Logic wins over "feelings" when it comes to money
An advisor I know got this question from a client: “How do we protect ourselves from the coming civil war?” Because of infighting in congress, massive unemployment, cities crumbling both physically and fiscally, this client was sure that civil war was imminent.
While I have not, to my recollection, gotten that question from a client, I have seen worry in many of their eyes…and actions. From wanting to get out of stocks due to the coming collapse of the U.S. dollar, to selling out of bonds in anticipation of China’s pending fire sale making them worthless, to the age-old favorite: burying a bag of gold coins in the backyard for when society falls apart (feel free to use my backyard if you decide to do this).
Though I don’t share in their predictions or advise their solutions, that doesn't automatically mean that they are wrong; and it definitely doesn't change the fact that they think they are right. After all, various political and financial commentators back their ideas on radio, television and Internet.
This lends itself to some potentially irrational thinking. Humans tend to not only listen to people who agree with them, but also believe those people are intelligent. At the same time, people tune out those they don’t agree with and label them as fools or conspirators. While that is natural (I have caught myself doing the same sort of thing), it makes it difficult for someone to judge the merits of the various arguments on all sides of an issue.
When I was in high school, several of my friends were on the debate team. I’d see them continuously study these little note cards that contained facts about an issue (I imagine now-a-days they have a smart-phone app). “What side of the debate are you learning?” I’d ask. “Both,” would be the reply. In order to truly understand a subject, you must understand the basis of the arguments from all sides, especially when the facts can lead to different and mutually exclusive conclusions.
Start reading the opinions of those who disagree with you. Understand why they don’t see things your way. Examine how they can take the same facts and come up with a different conclusion. Learning the strengths and weaknesses of their arguments will help you learn the strengths and weaknesses of your own.
-- Excerpt from Real World Investing by Gary Silverman, CFP®
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