Portfolio Management & Decision Fatigue

“Finance is not about beating the market, necessarily. It’s about managing risks in such a way that we can be a productive society and we can achieve our goals.” – Robert Shiller

In his latest Master’s in Business podcast for Bloomberg Radio, Barry Ritholtz asked Nobel Prize winner Robert Shiller about how he manages his own investments. Shiller said he owns a few individual stocks and some index funds. Nothing too complex.

Then Shiller qualified his investment strategy by saying, “I have a very busy life. I just don’t have time.”

He’s not the only one. A VP from Charles Schwab talked about the wide range of clients they could potentially bring into their new robo-advisor platform in a recent Forbes write-up. One of them was a partner at a private equity firm who shared similar sentiments to Shiller’s:

Shortly after Schwab announced its planned service, Hassan was looking at the list of people who had asked for more information. Among 2,400 or so names (the list has since grown to 5,000) she spotted an old friend from her first job as a McKinsey & Co analyst. He is now a partner in private equity and has used Schwab’s do-it-yourself tools to manage his investments for two decades. Hassan gave him a call assuming he had a stake in a competing service. “No, I am an interested client,” he told her. “I want a diversified portfolio. I don’t have time to rebalance. I don’t have time to do all the tax loss harvesting. I’m really excited about this.”

It would make sense that people who work in the finance industry should have the know-how and expertise to run a sophisticated strategy on their own. But these two are actually making a very smart move. Admitting your limitations is intelligent behavior. Even seasoned financial professionals can be too busy to devote their full attention to the management of a portfolio. People have lives to live.

There’s also a finite amount of willpower available for the decision-making process. The more decisions you’re forced to make in your day job or personal life, the less likely it is that you’ll have the patience required to make rational decisions in other areas of your life, including your investments. The brain can only handle so much stress at one time. It can’t fire on all cylinders at all times. Similar to muscle fatigue, the brain needs rest as well.

Controlling your emotions in the investment process requires a lot of experience and an understanding of financial market history. Most people either don’t care about these things or don’t have the time required.

Outsourcing of your decisions, either through a financial professional or a systematic process that’s effective and easy to follow, is a rational option to remedy this situation. How you choose to implement such a strategy all depends on how much help you need or what resources you require. Outsourcing does not relieve you from paying attention, though. You should never outsource your understanding.

At times, life can be busy and stressful for everyone. It’s nearly impossible to keep those stresses out of the decision-making process. They say stress arises from the discrepancy between where you are and where you’d like to be. Determining how much time and effort you’re willing and able to put into the portfolio management process is one way to help in narrow that gap.

Listen to the entire podcast between Ritholtz and Shiller here:
Masters in Business: Yale Professor Robert Shiller (Bloomberg View)

Robo-Boom: More Smart Money Betting You’ll Let Robots Into Your Wallet (Forbes)

Further Reading:
What’s Your Tolerance for Complexity?
Losing Weight, Saving & Decision Fatigue



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  1. James commented on Nov 29

    The pros’ comments seem to imply that they could achieve above-market returns themselves if they only had the time. If time were the limiting factor then pros who DO work full-time in the market should be beating it consistently.