This post is part 5 of our 10 part series on Financial Behavioral Insights from our Financial Performance in the New Behavioral Economy White Paper. The financial behavior insights will help you gain greater self-awareness for recognizing some of your own behavioral tendencies and also those of investors.
Behavioral Insight 5: The Fast-Paced Realist
Max is a 62-year-old senior corporate executive who is used to making difficult decisions. Some colleagues call him Merciless Max for his ruthlessness about numbers. His view is that forecasts have to be met every quarter and a bottom line number delivered. Predictably, Max believes that the same approach should be adopted with his investments. He looks at the portfolio quarterly and makes the tough decisions that are needed to keep the portfolio in line. He calls this re-balancing. At times, however, his rational focus may mean a short-term swing is mistaken for a long pattern, and therefore too much pruning goes on.
A naturally logical and challenging person will be a Fast Paced Realist who is able to make very rational decisions without getting stuck but may be too impatient for returns.
Communication key: Provide the bottom line results and keep the discussion quick.
Max is your classic Fast-Paced Realist who generally knows when to sell winners and cut his losses. Fast Paced Realists do not have an aversion to taking losses. They are rational enough to see that at times selling losers instead of winners needs to happen even if it is embarrassing or causes short-term pain. They will act decisively and move on without getting too emotional when making hard decisions. Further, unless they have been misled by an advisor, Fast-Paced Realists will generally take responsibility for their decisions and not act like they have been burned because it has all gone wrong.
The struggle for the Fast Paced Realist is that their more aggressive results focused nature can lead them to heavily trading the investment account. Also, their natural lack patience may cause them to sell investments too fast because of a market blip. Therefore, the risk is they may sacrifice what is a good long-term investment for short-term results.
An advisor who is a Fast-Paced Realist has the logical strength of being able to help their client make rational decisions. Although, the struggle will be that whilst providing the rationality they may not recognize the clients feelings about the situation and the decisions to be made. Further, advisors who are Fast?Paced Realists would also be more likely by nature to over trade or churn their clients investments.
Fast-Paced Realists need an advisor to help them with re-balancing their portfolio on a regular basis to maintain diversification, and in doing so show them the long-term investment fundamentals before short-term decisions get made. Ask the client: How do you approach making difficult investment decisions? What type of performance are you expecting on your investments?
What are your thoughts? For additional information on discovery through behavioral profiles, click here.