Ep. 1 - Introduction: Investor Behavior 101
In the inaugural episode of the Crazy Wealthy Podcast, host Jonathan Blau, CEO of Fusion Family Wealth, shares his personal story and how it shaped his approach to wealth management. He explores the cognitive and emotional biases that influence financial decision-making, such as loss aversion and regret aversion, and discusses how understanding these biases can help individuals make more rational financial decisions under uncertainty. Jonathan also previews future episodes and introduces the Fix It Fridays mini-series, which will tackle biases in short, actionable episodes.
IN THIS EPISODE:
- [00:57] Meet Your Host Jonathan Blau
- [03:04] The Purpose of Crazy Wealthy Podcast
- [04:42] Understanding Emotional Biases
- [08:36] Cognitive Biases in Financial Decisions
- [11:40] Information Overload and Decision Making
- [13:49] The Role of Temperament in Investment Decisions
- [14:23] Accessibility Bias in Investing
- [15:13] The Illusion of Certainty in Financial Advisory
- [16:48] The Media's Influence on Financial Decisions
- [19:53] Understanding Luck and Risk in Investments
- [21:48] Introducing Fix It Fridays
- [22:35] Podcast Availability and Conclusion
KEY TAKEAWAYS:
- Loss aversion leads people to prioritize avoiding losses over pursuing gains, often hindering long-term wealth-building strategies.
- Regret aversion can cause individuals to avoid making future financial decisions due to past investment failures, limiting growth opportunities.
- Emotional and cognitive biases systematically influence poor financial decisions, but they are predictable and can be corrected.
- The key to success in investing isn’t just knowledge, but temperament—knowing what to do and sticking to a long-term strategy despite short-term volatility.
RESOURCE LINKS
Website: https://www.fusionfamilywealth.com/
Linkedin: linkedin.com/in/jonathanblau1
ABOUT THE HOST:
Jonathan is the CEO of Fusion Family Wealth, a wealth management firm he founded in 2013. His practice centers on Behavioral finance, teaching clients how to make consistently rational money decisions under conditions of uncertainty.
As a sought-after speaker for podcasts and media, Jonathan offers a fresh perspective on wealth management, shaped by insights from behavioral finance. His ability to clarify and illuminate complex financial decision-making processes makes him a distinguished voice in the field.
Jonathan honed his planning and technical skills during his tenure as a senior tax and estate planning specialist in the Tax and Family Wealth Planning division of Arthur Andersen from 1992 to 1996.
He holds a BS in Finance from SUNY Buffalo and two advanced degrees from Fordham University: an MS in Taxation and an MBA in Accounting.
Jonathan lives on Long Island with his wife, Amy, and their two daughters. He is an avid supporter of the Long Island business community and contributes to causes such as the Middle Market Alliance of Long Island and Sunrise Day Camp. He is an avid boater.
Please Note: No individual has been provided nor promised any direct or indirect economic benefit for sharing Fusion podcasts/articles/opinions. No post should be construed as any assurance that a reader will find the podcast/article/opinion beneficial.
Please click below for important disclosure information.
Transcript
[00:00:12] Disclaimer: A copy of Fusion's current written disclosure brochure discussing our advisory [00:00:15] services and fees is available upon request or at www. fusionfamilywealth. com.[00:00:20]
[:[00:00:57] Jonathan Blau: Hello everybody, this is Jonathan Blau, and [00:01:00] I'm proud to be bringing to you the inaugural episode of our podcast [00:01:05] called Crazy Wealthy. I'm going to talk to you today about a little bit about [00:01:10] who I am, my background, and what led to the, uh, the. Uh, [00:01:15] idea of, uh, coming, uh, out with this podcast and what the purpose of it is and what we hope [00:01:20] to, uh, allow our audience to gain, uh, by becoming consistent, hopefully [00:01:25] consistent listeners.
[:[00:02:00] Jonathan Blau: Uh, and either, uh, sink or swim. And fortunately, uh, I was [00:02:05] able to, I was able to swim. Uh, but the reason I start with that story is, is [00:02:10] I, I today find myself in a position as the CEO of Fusion Family Wealth, where [00:02:15] we've, uh, we've been able to help many families learn to, uh, to do business. To, to protect and [00:02:20] grow their wealth over the years and, uh, and, and by doing that, we've actually been able [00:02:25] to, uh, to build wealth for our own family.
[:[00:02:48] Jonathan Blau: And on the other side, where [00:02:50] I'm able to give my family and help my clients make sure that they can [00:02:55] access that tool successfully and consistently, um, that'll help [00:03:00] me to, uh, to come to you from both perspectives with a podcast. And what [00:03:05] we'll try to do is we'll try to illuminate and demystify the complexities [00:03:10] involved with financial decision making.
[:[00:03:41] Jonathan Blau: And so. The good news about that is they are [00:03:45] systematic errors, meaning they're identifiable and they're predictable. Um, [00:03:50] behaviors tend to be repeated. So one, once we learn what [00:03:55] those behaviors are and how they're influencing us to, to make decisions that are against our [00:04:00] best interest, we can correct them.
[:[00:04:30] Jonathan Blau: What they've, what they've done, uh, as it relates to, uh, making [00:04:35] some errors in judgment about money or advising their clients who've made those errors. So it'd be [00:04:40] nice to hear some real life experiences. Uh, generally, when we talk about biases, there are two [00:04:45] types categorically, there's emotional biases. Uh, two of the most prominent [00:04:50] ones are what are called loss aversion bias and regret aversion bias.
[:[00:05:42] Jonathan Blau: And we're particularly, um. [00:05:45] Uh, sensitive to short term moves. So we have what's called myopic loss [00:05:50] aversion. We're nearsighted when it comes to losses. We look to avoid [00:05:55] losses in the short term. And so what we need to do to succeed, [00:06:00] particularly when it comes to investing, is to seek out strategies that [00:06:05] look to maximize our long term wealth.
[:[00:06:29] Jonathan Blau: So for example, [00:06:30] we might look to have too much of our money in cash, money markets, bonds and gold [00:06:35] in the short run so that we minimize our chance for long term, uh, [00:06:40] for short term loss. But those, those investments, bonds and gold and so forth, also [00:06:45] minimize our chance for long term wealth building. So we'll talk about how to, how to address loss [00:06:50] aversion bias, uh, identify it and overcome it.
[:[00:07:17] Jonathan Blau: So it's, it's one of the most painful, [00:07:20] um. One of the most painful emotional biases that we have and the problem that it [00:07:25] creates is that if we make an investment or financial decision [00:07:30] where the outcome didn't reflect what we wanted, it became so painful to us that [00:07:35] in order to avoid that feeling of regret in the future, we shy away [00:07:40] from engaging in any activity.
[:[00:08:05] Jonathan Blau: And so that's what caused us to lose. And that regret. We're so [00:08:10] powerful that we said I'm never investing in stocks again because stocks don't work. [00:08:15] I'm just going to, what's, revert to what's called status quo bias. If I just leave the [00:08:20] money in cash, leave it the way it is, status quo, I will never have to face the [00:08:25] regret of, of, of a technology bubble bursting or anything like that again.
[:[00:08:50] Jonathan Blau: If we see a coin flip, uh, for example, and it's flip, uh, [00:08:55] Eight times when we see five heads and then three, uh, [00:09:00] three tails, we're likely to think that maybe the next two will be [00:09:05] tails. Um, particularly if it's going to be a 10, a 10 flip, uh, series [00:09:10] and, and in reality, that's because that represents what we think coin [00:09:15] flip should look like 50, 50 outcome, but there's something called the law of large numbers.[00:09:20]
[:[00:09:51] Jonathan Blau: So, so that's one example in a coin flip. And it's the [00:09:55] same thing, by the way, when we, we have representative power. Bias, it's why people who are investing might [00:10:00] chase performance of a hot mutual fund or funding manager. Uh, they think [00:10:05] because it's had three or four good years in a row, the relative to other funds, [00:10:10] that it means that it's likely to have another three or four good years in a row.
[:[00:10:43] Jonathan Blau: And so, so [00:10:45] representative bias in that way can actually hurt investor choices, uh, based on [00:10:50] based on our reflexive or, uh, or, or a system one mind, [00:10:55] which basically just looks for shortcuts in decision making. And those shortcuts often lead [00:11:00] to, uh, faulty reasoning. Uh, and. Representative biases is one example.[00:11:05]
[:[00:11:29] Jonathan Blau: Uh, or [00:11:30] anything that we're engaged in, and it actually leads to increased risk. [00:11:35] So again, familiarity bias and representative bias, two examples of [00:11:40] faulty reasoning. Uh, then one of the things that's, that's another issue [00:11:45] when it comes to decision making, particularly when it comes to money, is we, we [00:11:50] tend to be overwhelmed with a tremendous amount of information.
[:[00:12:29] Jonathan Blau: I don't need to have [00:12:30] any help. Uh, I have all this data. I can do it myself. One of the things that's [00:12:35] important that we hope to get across to everybody who listens to the podcast when it comes to [00:12:40] behavior and investing, investing success and success with money [00:12:45] decisions is one part intellect, what we know, and 99 parts temperament, what we [00:12:50] do.
[:[00:13:10] Jonathan Blau: That's not a dot com investment to chase the dot com bubble in [00:13:15] 1999. And they're equally likely to sell out some or all of their portfolio in [00:13:20] the face of the 2008 to nine credit crisis, uh, in fear that their, [00:13:25] their, their stock portfolio is about to implode, uh, because of what was going on [00:13:30] with the economy and, um, and so, uh, human nature [00:13:35] is immutable.
[:[00:14:01] Jonathan Blau: One of the examples I like to give is if, if we fly on an airplane. [00:14:05] We typically don't go to the pilot and interview them. We don't want [00:14:10] to, uh, ask and read about how the controls in the cockpit work in cases of [00:14:15] emergency so that we can take over and, and, uh, get in touch with the, with the pilot. [00:14:20] With the air traffic controller and start taking control.
[:[00:14:46] Jonathan Blau: We think because that information is accessible, that [00:14:50] somehow having that information will enable us to become successful investors. It [00:14:55] won't. Any more than having the information about the, uh, about the controls in the cockpit [00:15:00] would enable us to successfully land an airplane. Uh, so, so it's important to [00:15:05] understand that just because the information is available, uh, information [00:15:10] data is not knowledge and knowledge is not wisdom.
[:[00:15:34] Jonathan Blau: [00:15:35] And the industry, unfortunately, generally, tends to address that need for [00:15:40] certainty by handling what I call the illusion. back to the client. What I [00:15:45] mean by that is they, they will tell the investor how many analysts, [00:15:50] security analysts that they employ, who will tell them which industries and companies are [00:15:55] about to perform better than the other industries and companies.
[:[00:16:22] Jonathan Blau: So what we do to help [00:16:25] investors and we hope to help the podcast listeners. Gaining an understanding of is, [00:16:30] is that you need to learn to make consistently rational decisions, given [00:16:35] a constant state of uncertainty, rather than being handed the illusion [00:16:40] of certainty, uh, because that's only a band aid and ultimately, uh, the money decisions [00:16:45] will be negative, uh, when one has the illusion of certainty.
[:[00:17:15] Jonathan Blau: And what that implies is that, At various times, there can be more or less [00:17:20] certainty and, and that's just a concept that doesn't make any sense. So as an example, [00:17:25] uh, there are studies that have looked at how many times the word certainty and financial [00:17:30] certainty appear in the newspaper. And based on those kinds of studies, it's been, uh, it's [00:17:35] been said that the, uh, period of time, uh, in the last 20 years or so, [00:17:40] that we had maximum, uh, Uh, certainty or minimum uncertainty was the [00:17:45] period right before the September 11th terrorist attacks like on September 10th [00:17:50] and and the period right before Bear Stearns Lehman Brothers went out of business [00:17:55] during the financial crisis.
[:[00:18:18] Jonathan Blau: Uh, and so it's very [00:18:20] important to understand that, um, that when you're watching the media and the news, [00:18:25] their job is to, uh, not advise us on how to make better financial [00:18:30] decisions. But to sell advertising and to get you to click on their [00:18:35] stories, uh, it's always going to be sensationalized. So falling for the narratives [00:18:40] of, of things like more or less, uh, uh, certainty, uh, can cause us to [00:18:45] abandon our plan for the wrong reasons at the wrong time.
[:[00:19:14] Jonathan Blau: cognitively subject to [00:19:15] make, uh, decisions using rules of thumb instead of, uh, lengthy reasoning. [00:19:20] When, when they get their hand involved or we get our hand involved, usually the outcomes are, [00:19:25] are, are going to be far worse, not better. So, so that's something that, that people [00:19:30] have to kind of, um, Uh, face, it's hard to [00:19:35] accept that and particularly hard to accept if we, if we've achieved success in other areas of [00:19:40] our lives, if we've achieved success academically, if we've achieved success, [00:19:45] uh, in our careers, it's hard for us to accept that.
[:[00:20:18] Jonathan Blau: And, and [00:20:20] luck, uh, is, is almost always present in the outcomes of decisions. [00:20:25] Uh, so, so it's important for us to understand that, uh, and by the way, [00:20:30] luck and risk are basically the same thing. Luck is just when an outside [00:20:35] factor influences the outcome and the outcome happens to be good. And risk is when an [00:20:40] outsized factor influences the outcome that happens to have been bad.
[:[00:21:22] Jonathan Blau: So we'll talk about, we'll talk about the role of [00:21:25] luck, and one of the things I like to say is, is our experience in the world accounts for [00:21:30] about 0001 percent of everything that's ever happened, yet [00:21:35] it accounts for 80 percent of how we think the world works. So those all relate to, [00:21:40] uh, to our, our need for, for control and, and the illusion of certainty.
[:[00:22:03] Jonathan Blau: Uh, that we have either [00:22:05] cognitive or emotional or, or something that's going on current event wise that [00:22:10] investors should be aware of how it can influence, uh, them to be making decisions [00:22:15] that might be against their interest. Uh, so not only how to identify, but how to overcome it. And [00:22:20] those are usually be maybe 3 to 5 minutes of just me coming out and sharing, sharing our [00:22:25] thoughts about those with you.
[:[00:22:46] Jonathan Blau: And you'll also be able to find it on all the major outlets where [00:22:50] podcasts are available, uh, from Spotify to Apple, uh, et cetera. So, [00:22:55] uh, you can also, um, find us at. Crazy wealthy [00:23:00] podcast.com. So thanks, thanks for listening. We really look forward to, uh, to [00:23:05] engaging with you on a monthly basis and, uh, hearing the feedback.[00:23:10]
[:[00:23:23] Amy Blau: So tell me what you think you're going to be [00:23:25] doing in this whole podcast.
[:[00:23:35] Jonathan Blau: And you know how we do that. We talk about all of the innate human [00:23:40] nature based behaviors that cause us to go, uh, to go off, off, uh, [00:23:45] in, in directions that are against our, our financial interests.
[:[00:24:04] Jonathan Blau: Well, so am [00:24:05] I, to be honest with you, because hopefully I won't hear the real time criticism then. [00:24:10]
[:[00:24:21] Jonathan Blau: Okay. And do me a favor, just start putting into practice some of the things I teach [00:24:25] the world.
[:[00:24:34] Voice Over: [00:24:35] deal. Thank you for tuning in to another episode of the [00:24:40] crazy wealthy podcast for more insights, resources. And to sign up for our [00:24:45] newsletter, visit crazy wealthy podcast. com until then stay [00:24:50] crazy wealthy.[00:24:55]
[:[00:25:16] Disclaimer: Neither Fusion's investment advisor registration status nor any amount of prior experience or success should be [00:25:20] construed that a certain level of results or satisfaction will be achieved. If Fusion is engaged or continues to be engaged to provide investment advisory services, [00:25:25] Fusion is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice.
[:[00:25:42] Disclaimer: fusionfamilywealth. com.
