By Rania Laing and Rebecca Ellis
WED, DECEMBER 6 2017-theG&BJournal-You are familiar with how good decisions make sense. With finance, sound rationale leads to higher profits and rewards. You know how to make those kinds of decisions.
This has been the view of the economists and financiers for years. Unfortunately, human decision-making is not rational. By understanding the emotional dynamics that are impacting your decision-making, you can avoid falling victim to your own mental habits.
Thought loops lead to sub-optimal results. To quote Sam Phillips, “If you’re not doing something different, you’re not doing anything.”
Discover how familiarity is keeping you stuck in a false sense of security and what to do for your business and your personal objectives.
Familiarity is blinkering your vision
It is distorting your evaluation by stopping you from understanding how everything is changing, all the time. You fail to value the moving nature of markets, industries, politics and taxation laws. You make decisions in the same way as you have always made them.
Sound decision-making is a process, not an end-goal. Profitable rewards are the result of making excellent micro-decisions. Consider methods to track those constant micro-movements in your market and adjust your strategies accordingly.
Familiarity makes you over-value what you already know
The unknown is considered riskier than what you know, which skews your decision-making to be based on old facts. Constantly question if what you know already is as relevant as what you believe. Developing curiosity as a skill will be fruitful in more ways than you can predict.
Take responsibility for conducting and understanding research. While property investment presents itself as a reliable income option, stock options such as Royal Dutch Shell can work out at as a more consistent income yield.
You know how to meet expectations
This also makes your working life easy. Risk is low and the returns are low, but acceptable. You find work unexciting but at least you manage to limit any damage.
The problem with this is that risk has a funny way of creeping up on you when you least expect it.
When your range is too narrow, you put yourself in greater danger than if you had taken a calculated risk. Broaden your scope and consider all types of data to spot dangers and possibilities. In the heydays of high global interest rates, the typical return of a US government bond was sufficient to deliver a reasonable return with minimal risk.
As interest rates dropped, returns followed suit, yet many failed to consider new options.
You plan for the worst
Planning for worst stops you from achieving goals. It requires a lot of effort and attention which is not being invested in achieving goals. While it’s important to scenario plan, consider how much time and energy is invested in avoiding the negative outcomes.
As Harvard Business School Professor C. K. Prahalad advised. “Set ambitious goals and then figure out how to mobilise the resources to achieve them — rather than the other way around. Most companies limit themselves because they focus primarily on what they believe they can afford.”
It’s always worked for you
You learnt that this was the best way to manage a business and your private wealth. You’ve always done it that way. While you may have learnt great strategies from excellent leaders, relying on those old ways through changing times is risky.
Crises happen, new laws come into force. What worked for them in a different place, at a difference time may not be what is best for you and your business today. Move on from past lessons and learn the skill of reviewing new data, trends and changing dynamics for yourself.
Change is inevitable. Driven by technology and convenience, it is getting faster and faster.
Familiarity is the enemy of change, stopping you from finding innovative opportunities when leading your business or managing your private wealth. While due diligence is always required, learn to recognise the patterns and take action to break the loop.
Rebecca Ellis A Personal investment advisor, based in Zurich| REBECCA.ELLIS@POMOMAWEALTH.COM|Co-written and in conjunction with Rania Lang founder of Your Neuro Coach