Ben Carlson is the Director of Institutional Asset Management with Ritholtz Wealth Management, co-host of the Animal Spirits podcast and, author of A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan and Organizational Alpha: How to Add Value in Institutional Asset Management.
Colin Andrews and Greg Kraminsky of The CM Group sat down with Ben to answer some of the questions we have received around current events and volatility in the world related to the U.S. election. For the full interview please listen to the most recent CM Group- Free Lunch Podcast, Episode 25 “A Fireside Chat With Ben Carlson”.
Colin and Greg: What are some of the bigger questions that you're faced with these days as they pertain to the election?
Ben: I think they range from short term to long term. In the short term, obviously, we're getting very close to the date. And when this becomes live, we're already there. And who knows how long it'll take to shake out after the fact. But people want to know, is it going to be increased volatility because of the election, no matter who wins one side or the other? Is it going to cause any panic in my portfolio or are people going to freak out? And then long term, whichever guy wins, are the policies going to impact my taxes or my portfolio or whatever the industry or something like that? And these are the same questions that come up every four years, of course, no matter who wins or loses. And the problem is for a lot of investors is that politics totally cloud our ideas of what it's going to happen in our portfolio. And we don't realize that every four years these things move on. And the president doesn't matter nearly as much as people think in terms of the markets.
Colin and Greg: If you were sitting with a million dollars cash today to invest, would you invest it today the same way you would a year from now or two years from now?
Ben: Listen, the way we think about this is when we talk to clients, we always tell them there's no way we can invest your money if we don't understand your willingness, need and ability to take risk. If we don't know your risk profile and your time horizon, it's impossible for us to invest your capital. And people do get scared around times like. That's where they say, you know what, I'm a new client, I'm sitting on some cash, I want to just slowly average it in overtime and see what happens, because you're hoping to catch maybe some volatility and catch some lower prices. And that's fine. There's nothing wrong with that because it can minimize regret for people and there's nothing wrong with dollar cost averaging. But we would prefer if people take an asset allocation or portfolio plan or a financial plan and get it invested and stick with it because it makes sense for them today, tomorrow, a few years from now.
Colin and Greg: What do you think of the behavioral biases that we are all subject to, especially as investors? What's the biggest mistake investors make from a behavioral standpoint?
Ben: Because I've worked in the institutional space for so long, I think the professional investors, their biggest problem is overconfidence, because everyone who becomes a professional investors is very highly educated and they may have some accreditations to their name. And they've been studying this and doing this for a long time. And they almost outsmart themselves into thinking that they know more than anyone else, even though the collective brain trust of the markets these days is probably never been smarter and there's never been more information available. And it's just really hard for a really intelligent people to admit they don't know. So I think overconfidence for that group is almost always the biggest blind spot and for the more retail oriented person who really doesn't pay attention to the stuff on a daily basis as much, I think it's just really not understanding who your competition is and what you're up against. And I think a lot of times people assume complex problems like the market require complex solutions. And I've always been just of the mind that simpler solutions can actually help more. And perfect is the enemy of good a lot of time. So I think a lot of times a decent investment strategy can stick with is far superior to one that is amazing, but you can't stick with. So I think that's part of the problem for a lot of people, is just trying to make things more complicated than they really should be.
For more questions and answers with Ben Carlson please refer to our Podcast.
Thank you,
-The CM Group