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If Only

If Only

May 31, 2022
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“NFT projects are getting ‘obliterated’ amid crypto crash, The Drop CEO says”

                                                                                                                                                               Yahoo Finance, May 19th, 2022.

 

Crypto has been crashing. If only someone could have seen this coming! Actually, someone did. In fact, many did. Please read my last two posts for more on this.

People refer to economics as “the dismal science,” because economists are always reminding people and governments of what they cannot afford to do.

I believe governments have found a hack for this. They interview economists until they find those who tell them what they want to hear; that the impossible is possible. Sadly, reality rarely gets the memo and the impossible stays impossible. In the end, it is we the people who pay for it, metaphorically and literally.  

Sometimes we realize that we have been misled. This usually takes place after the politicians, who told us what we wanted to hear in exchange for our votes, have left office. Of course, by then, they have probably moved on to lucrative careers in lobbying or consulting. It is we the people who are left holding the bag.

We can probably file our desire to be told what we want to hear – while waking up to reality later – under the broad heading of “human nature.” Lamentably, to a greater or lesser extent, this type of suboptimal behavior is common to all human beings. These behaviors span time and space, millennia and geography. These ways of being first developed, and have remained, because in some respect they create advantages for us as a species. Yet what helps us can also harm us.

As far back as anyone can tell, people grouped together.  There has always been safety in numbers. And, of course, there is also comfort in company, not to mention the manifold benefits of cooperation.

Evolution has programmed our minds to get with the program of our group. By displaying certain symbols, we signal allegiance to those groups. These symbols can be tangible, like a sports team jersey. Or they can be more abstract, like verbally expressing support for certain causes or political parties. In both cases, we are telling the world “This is the group I belong to.”

Think of the most flagrant collection of conformists we know - teenagers. Oh sure, they are notorious for rebelling against their parents. But they mimic other teenagers to an almost ridiculous degree. Hair styles, clothes, shoes, music and even more subtle signals of group affiliation such as popped collars or cuffed jeans are common markers of teen conformity. Teen’s tendency toward conformity is why parents are so fearful they will “fall in with the wrong crowd.”

Kids copying one another’s styles can seem a bit silly at times, like several years ago when high school kids in my area were wearing two or even three brightly colored polo shirts at once. Copying the popular kids at school can get a little goofy but it is mostly harmless.

Making our investment decisions based on what is trendy – what the group is doing – can be a recipe for disaster, however.  One path to disaster is that we might jump into asset classes that we perceive as popular or as promising “explosive growth,” like cryptocurrencies or NFT’s. (Please read my blog posts for March and April of this year, for more on this.)

I want to highlight another pitfall that can result from our penchant for imitation. This one does not involve doing something that we might later regret. Instead, it revolves around not doing things that can create advantages for us.

For example, I have worked with good people who, sadly, limited their universe of options because they heard something negative regarding some asset class or financial instrument from a member of their group. I say “sadly” because several folks have expressed regret later in life, at not having availed themselves of certain options.

These people were hesitant because a parent, aunt, uncle, friend, colleague, etc., said something negative about some asset or investment. Or perhaps they expressed less than glowing sentiments toward some group of financial tools, owing to a single personal experience or some random hearsay.

Let me state clearly here that no one, and I mean no one, is wrong for the way they feel. Our feelings are never up for debate. Having said that, hearing something, about something, some time ago, can serve to warp our perspective and close our minds to what might be excellent opportunities.

As a financial advisor, however, it is my job to help my clients make evidence-based decisions, rather than decisions based on moods, gut feelings, or perceptions. I feel strongly that the quality of one’s knowledge is not determined by how long they have held a belief, but by the extent to which those beliefs are supported by facts. 

In summary, when it comes to financial planning our all too human tendency to follow our peers can lead us astray in two main ways. First, by investing in things we probably should not invest in. Second, by excluding financial tools or assets that could be beneficial, especially as a component of a well thought out and diversified financial mosaic.  

If taking an evidence-based approach to planning appeals to you, consider working with a financial advisor who can help you separate rhetoric from reality and distinguish fact from fiction, in constructing an investment portfolio.

Nothing is assured in this world. But basing our decisions on the bedrock of facts and evidence will reduce the likelihood that we will ever look back and say, “If I had only ...”

Take action. You will be glad you did.

 

Scott R. McGimpsey May 31st , 2022

This blog post was written by Scott McGimpsey and does not necessarily represent the views of Cetera Advisor Networks LLC. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Neither Cetera Advisor Networks LLC nor Scott McGimpsey is engaged in rendering legal, accounting, or other professionally services. If such assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any federal, state, or municipal tax penalty. Moreover, a diversified portfolio does not assure a profit or assure protection against loss in a declining market. Cryptocurrencies, Digital Assets and other Blockchain related technology (such as Bitcoin, Ethereum, NFTs and others) are not securities, not regulated and not approved products offered by Cetera Advisor Networks LLC, and cryptocurrency or other blockchain related non-securities products cannot be recommended, offered, or held by the firm.