Friday, November 26, 2010

Investor Behavior More Important Than Investment Performance

Nick Murray / November 25, 2010 / Originally published on
... There is no statistical evidence for the persistence of performance. And, at huge market turning points, relative performance – in addition to being unpredictable and uncontrollable – simply doesn’t matter.

What, then, can an investment advisor offer that is manifestly worth multiples of what he charges, again and again over a client’s investing lifetime? Why, of course: it’s behavior modification.
The dominant determinant of long-term, real-life financial outcomes isn’t investment performance. It’s investor behavior. And the most high-value service we can offer is preventing the client from behaviorally blowing himself up...
...the behavioral value proposition. It doesn’t always work that quickly or that dramatically. But, human nature being what it is, it always works.