Spring 2024

We can be blind to the obvious, and we are also blind to our blindness. 

~ Danny Kahneman

Dear Joanna,

Spring hello from NYC! The city is full of artistic frisson, with an abundance of world-class acts to choose from. As I reflect on the performances I've seen so far, I realize that what draws me to performing arts and my work as a wealth advisor is the same thing—the complexities of human behavior, with its idiosyncrasies and predictably unpredictable nature.

Two standout Broadway shows, "Mother Play" with Jessica Lange and "Hadestown" featuring Ani DiFranco, perfectly exemplify this fascination with the intricacies of the human experience. It's the same intrigue with the depths of human psychology that drives me in my work as a wealth advisor and draws me to research on behavioral finance and decision-making. The recent passing of Daniel Kahneman, an iconoclastic psychologist and Nobel prize winner, prompted me to reflect on the profound impact his work has had on my life and yours, whether you realize it or not.

You may not recognize his name, but Daniel Kahneman uncovered why we humans often make irrational, flawed decisions in our lives and proved that we are quite irrational beings. We are this way simply because we are human and wired to do so.

Here's a quick rundown of Kahneman's groundbreaking ideas:

• We all have two systems of thinking: the fast, intuitive System 1 and the slower, more logical System 2. In everyday life, we often rely on System 1 for quick decisions, but this can lead to irrational choices if we're not careful. Next time you're about to make an impulse purchase, try engaging System 2 by pausing and asking yourself if you really need it.
• Loss aversion is a common bias where we feel the pain of a loss more intensely than the joy of an equal gain. This can lead to holding onto losing investments or avoiding risks altogether. When making financial decisions, try to objectively assess the potential gains and losses without letting emotions cloud your judgment.
• Anchoring is when we rely too heavily on the first piece of information we receive (the "anchor") when making decisions. For example, if you see a shirt priced at $100 but it's on sale for $70, you might think it's a great deal because you're anchored to the original price. Be aware of anchoring in your daily life and try to gather more information before making choices.
• Overconfidence can lead us to overestimate our abilities and underestimate risks. This can result in poor decision-making, like investing too much in a single stock or not saving enough for emergencies. Combat overconfidence by seeking out diverse opinions, considering worst-case scenarios, and being open to feedback.

By understanding these common biases and heuristics, we can start to recognize them in our own decision-making and take steps to counteract them. Remember, even the smartest among us are prone to these irrational tendencies – the key is being aware of them and actively working to make more rational choices in our everyday lives. As a wealth advisor, my role is to serve as an objective voice, asking tough questions and helping clients navigate these psychological pitfalls in order to make the most optimal decisions for their unique financial situations and life goals.

Dream. Plan. Prosper.

WHAT MAKES PEOPLE HAPPY

While David Kahneman is gone, the nuanced insights he advocated for—understanding context, being self-aware about our inherent biases, and maintaining a healthy humility around the limits of human decision-making—have never been more important.

Here is the man himself on the subject of What Makes People Happy. 

PUTTING YOUR PORTFOLIO IN PERSPECTIVE

Now that we’ve made it through the tax season, I want to share some insights on the current economic climate. It’s interesting to note the contrasting situations unfolding in different parts of the world. Economic momentum in the US continues, while the eurozone, U.K., Canada, and Japan are all close to or currently in recession. How has the U.S. managed to escape the same recessionary fate? For one, through fixed-rate mortgages and excess savings built up during the pandemic, American households have been more insulated from higher rates. Also, public investment in clean energy and infrastructure has spurred economic activity. Below, I share the main areas of the economy to watch, potential risks and top sources of stability.