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Outside-INblog

Outside voices and views for advisers

The loneliness of the long-distance investor: Those uphill runs are murder

The parallels to investing are painfully easy to recognize but difficult to implement.

Feb 18, 2014 @ 10:36 am

By Daniel Crosby

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On Sunday I completed my first major goal of 2014 when I completed a half-marathon. I have jogged a bit for years, but in a moment of New Year's-induced insanity, I committed to run 13.1 miles in front of friends and family, ensuring I'd never live it down if I failed to finish.

The race itself was very difficult for me and I found myself looking for mental detours to distract myself from the blistering and chafing that accompany long distance running. In this state of mind, I turned to a consideration of the ways in which road racing is like investing, a portion of which you'll see below:

PURPOSE MATTERS

The marathon that I participated in came about after a father of an infant with Down syndrome and a heart defect promised his son that he'd run a marathon for him if he'd just pull through those tenuous first days in the hospital.

Accordingly the proceeds from the race are donated to a local charity involved in early intervention programs for children with special needs. As a result of the charitable aims of the race, many people were there running for a purpose. Some had pinned pictures of their loved ones to their shirts, others wore headbands that spoke to their cause and I even saw one couple running for the memory of their deceased dogs.

In investing as in running, framing the endeavor in terms that are personally meaningful to you can have an enormous impact. George Loewenstein says of this concept, “The process of mentally bucketing money in multiple accounts is often combined with earmarking the accounts for specific goals. While it seems like an inconsequential process, earmarking can have a dramatic effect on retirement saving. Cheema and Soman (2009) found that earmarking savings in an envelope labeled with a picture of a couple's children nearly doubled the savings rate of very low income parents.”

Saving for what is essentially 25 years of unemployment can be awfully hard if you don't know why you're doing it in the first place.

DON'T RUN WITH THE HERD

Much like many rookie runners, I began the race overconfident and did not adequately pace myself for the rigors facing me later in the course. I took glee in passing people and hanging tough with those who were clearly more physically fit. But not having accounted for my own strengths and limitations, my strength began to flag when I encountered a series of uphill climbs for which I had not prepared. Soon, I was passed by those I'd bested a few miles back and my elation at having outrun them earlier soon turned to despair at having fallen behind.

The parallels to investing here are painfully easy to recognize but difficult to implement. The race was comprised of marathoners, half-marathoners and even relay teams of runners who would only be running six miles apiece. Add to that the various levels of fitness, experience and training and the pack becomes diverse indeed. Being built more like a nose tackle than a West African sprinter, my goal was simply to finish and not die, a goal I soon lost track of in the collective fervor of the crowd. There is simply no such thing as a one-size-fits-all approach to investing and those who watch benchmark performance at the expense of their personal benchmark risk burning out just as I did.

FIND SUPPORT

As a psychologist, I should no longer be surprised at this, but the most incredible part of the whole process to me was the way in which I was buoyed up by the support of those lining the streets. Priests and altar boys stood in full regalia handing out orange slices. An adolescent boy grinned impishly as he held a sign that said, “One percent of marathoners poop their pants, smile if you're the one.” And the little girl, about my own daughter's age, with a crudely drawn print of her own hand that said, “Touch here for power!” As I approached the girl's sign, my pain-wracked face lit up with a smile as I made my way over for a quick shot of power. As I touched the handprint, I felt something palpable well up within me that gave me strength, real strength to push forward.

A recent Aon Hewitt study found that investors who worked with advisers during the Great Recession outperformed those who did not by 2.92% net of fees. This is not necessarily because financial advisers are especially adept at stock picking or financial forecasting. Instead, the best advisers realize that the greatest gift they can give their clients is the gift of behavioral management. If your adviser has saved you from five bad decisions over the course of a 20 -year engagement, she has done her job and then some. A skilled adviser is like those people along the course that saved me. Ready with good advice when you need some, but just as generous with an encouraging word and a pick-me-up when you are at your weakest.

Notwithstanding the fact that I still can barely walk two days later, I know that I'll be back to run another race soon. Much like investing, running gets in the blood. But in both endeavors, finding support, running your own race and doing it all for reasons that matter deeply to you are the key to long-term success and enjoyment.

Dr. Daniel Crosby is a behavioral finance expert who works with organizations to develop products and messaging to maximize positive investment outcomes. Among his current collaborations is "Personal Benchmark", a system of embedded behavioral finance delivered by Brinker Capital.

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