservatism.  Each one he says plays its own role in emotional activation in the brain.  He added that each one also plays a role in how we choose to invest our own money, even more so than sex, politics, or religion. 

Diversify Your Portfolio Today

With an increased awareness of your own biases, Crosby says it becomes possible to focus on good investment decisions by avoiding the bias shortcuts that serve us so well in other places in life but serve us poorly when investing. An action bias, for example, works incredibly well for someone who has the desire to get fit, but action is rarely the best route to take when markets are volatile.  

Studies in 19 different countries have all shown that the more actively you trade, the worse your investments will perform. 

From the advances in technologies to the gamification of investing, our behavior biases have an impact on every decision investors make, good and bad Crosby pointed out.  Potential regulations, including just in time education and extended capital gains taxes could help investors make better decisions with their investments without requiring that they have a robust knowledge of investment tax implications. 

Crosby highlights the importance of helping investors overcome the major challenges they face today.  From inflation and pessimism to stock ownership despite volatility, he advises investors to revisit the first principles, and revisit the idea of diversification. 

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