Look before you leap. A cliché, but...

Two disparate pieces of recent news highlight the risks of knee-jerk reactions
SEP 13, 2015
Two disparate pieces of recent news highlighted the risks of knee-jerk reactions. A year ago, when celebrity bond manager Bill Gross left the firm he co-founded in the 1970s, Pacific Investment Management Co., investors fled his flagship Pimco Total Return Fund. To be sure, the fund had been suffering withdrawals for many months before Mr. Gross departed, but the pace of those withdrawals increased markedly. Over the 27 months ended in July, nearly $200 billion has exited the fund. But as InvestmentNews reporter Trevor Hunnicutt figured out, those investors are paying a price because as they were taking their money elsewhere, Pimco Total Return was putting up solid performance numbers. The fund has topped many, if not most, of the competitors that attracted much of the money that left Pimco. In a completely different part of the financial world, Fidelity's eMoney Advisor platform announced recently that founder and chief executive Edmond Walters was stepping down. Advisers began to worry about the platform when Fidelity bought it last February, and the latest news tipped the scales for many to take their business elsewhere. Both of these stories smack of shooting first and asking questions later. In other words, letting emotions rule the day. In reality, it's probably not that simple. Many advisers who decided to take their money out of Pimco Total Return or leave eMoney Advisor no doubt thought about it and perhaps put some analysis into their decision-making process. Still, the speed at which some acted in both cases raises two important issues that advisers ought to keep in mind: Avoid making snap decisions and, perhaps more importantly, avoid getting tied up — either financially or emotionally — with one big personality. Behavioral scientists would agree: Let the dust settle, let the emotions subside, and the result will be a better decision that is less likely to end up being the wrong one.

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