“Off the Wall” Podcast

Dr. Daniel Crosby | How Your Behavior Drives Investment Returns

Feb 08, 2022 Behavioral Investing

Are you actually standing in your own way when it comes to maximizing your investment returns? Dr. Daniel Crosby, Chief Behavioral Officer at Orion, bestselling author and a behavioral finance expert, joins this episode of our Off the Wall podcast to share the psychology behind investing decisions and what investors can do to mitigate their behavior’s role in managing money—or, more bluntly, how to protect yourself from yourself.

“Being an investor is I think ultimately a long-term bullish view on humanity. It’s a view that we as a human race are gonna get smarter, better, faster, and stronger. It’s gonna be imperfect. There’s gonna be ups and downs, but sort of the arc of human innovation and inventions going to bend in a positive way. And that’s what being a long-term investor is. And we have every reason to believe that that will continue to be the case, even in the face of lots more bad stuff.” – Dr. Daniel Crosby

Check out Daniel’s podcast, Standard Deviation and his books.

Please Read Important Disclosures: https://monumentwealthmanagement.com/disclosures

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Transcript:

David B. Armstrong (Host):

Welcome everybody to our next episode of Off the Wall. I’m here with my co-host and business partner, Jessica Gibbs. And…

Jessica Gibbs (Co-Host):

Hey everyone.

David B. Armstrong (Host):

We are super excited because today we are welcoming behavioral finance expert Dr. Daniel Crosby.

Jessica Gibbs (Co-Host):

Yes, Daniel is Chief Behavioral Officer at Orion. He has over 10 years of experience in the financial services industry and he uses that knowledge that he has in psychology and also has one of the foremost experts in applied behavioral science to study investor and market psychology. He has published a number of best-selling books, Dave, and I definitely suggest checking them out after this episode if you want to do a deeper dive into what Daniel talks about today. But with that, welcome Daniel to the podcast.

Dr. Daniel Crosby (Guest):

Thanks to both of you. It’s great to be here.

Jessica Gibbs (Co-Host):

Awesome. So I mean, let’s just dive in. I think it can sometimes feel like with investing that things are out of your hands. So either in a broad sense of how the markets or the economy is acting or reacting. You know, for example, we’re recording this the morning of February 3rd, and the S&P is down this morning in large part because meta, formally Facebook, their stock is down over 20% due to weak earnings. So kind of that’s a sense that in the broad sense that feels like it’s out of your hands. And then maybe in a narrow sense too of you’ve hired an advisor to select investments for you. But your work is very focused on how an investor’s behavior actually drives investment returns. And you talk about this in your book, the Laws of Wealth. You lay out what you see as 10 rules of how investors can manage their behavior. And Dave, and I thought it was really interesting that your very first rule is you control what matters most. So can you talk more about this?

Dr. Daniel Crosby (Guest):

Yeah, there’s definitely a method to that madness. When I was putting together sort of my 10 commandments of these laws of wealth, it was important to me that that one goes first. Because when you talk to most people or when most people talk to me, I guess and know that I work in the field and they’ll ask me things like, what’s the president going to do? What’s the Fed going to do? What’s gonna happen in Ukraine? It’s all of these things that are externalities. It’s all of these things that are A, completely beyond knowing. Nobody knows what the fed’s gonna do or the President’s gonna do, or Putin’s gonna do. And then B, even if you did know you couldn’t do anything about it. And then C, you never know how the market will react to that thing. I mean, who would’ve guessed that COVID would bring us this extraordinary market? Even if you had known, hey, this global pandemic is coming, which you couldn’t have, you would’ve then had to guess the market’s reaction to that, which was, you know, I think by all accounts quite unexpected that the market did as well as it did in the face of effectively a global shutdown.

And so it’s impossible to forecast these events. They’re out of our control and if we focus on them, we get this learned helplessness is sort of the psychological term for it, right. We feel hopeless and helpless in the face of this ambiguity, this powerlessness. But the fact is, all of the research shows that the things that matter most to help you cross your financial finish line and reach your goals are all within your power. It’s boring stuff like maximizing your human capital, like always learning and growing and educating yourself and getting better and better jobs. That’s dramatically important. That’s within your power. It’s things like saving regularly. It’s things like taking the appropriate level of risk and managing your fees. All of these things are highly, highly predictive of whether or not you reach your long-term goals and they’re all within your power. So the psychological term for this is locus of control. And I just wanted to give people this internal locus of control to say that, look, all the big stuff, all the stuff that matters is within you, it’s within your power, it’s knowable, it’s controllable and it’s doable. Leave the rest to the universe, but you can control the controllable. And if you can do that, you’ve done a lot and you’re gonna make it.

David B. Armstrong (Host):

Yeah, that’s amazing. We try to keep preaching that over and over again. And it’s like you said, nobody pays attention to when we’re talking about the boring stuff, because it’s just not exciting, right? But it’s so true and it’s a great lead-in to asking you a question about all the bad news that we see out there. So investors are constantly bombarded with bad news and speculation about impending bad news. And because I think, and you correct me if I’m wrong, but our brains are wired to think from a reactive or reflective space. People have this natural tendency to just imagine the worst outcomes, especially if they’ve seen them previously in their lives. So for example, if you lived through 2001 and 2002, or you lived through 2008 and 2009, it’s super easy to imagine the worst outcome because you’re like, man, I have been here before. So what are the things that a good investor has to understand? What do they have to understand to protect themselves from themselves?

Dr. Daniel Crosby (Guest):

Well, you need to understand your wiring and you’re exactly right. So there’s this profound asymmetry or imbalance in the way that we think about risk. And we know from the psychological literature that we’re about two and a half times as scared or upset about a loss as we are happy about a comparably sized gain. And in different parts of our lives, we see this even more dramatically. There’s research on marriages that shows that marriages, where there’s like an equal number of positive and negative interactions, are doomed. That’s a terrible marriage. If you have one sort of dust-up for every one compliment or one sort of loving interaction that’s perceived as a terrible marriage because the bad stuff is so much stickier. So you remember the fights so much longer than you remember the compliments. And so the research suggests that you actually need at least five positive interactions with a spouse or a partner for every negative interaction if you’re going to make it.

And I mean, investing is largely the same way. The tech bubbles, the great financial crisis looms a lot larger in our mind than the 2021 where the market was up, whatever, 28% in kind of like a quiet forgettable way. We had this massive return that’s just not as sticky. So you have to know that you’re wired for negativity. You have to understand this about yourself and you have to understand the market’s ability to do big things even in the face of negativity. Warren Buffet has this great quote about the 20th century. The 20th century was a nightmare. I mean we had multiple world wars, we had a global pandemic, we had Korea, Vietnam. I mean we just had war after war after war after war, the depression, right? The Spanish flu, like all of these things. It was a bloody sick, horrible century, and yet the market compounded at 10% a year over that time in the face of all of those things.

So, there’s a book that I love about investing called Triumph of the Optimists, and it really encapsulates how I think about investing. Being an investor is I think ultimately a long-term bullish view on humanity. It’s a view that we as a human race are gonna get smarter, better, faster, and stronger. It’s gonna be imperfect. There’s gonna be ups and downs, but sort of the arc of human innovation and inventions going to bend in a positive way. And that’s what being a long-term investor is. And we have every reason to believe that that will continue to be the case, even in the face of lots more bad stuff.

David B. Armstrong (Host):

First of all, thank you for your compliment in telling me that I was right. Jessica, I want you to log that and remember.

Jessica Gibbs (Co-Host):

It’s noted.

David B. Armstrong (Host):

That’s one of the five compliments I think I’m going to need today. But in the context of corrections and bear markets, Daniel, I think you’re so right because I really sense, and I’m not saying this in a bad way, I’m just noting it, that there’s just this indifference over the fact that the market went up almost 30% last year. It’s just sort of like, ah, okay, yeah, awesome, yeah, it’s really great. But man, the market goes down 10% in 30 days in January and people are just flipping. And there’s your three-to-one ratio. I’m kind of making that up, but you know what I mean. And I think that the big takeaway there is that you’ve gotta understand that these things happen. Corrections happen, bear markets happen. There are all the statistics out there about how often they happen, and how likely they’re to happen, but the reality of it is they happen, they’re going to happen and it’s more about how you react when those corrections and bear markets are happening. And I think even more importantly from our perspective, what you’ve done to prepare yourself before you even get there, in other words, I call it running your emotional fire drill. So when the market’s up in December of 2021, we’re asking people, Hey, if the market was to pull back 20/30% from right where we are right now, how would that make you feel? And if you think you’d feel really bad, maybe you should de-risk your portfolio a little bit.

Jessica Gibbs (Co-Host):

Daniel is there any research actually just thinking about that risk tolerance question, cause I always find when markets are up, people are like, yeah, I can handle those risk tolerance. And then if markets are down, that’s when they really see the actual physical dollar amount, when their account value goes down and then their risk tolerance may not be as rosy. Is there any research around that of when you’re measuring risk tolerance in the market and how that affects someone’s risk tolerance?

Dr. Daniel Crosby (Guest):

Yeah, so there are actually three facets to risk that are I think, instructive here. So there’s risk capacity, which is how much risk you can afford to take, which is gonna be effectively how wealthy are you and how old are you and how big are your goals, right? So these are sort of the determine your capacity to take risks. There’s your risk tolerance, which is your long-term attitude around making risk-reward trade-offs, these are pretty static. These are pretty unchanging over a lifetime. Then you’ve got the third piece, which is the psychological piece, which is your risk composure, which is how emotional are you. Effectively, how likely is a short-term emotional reaction going to change your perception of your long-term willingness to take risks?

So if you look at something like 2020, like March of 2020, the initial sort of covid crash and you have clients calling you saying, I’m scared, get me out, put me in cash. If you ask them, is this a smart thing? Like should you be doing this? Is this prudent? Most of them are going to say no because that’s their risk tolerance. They still know yes, I should stay the course, yes I should do these things. But their risk composure might be such that the emotional salience of that scary moment is sort of overriding that long-term goal. So at Orion, we measure all three of these things. We believe that you really gotta measure how much risk can someone afford to take. What are their long-term attitudes toward risk? But then sort of how emotionally composed are they. How emotionally able are they to handle the ups and downs? Because with someone with low-risk composure, and I mean I put myself absolutely in that category, like someone with low-risk composure, it’s tough for them, even if they know better. And so that’s an important variable to consider.

David B. Armstrong (Host):

When you talk about risk tolerance and goals when we sit down with people and we ask them, what are your goals? It’s a pretty common answer to hear, I want to grow my money at a rate of return that is higher than the market. You hear all these kinds of things. And they are all variants of somebody just saying, I just want more, I just want more money. And when we hear that, we immediately have like a red flag that raises cause we’re like, okay, how do you quantify more? How do you do that? And when you ask somebody what does that look like? If your goal is more, what does that look like? How do you know when you’ve achieved success? You really start to uncover that people are a lot more risk-averse than they think they are. And your point about your ability to absorb risk, I’m gonna call it different, but if you’re really wealthy and you’re self-insured against a 30%, cause it doesn’t… Let’s just say you’re a billionaire and the market goes down 30%, okay, that’s a big dollar loss. But I would imagine from a standard of living perspective, it probably doesn’t even move the needle.

Yet, those people are not very risk averse, they’re risk takers. I think cause they have so much money they can absorb that loss. You could make an argument that that person should be a hundred percent in cash. Cause who cares? I’m not advocating that. I’m just saying from a mental perspective like it’s kind of interesting to see how people look at risk at different levels of wealth. We find that people who are really trying to grow their wealth and are really trying to go for a goal of a standard retirement and they’re not that wealthy. They want to take the risk to grow the portfolio, but they’re scared to death of losing a single dollar because they don’t really have a lot of wealth yet.

Dr. Daniel Crosby (Guest):

Yeah, there are a lot of things at play. So one of them is what shrinks like me call an affect heuristic, which just is a fancy way of saying that emotion colors the way that you view the world. So if you’re in a positive emotional state, you tend not to see any risk anywhere and you tend to be focused on the upside. If you’re in a negative emotional state, you tend to see risk everywhere and you tend to have this sort of downside risk-first mentality. And so I mean that just waxes and wanes over someone’s lifetime. And then we’ve also got this recency bias. It’s a very human tendency to project the immediate moment into the future indefinitely. You saw this during the pandemic, right? Like in March, it’s just like the sky is following things are never gonna be right again. And there were all these articles about how humankind will never give a handshake again. We’re never gonna give a hug again and no one’s ever gonna work in an office again. And it’s just so shortsighted. It just assumes that whatever’s happening right now is going to happen forever. And one of the chapters in the laws of wealth is called excess is never permanent. And in there, I say that the truest phrase in investing is this too shall pass. So if you have a horrible march of 2020 type year, like this too shall pass. There will be better times than this and likely soon. That’s true on the flip side as well, you get a couple of 30% years in a row, eh, you know, this too shall also pass. They’re not all gonna be 30% up years. And so keeping that sort of mindset of if things are really bad, they’re likely to get better and if things are really good, they’re likely to not stay this way forever, I think is a really healthy way to view markets and sort of manage your own expectations.

David B. Armstrong (Host):

Yeah, I would even say that the data will show you that the probability of things getting better is heavily skewed away from things are gonna get much worse. I mean if you just look at the market, you were just talking about the 20th century being so horrible, but you look at a graph of the S&P 500 over the last 50 years and it’s up into the right, you zoom in on any one particular six-month period, it could look totally different. But as we were getting ready to do this podcast, Jessica and I were talking about some of the chapters of the book, and Jessica, you zoned in on or queued in on the part where Daniel developed the four rules to follow, to mitigate an investor’s behavioral role in managing their money.

Jessica Gibbs (Co-Host):

Yeah, I mean it’s kind of where we were naturally going. It’s like, okay, so let’s just say, okay, you’re starting to self-recognize, okay, I have recency bias. You’re looking at risk and the three ways that you laid out and you’re conscious now of I wanna mitigate my role, my behavior’s role in influencing how my money is managed or how I’m investing. And so I was interested that you developed these four rules to follow, you call them the four Cs, it’s consistency, clarity, courageousness, and conviction. So I was hoping you could give us an example of what each of these rules looks like in practice.

Dr. Daniel Crosby (Guest):

Yeah, so we’ll start with consistency. So the rule with consistency is that rules beat discretion. And by discretion, I’m just sort of simply referring to like in the moment, seat-of-the-pants decision-making. So what I did for the book was I looked at over 200 studies, basically a meta-analysis, a study of all the studies on human decision-making, versus following simple rules. So you know, you look at something like, oh, I’m gonna get in and out of the market kind of depending on what I’m seeing on TV versus I’m just going to stay in and I’m gonna dollar cost average in every month. We even looked at stuff like studies on prison recidivism. So they would look at things like, do we get a panel of PhDs to try and decide whether this person needs to be led out of jail, or do we just look at two variables? Do we look at what are they in for and how did they act in jail? And looking at two variables is 400% more effective than convening a group of PhDs like myself to try and like, whatever, look into the soul of someone and determine whether or not they’re reformed. And you see this across context. You see this everywhere from medical decision-making to criminology, to psychology, to specifically markets. You see that simple rules beat human judgment again and again and again. They do it at a lower cost and they do it with less headache. Just set your rules on autopilot and then go live your life. So I’m just a big believer from the data that rules beat discretion. And so that’s what consistency is all about.

Dr. Daniel Crosby (Guest):

So the next one I’ll talk about is clarity. There are tens of thousands of data points that the Fed and other groups report about the US economy each year. And you know, shocker, they’re not all important. So when you regress enough variables against each other, you can find correlations that shouldn’t be there. Like there’s a correlation I talk about, there’s a Super Bowl correlation, whether the AFC or the NFC wins the Super Bowl has like a 70% prediction of what the market does next. There’s like a 96% correlation between the production of butter in Bangladesh and like S and P price movements over the last 50 years. So there are all these goofy things and we as a human family are sort of wired to see patterns like sort of the same way that we see faces in the clouds or see snoopy in the clouds or whatever. We’re sort of wired to see connections where there are none. But what I found is that you just really need to focus on a couple of things, right?

And so for me it’s things like fees, it’s things like the price you pay for a stock, it’s things like risk, the quality of the stock, the momentum of the stock. But when you’re looking to make financial decisions, what we find is that people who try and focus on too many things, actually ironically do worse than people who just focus on one or two sorts of overarching constructs. So there are lots of ways to win in investing, but you have to be consistent. Like you almost have to have a religion, whether your religion is momentum-based investing or value-based investing, or low-cost indexing, all of these things work. But you’ve gotta focus on it, you’ve gotta have that clarity and you gotta stick with it in good times and bad.

David B. Armstrong (Host):

Yeah, it’s interesting that you talk about fees because it’s obviously such a popular topic in the industry and I always look at it from the perspective of what are you getting for what you’re paying. And I often think about if you go into Whole Foods or any sort of grocery store that has the fish out on the ice, underneath the cabinet and you look at it and there are four pieces of salmon there. I’m not gonna naturally pick the most expensive piece of salmon just by looking at it, but I’ll pay the guy behind the counter to tell me which one’s freshest, right? So the fee thing is a really interesting topic and it’s definitely something that people need to consider when they are making decisions because not only is there the explicit cost of fees, but there’s the implicit cost of fees. And I’ll say that the drag that fees take also have to be connected to your self-imposed fees that you get charged for bad behavioral decisions like buying and selling out of the market during the time. Cause that’s also a fee.

Dr. Daniel Crosby (Guest):

Well, you know, I think there are fees that are worth paying and there are fees that not, you know, that’ll sort of lead us to our next C which is conviction. When it comes to asset management fees or product fees, Morning Star did a study a few years ago and they found that fees were the thing that was most predictive of fund success because you just take away this drag. So lower cost, all else being equal, right? Lower-cost products did better. And yet we have this industry where 70 plus percent of products that bill themselves as being active are in fact sort of closet benchmarks. And so with conviction, I basically say, look, be convicted. Have this faith, have this sort of religion that you believe in. If you want to be passive, that’s a great way to go, manage your fees and go all in on that. If you want to be active, that can work too, but you have to do it in a way that has real conviction, has a real opinion. So I did some research recently that looked at how you would’ve done in value versus growth versus the average investor. So since 1970, if you’d invested $10,000 in a value fund, you’d have like 2 million now. If you invested $10,000 in a growth fund, you’d have like 1.7 million. If you had gotten the returns that the average investor got, you would have just over $400,000 because of their tendency to jump in and out of the market.

So what we find again and again is the fees that are worth paying are the advisor fees. Research out of Canada finds that people who have a long-term relationship with an advisor had 2.97 times the wealth of those who didn’t have an advisor, even when they normalized their salary and different socioeconomic variables across 50 different factors. So people making the same salary, the one who works with an advisor for 15 years has three times the money of the one who doesn’t. So save your money where you can on product fees, but the advisory fees are where it’s at because that’s worth paying because that person is gonna be a decisional guide and a behavioral coach to you and keep you from making these bad decisions.

Jessica Gibbs (Co-Host):

That’s interesting. I was just gonna ask you why. And it really comes down to behavioral coaching.

Dr. Daniel Crosby (Guest):

I mean, what’s crazy is if an advisor can save you from two or three bad decisions over an investment lifetime, that pays for itself many times over. You think about someone who wanted to bail in March of 2020 or March of 2009 and an advisor kept them in their seat. I mean that person will never pay that advisor back, their fee will never approach the value that was created by that advisor, keeping them invested. So there are fees that are worth paying and there are fees that are not.

Jessica Gibbs (Co-Host):

So how about the fourth C, courageousness?

Dr. Daniel Crosby (Guest):

So courageousness is really about what Howard Marks, the great investor calls the perversity of risk. So courageousness is just this idea that we sense the most risk when there is actually the least risk and vice versa. Basically, you’re going to want to do all the wrong things at all the wrong times, right? When the market is full speed ahead, you’re going to want to take excessive risk and you shouldn’t. And when the market is actually quite attractively valued because it’s dipped, you’re going to want to get out and you shouldn’t. So courageousness means basically doing what’s right even in the face of emotional greed and fear, just having the courage and the fortitude to do the right thing even when your heart’s telling you to do something else. Because we are quite literally wired backward. I mean we want to take excessive risk when things are actually very risky and we want to flee for safety when things are quite attractive. So, I mean, almost every impulse you have is incorrect, which is why investing is so difficult.

David B. Armstrong (Host):

That’s interesting. So let me kind of tie two of those things together with a hypothetical scenario and then ask you how somebody facing this should be framing it. If an investor feels like they have a lot of conviction that the market is going to go down. Cause we hear this a lot, which is the market just had a 30% run, inflation’s high, I know the market’s going to go down. So that’s the conviction, right? They have serious conviction, but that’s not a great way to apply conviction. What do you tell somebody who is absolutely convinced that their gut is right and try to convince them to frame it differently and consider the fact that they don’t really know if they’re right or wrong?

Dr. Daniel Crosby (Guest):

So I think I would point them to the research. So the research on people who actively trade, so actively jump in and out of the market like you’re talking about. The most exhaustive study ever done on this was done in Taiwan and it found that one in every 360 active market participant added value through their moves. So think about that, one in 360. And so you have to ask yourself, am I the one, probably not, right? We have research from 19 different countries that show that the more actively someone gets in and out of the market, the worst they do with the most active participants underperforming the least active participants by 4.1% a year. And I mean, 4.1% a year doesn’t sound like a big deal. You compound 4% a year over a 30-year investing lifetime, you will half your money, you’ll cut your money in half or worse. And so the other thing that I would say is intuition. We learn to trust our intuition because sometimes it works and our intuition works in a very specific subset of times. For intuition to work, it needs to be a decision that you A, make repeatedly and B, get immediate feedback on.

So if I eat whatever, a bad piece of meat, it’s immediately gross, I immediately get sick. I’m like, okay, I’m never gonna do that again. The market doesn’t work that way. First of all, you only get, I mean how many truly catastrophic markets do you get in a lifetime? Two or three probably. So someone kind of like trying to time a big decline in the market, that doesn’t come around every day. You don’t have this experience every day and then the feedback’s not immediate. Jessica talked about Facebook stock today. If we were to buy Facebook stock today, when would we know if that was a good decision or not? I mean, I don’t know. Like 10 years from now? 15 years from now, 10 minutes from now, a year from now? Yeah, I mean is it a bad decision because it goes down another 10% in the next week? Like, maybe, maybe not. The timeframes are so subjective in the markets, the conditions aren’t met for your gut to work, you need repeated exposure to a decision with immediate clear feedback. Neither of those conditions are met and so your gut is just not a good guide to markets and the evidence backs that up.

David B. Armstrong (Host):

I’m just gonna say right now, every single person listening to this podcast needs to rewind three minutes and listen to that again cause it’s such a fantastic observation and it’s so true. The whole thing about the immediate feedback, we get this a lot, recently. Hey great, your portfolio did well and everything, but you know, I bought crypto and I made a 400% return, so maybe I’m better at this than you are. And your data on the one out of the 300 and some odd people that are right, I would bring it back to one of your four Cs, which is okay, great consistency. Are you gonna be the one person that gets it right again out of 300 or did you just get lucky? And if you got lucky, great, take your chips off the table and walk away. Fantastic. Congratulations.

Dr. Daniel Crosby (Guest):

I can’t remember which one of my books I write about this in, but I have this saying that you can be right and still be a moron. So Paul d Podesta, like a front office baseball guy gives the example of being out playing blackjack with his buddy, and his buddy’s kind of drunk, and his buddy is showing like, it was 18 or 19, we’ll call it 18, right? They’re playing blackjack, his buddy’s holding 18 and his buddy who’s tipsy wants to hit and D Podesta, who’s a big numbers guy is like, nah, nah, nah, nah. I’m not going to let you hit with showing 18. That’s statistically dumb. And his friend insists, his friend hits, and would you know it, his friend gets a three, the dealer turns a three. And the friend is like, I was right, I was right. I told you I was right, I knew it. And it’s like, no, you were still stupid. What you did was still stupid regardless of the outcome. If you jump in your car right now, don’t wear your safety belt, and drive 120 miles an hour to the grocery store and you don’t die, you’re still stupid. It was still a bad decision even if the outcome was averted.

And so the thing we have to do to be good investors is tilt probability in our favor. And what’s tricky about this is you have to learn to be the house and not the gambler. If you look at Vegas, some of these card games have infinitesimally small advantages, it’s like 51/49 or 52/48 in favor of the house. But that 2/3% delta is enough to keep a lot of lights on in Vegas and build a lot of big houses. And so by doing the things that we’re talking about today, you tilt the odds in your favor. It’s not a guarantee that on a short-term timeline, everything’s going to go your way every time. It’s not a guarantee that your dumb cousin who does something crazy, betting on a meme stock isn’t going to get rich doing that. But over time, when you tilt the odds in your favor by doing the things that we’re talking about today, good things happen and you sleep better at night.

Jessica Gibbs (Co-Host):

Yeah, I feel like listening to this conversation, the big takeaways I’m hearing are to keep it simple, don’t overcomplicate things. Get out of your own way. Stay focused on what your long-term goals are, not on what’s happening in the headlines. I mean I just love that, that simplicity. I think with investing, everyone’s got smart ideas, and everyone wants something new. What’s your greatest new idea? And that’s what I feel like I keep hearing from you is just like, don’t overcomplicate it, keep with what’s simple, keep with what works, focus on those core fundamentals that you mentioned and you’re gonna succeed.

David B. Armstrong (Host):

Yeah, there’s an elegance to simplicity but people just don’t have fun following it. So Daniel, Jessica, and I have spent so much time talking about all the great sections of your book, but it kind of prompts the question of what is one of your favorite sections of the book, of any of your books?

Dr. Daniel Crosby (Guest):

It’s a great question and it’s actually one I’ve never been asked before in all my podcasting and it actually comes from my time as a therapist. So my Ph.D. is actually in clinical psychology even though I’ve spent my entire career in financial services. But I still spent thousands of hours in one-to-one therapeutic conversations with clients as part of the fulfillment of my doctoral degree. And I saw something very consistent in people and I came to call it emotional graying, which was people trying to play it so safe that they became very unhappy and I think it has implications for money too. So I’ll read the quote from the book. It says, “Think about the most meaningful thing you’ve ever done. I would wager that it took a measure of risk, uncertainty, and hard work to achieve. In this, as with all risk comes, a valuable lesson to strive for certainty is to doom oneself to mediocrity. Nothing is less safe than playing it safe and nothing guarantees loss like trying to avoid it. Consider the person who remains unattached to avoid risking heartache and finds loneliness in the process or the would-be entrepreneur who never makes the leap of faith and wastes a career working at jobs they hate. Or the investor paralyzed by a fear of volatility that arrives at retirement with resources inadequate to meet their needs. Indeed the irony of obsessive loss aversion is that our worst fears become realized in our attempts to manage them”.

So this is something that I saw all the time as a therapist is that someone was scared of having their heart broken and becoming lonely so they wouldn’t date or they would make themselves unavailable. And of course, that unavailability brings about loneliness, which is the thing you were scared about in the first place. You see this in investors, people are scared that they won’t have enough money for retirement. So they jump in and out of the market trying to anticipate every next correction and then yep, sure enough, they arrive at retirement with inadequate resources. So I think in life as in markets we have to embrace uncertainty and learn to live with sort of a modicum of risk and doing so can enrich our lives in meaningful ways.

Jessica Gibbs (Co-Host):

I think that’s the perfect place to wrap up. Thank you so much Daniel for joining us. This has been a great conversation. Definitely encourage you all to check out his books after this and read more about his thoughts.

David B. Armstrong (Host):

We’ll put them in the show notes below with some links. We don’t do the affiliate links so we’ll just go straight to the website. But I would also like to say thank you Daniel cause I know how valuable your time is. I’d also like to thank Randy Lambert at Orion for setting this up for us. He’s been such a great friend of ours and we hold him and all of the Orion team in the highest regard, such a fantastic company. If you’re an advisor listening to this and you’re considering Orion, boy we have nothing but just the greatest things to say about them. And Daniel, you must be really happy working at such a great firm with such a collaborative team like that.

Dr. Daniel Crosby (Guest):

It’s a wonderful place. We got sprinkler Capital where I worked previously, got acquired by Orion, sort of mid-pandemic and it took me a long time to meet some of my colleagues, but even from a distance, they were wonderful people and it’s been a great place to be.

David B. Armstrong (Host):

Well, thanks again so much for making time. This is such a great topic and fits in nicely with our whole philosophy on everything and I’m sure this will be very popular. So again, on behalf of everybody here at Monument and the team that does all of the editing for Off the Wall, we really appreciate your time, and thanks again for coming on.

Dr. Daniel Crosby (Guest):

Thanks. Thanks, both of you.

Jessica Gibbs (Co-Host):

Hey everybody, real quick. We forgot to mention Daniel has an incredible podcast as well. It’s called Standard Deviations. You can find it on pretty much every major podcast platform. That is an incredible thing for everyone to check out in addition to his books. And then you can also follow him on social media, Dave (Inaudible 37:52) where you can find him.

David B. Armstrong (Host):

I do. So it’s Standard Deviations with an S, and then he’s got a YouTube channel, which is Dr. Daniel Crosby, Dr. Daniel Crosby. And Instagram is the same, Dr. Daniel Crosby. And then Twitter is simply @Daniel Crosby, but he’s pretty good on all of that. And of course, he’s on LinkedIn just under his full name. And that’s it. Go check him out because he’s great to follow and he posts on LinkedIn all the time and the other sites as well. So check that out.

About "Off The Wall"

OFF THE WALL is a podcast for business professionals and high-net-worth investors who want to build wealth with purpose. A little bit Wall Street, a little bit off-the-wall; it’s your go-to for straightforward, unfiltered wealth advice on topics that founders, business owners, and executives care about.

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