It doesn’t take a genius to see that Americans have become polarized. If not more polarized, at least the existing fault lines have become more exposed over the past two years. Then again maybe this shouldn’t be all that surprising. For the entire history of human beings we have in a certain respect been tribal in nature. Amy Chua author of Political Tribes: Group Instinct and the Fate of Nations in her introduction writes:
Humans are tribal. We need to belong to groups. We crave bonds and attachments, which is why we love clubs, teams, fraternities, family. Almost no one is a hermit. Even monks and friars belong to orders. But the tribal instinct is not just an instinct to belong. It is also an instinct to exclude.
When these instincts are expressed during something like the NCAA basketball tournament they are largely benign. When expressed in the political or economic arena they can be downright counterproductive. Investor like to think they are immune from these kind of influences. Fat chance. Maybe the most important finding from behavioral economics is that not only are we all biased, we are all blind to our own biases.
In investing this manifests itself in a number of ways. Not least of which is our tendency to self-sort into various camps or tribes like: active vs. passive, value vs. growth, perma-bulls vs. perma-bears, goldbugs, cryptoheads etc. Even those of us who claim to be evidence-based need to take a look at in the mirror. As Tom Brakke at research puzzle pieces notes:
(T)he “evidence-based investing” label is being affixed to a variety of approaches, many of which are mindless in their application…Context matters. The world changes. What appears to be evidence may not be, so judging the evidence and its applicability to the situation is a critical part of the endeavor.
What is interesting is how it is we come to find ourselves in these various camps. One contributing factor is our personal experiences. As Morgan Housel at the Collaborative Fund notes:
Your personal experiences make up maybe 0.00000001% of what’s happened in the world but maybe 80% of how you think the world works. People believe what they’ve seen happen exponentially more than what they read about has happened to other people, if they read about other people at all. We’re all biased to our own personal history. Everyone.
The fact of the matter we are all going through something. Even the most high profile among us. Kevin Love, of the Cleveland Cavaliers, in the Player’s Tribune recently described some of his recent struggles including experiencing a panic attack during a game. As Love notes:
Everyone is going through something that we can’t see.
This in part because life is messy, on so many different dimensions. Brent Beshore in a great tweetstorm about ‘life lessons learned’ said it well here:
5) Messy: Life is messy. People are messy. Business is messy. Relationships are messy. I’m messy. Messiness should never be surprising. Give myself and others grace.
— Brent Beshore (@BrentBeshore) March 5, 2018
We can’t see, or often understand, why other people make the decisions they do. Frankly it’s difficult to even figure out why we do what we do. The best we can do is try to treat ourselves with some compassion and help those around us along the way. As the great Jason Zweig wrote in a famous piece:
My job, as I see it, is to learn from other people’s mistakes and from my own. Above all, it means trying to save people from themselves.
It’s not possible for financial advisors, and those of us who write about the markets, to save everyone. But we can try to understand where people are coming from. Morgan Housel again:
Start with the assumption that everyone is innocently out of touch and you’ll be more likely to explore what’s going on through multiple points of view, instead of cramming what’s going on into the framework of your own experiences. It’s hard to do. It’s uncomfortable when you do. But it’s the only way to get closer to figuring out why people behave like they do.
And along the way we might come to come to some greater understanding ourselves.