Key points

  • The trouble with cool heads is that they make plans for other cool heads, when in fact they should be making plans for an entirely different beast.
  • Selecting good investments is important, but achieving good investment outcomes is more so.
  • Personal feelings may feel too nebulous for the numbers-driven world of investing. Yet investing is a human activity, and humans buy stories, not numbers.

 

Personalities don’t have an “off” switch. Different facets of our psychologies may turn their volume up or down depending on the environment, but they never tune out completely, even when we wish – and act as if – it could be so.

Many a cool head has wholeheartedly believed in the power of a perfect plan. A plan that need only be put in place to all-but-guarantee safe passage to journey’s end. This is why the course of every career, every fitness regime, and every true love has always run so smoothly, with not a hiccup or flutter of frustration along the way, let alone a complete derailing. It’s why everyone who’s ever joined a gym has a glistening six-pack and can press a hippo over their head, and we’re all comfortably retired in our 40s. If only.

The trouble with cool heads is that they make plans for other cool heads, when in fact they should be making plans for an entirely different beast. One who’s blinded by emotional reactions, and temporarily less capable of dealing with the demands of a stressful world.

Selecting good investments is important, but achieving good investment outcomes is more so. Our financial circumstances can clash with our financial personalities in such a way that the person who set the course is not the one who will have to stick with the journey. A future expected return looks a lot less tempting viewed through the lens of a current discomfort.

Good investment outcomes require more than just good investments. They require an ongoing series of good investment decisions. Good decisions are made from a place of comfort and confidence. You can’t fire a cannon from a canoe.

Investing can be emotionally uncomfortable, particularly during times of market stress. The recipe for comfort and confidence is different for each investor. The only universal is that ignoring these differences can be costly. If we’re out of the markets, we could be reluctant to get in, and sit on cash at an unseen, but very real cost of foregone returns. If we’re in, we could be too keen to get out, or to tinker, scratching itches with trigger-happy trades that can be cured only with time, and which inevitably lead us to buy high, and sell low.

Just as we each react in different ways to different diets, based on our genetics, our lifestyles, and our health goals, so too with investing. We find comfort in different things, in different situations. That could be preferences for a certain type of investment, content or style of communication, or what guidance we get along the way. Beyond avoiding financial sugars, healthy investment prescriptions should be highly personal.

Personal feelings may feel too nebulous for the numbers-driven world of investing. Yet investing is a human activity, and humans buy stories, not numbers. The right story gives us the comfort we need to stick with a plan, to engage with guidance, and to keep our eyes on our long-term objectives, despite the shouts of our short-term stresses.

Oxford Risk has a long history of using academic insights and extensive empirical validation to assess financial personality and preferences on multiple scales. Working with Standard Chartered, this paper shows how these insights can enable hyper-personalised solutions at scale, helping investors to be as comfortable as possible, as effectively as possible.

Our need for comfort, like our personality, cannot be turned off. It has to be catered for. Preventative prescriptions beat costly cures.