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Chapter 1: What is the main topic discussed in this episode?
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Please read the PDS, or Product Disclosure Statement, which should be available on the issuer's website. Lastly, please keep in mind that past performance is not indicative of future performance. Dr. Daniel Crosby, thank you for taking some time to join Kate and I on the show. We really appreciate it. Yeah, my pleasure. Great to be here.
Maybe just to start off with, I think a really interesting way to begin is understanding more about your road to psychology, behavioral economics, behavioral finance, and kind of everything that kind of paved the way for you to become who you are today.
I was listening to a podcast that you did recently where you were interviewed on your own podcast series, in which you described the kind of the journey to making a decision between being a financial advisor and a psychologist. And there was a story about going to, I think it was the local library.
So maybe if you can just introduce yourself, what you do today and how you came to be, how you came to make that decision, I guess, in the early days.
Yeah, so I'm Dr. Daniel Crosby. I am the Chief Behavioral Officer at Orion Advisor Technology. So we're a large FinTech firm here based in the Midwestern U.S. I'm based in Atlanta, Georgia, in the Southeastern U.S., But I'm the son of a financial advisor. So my dad is to this day a financial advisor. He actually got his job on the day that I was born. So he's been at this business for some time.
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Chapter 2: What is the impact of emotions on financial decisions?
You need to know how fees work and how they erode performance. You need to know how diversification works. You need to know how debt works. You need to speak the language of basic finance and basic investing properly. you need some level of education.
Now, what's interesting about education is you don't need to be educated up to the point where you can necessarily do this yourself, but you need to be educated enough that you know what to look for in a partner. You know, one of the most powerful forms of education is called meta knowledge, which is basically knowing what you don't know. So like, I don't know anything about how to fix my car.
But I know that I don't know. Right. So I know I know that if something happens to my car, I'll just take it. I'll take it to an expert. I don't have any I don't suffer from any delusions of knowing how to fix my car. So I know when to go get help. So education is the first E. The second E is environment. So the environment is so critical.
When you really become a student of behavior, you start to understand, sometimes disconcertingly, that we don't have as much free will as we thought. And usually most of us are as good or as bad as the situation we find ourselves in. So what does environment look like for an investor? Well, first of all, it looks like your portfolio.
It looks like having a portfolio that is diversified enough and measured enough that you can live with its ups and downs. If you're in a highly volatile portfolio, that's the wrong kind of environment for most people to be making sensible investment decisions. And then the second piece of environment is making sure you're surrounding yourself with the right voices.
Through the popular media, through the news, through the financial news, there's often a steady drumbeat of negativity. And so if that's the environment in which we're immersed, if we're immersed in this steady drumbeat of negativity, that's going to start to erode our thinking, that's going to start to erode our willpower, and then we'll sort of make the wrong decision at the wrong time.
The third E is encouragement or sort of coaching. That's really where an advisor adds value, right? Because even if you're educated, even if you're in the right environment, all the research shows that things like education are actually quite a weak predictor of behavior, right?
You know, when you look back on some of the studies, it's called the knowing-doing gap, like the gap between what we know we're supposed to do and what we actually do. You see that at least in the U.S., doctors and nurses smoke cigarettes at a rate significantly higher than the general population, right? So these people who all day, it's their job to tell you not to smoke,
go home and then smoke at a rate much higher than the average person. They know you're not supposed to smoke. They know it's not good for you. And yet they do it anyway because of this knowing-doing gap. So that encouragement is where a good advisor comes in and sort of is that last roadblock between you and a poor decision at the moment when you're feeling scared or
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Chapter 3: How does Daniel Crosby's background influence his views on investing?
And so it was a commercial break and they're like, okay, you're going to be on in five, four, three. And the producer says to me, you know, like effectively don't be a nerd, give us something good to work with here. Right. And in that moment, I was so shocked because I'm just like, they don't want, you know, they don't want my experience. They don't want my education.
They don't want sort of the moderate, moderate, well-crafted message I came here to deliver. They want sensationalism. They want a headline. You have to understand how these news sources make their money. And once you do, you understand that the quote you shared is right on point. So examine the tone, question the melodrama. Daniel, can I jump in? Yeah, jump in.
Can I ask, what did you say? What did you do when that happened to you?
Oh, nothing. I mean, I had two seconds before I was on. So you just smile and try and give your message as best you can. But I mean, you know, my mouth was agape. And look, to be fair, I had like a glint plaid suit on. I had some tortoiseshell glasses. I did look probably like a nerd. I gave... I gave her every reason to suspect I would be academic and boring, but it just shows you, right?
It shows you that the way you get compensated matters. And when you get compensated for clicks and eyeballs, The measured uncertain message of a doctor or an economist is not as sexy as whatever doomsday scenario is being predicted. So understand how they make money, question the tone, and then just make sure they have the right pedigree to be opining on this in the first place.
Because it's not always the case.
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Chapter 4: What are the main psychological tendencies that affect investors?
I turned on the financial news the other day and they had Gene Simmons from the band Kiss talking about cryptocurrency. And it's like, what business does some rock star have to tell me about the blockchain, right? Like, turn it off, turn it off.
Yeah, I guess anyone can become an expert nowadays with Twitter and all the other platforms. It seems like anyone can just say whatever they want.
And one of the other things, once consumers have educated themselves, they've got themselves in the right environment and they've got people to encourage them along the way, once they've got all that information, sometimes we can get to that stage where we have so many choices and options available to us just because we've kind of learned about shares and ETFs and managed funds and
in Australia, superannuation, and then we just can't make a decision on what to do just because we've educated ourselves to the level where we know we have lots of choices, but we don't quite know which one to choose. How can we sort of combat that and not be hamstrung by decision-making paralysis?
Yeah, so for those who want to get as nerdy as I was on my show, you can go check out a book called The Paradox of Choice that is all about this, how more choices actually are worse for us, and they sort of immobilize us and lead us to make worse decisions. So The Paradox of Choice is a great book to check out if you're super interested in this.
If you want the highlight reel, I would give you the following tips. First, realize that inaction is a form of decision. I think oftentimes we think, well, I don't want to decide, so I just won't decide. And we feel that sort of inaction or saying stagnant or accepting the status quo is a form of indecision. It's actually a decision unto itself.
So I think first we have to accept that there's no such thing as not making a decision. The second thing that I think we can do is minimize the unimportant decisions in our lives. Research suggests that we make 35,000 decisions per day. So that puts it at something like 13 million decisions per year. There's no way that you can make 13 million decisions a year and have them all be
you know, tippy top there. So what you do, if you look at really successful people, president Obama did this, Mark Zuckerberg does this. They sort of streamlined the, the non-essential things in their life. Like whether it's the clothing that they wear, president Obama had seven almonds every night before he went to bed for his bedtime snack, not six, not 10, like seven almonds.
He just, you know, he just had this routine and, where they had sort of streamlined the unimportant decisions in their life. The other thing we need to do is to step away from the noise of our regular tasks. How often have you had a breakthrough in the shower? or right as you were lying down to go to sleep.
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