For those not familiar with cricket, a ‘walker’ is a batsman who gives him or herself out. The ball is bowled, the batsman edges the ball which is caught by the wicket keeper. Before the opposing team appeals and the umpire provides their decision, the batsman walks off, accepting of their fate.
It’s a controversial area of cricket. Those who believe in the spirit of the game (which is a major factor for many whole love the game) would say walking is the honourable thing to do.
Others believe it is the umpire’s job to make the decision, that you get good and bad decisions and they cancel each other out. Such people stay at the wicket awaiting the umpire’s decision, even when the edge has been heard by their mum making the teas in the pavilion!
The really interesting point about whether you are a walker or not is this: you only find out when it actually happens.
Opening the batting for our local first team, I ‘feathered’ a ball to the keeper (cricket is full of such strange terms – this means I edged it so slightly that there was only the merest of noises). Annoyed at myself, I tucked my bat under my arm, and began to walk off… much to the surprise of the fielding team! After a few paces, realising no one else had heard the noise, I stopped. The wicket keeper saw me, laughed, appealed, and the umpire gave me out, tutting at me as he raised his finger.
As I reached the pavilion, my captain said to me “At least now you know that you’re a walker”. I didn’t know until it happened.
And that’s because it is not possible to predict our future behaviour.
What would you do?
This applies in investing in the same way as it does in cricket. For years, risk profiling has been asking questions such as “What would you do if the stockmarket went down by 20%?” Invariably people answer this question with an answer that they think we want to hear (a process known as ‘Framing’).
They tell us that they would hold on to the investment, because they know that it is for the medium to long term. In fact, the reality is that most people buy high and sell low (here is one of many articles proving this point).
Decisions About Money
In recent years there has been a great deal of research into how we make decisions with our money, and a new field of study called Behavioural Economics has formed. For example, it seems that we make two types of decisions. Put simply we make some decisions with our gut (less important and/or uninformed) and some with our heads (more important and/or well informed).
Listen to our Financial Wellbeing podcast interview with Behavioural Economist Greg Davies. He talks about how our emotions effect our decision making process and how we can become more comfortable when making financial choices.
Decisions about money tend to fall into a third category: ‘important but uninformed’. This is because they invariably involve a decision about the future, which is unpredictable. Consequently, we often make bad decisions about money.
One of the roles of the financial planner, therefore, is to stop clients from making bad decisions about their money. We do this in several ways:
- By being informed and knowledgeable about pensions and tax rules
- By ensuring that clients have clear objectives and motivations, so that their decisions are anchored to a purpose
- By understanding behavioural finance so that we know the pitfalls we need to help clients avoid
Glad That I’m Not You
Financial planners are uniquely placed to help clients plan and make better financial decisions – if only for the simple reason that we are not them!