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the use of medically equipped helicop- to retain the purchasing power of your
ters to airlift crash, stroke, and heart money and to see your account balances
attack victims. He explained that once grow so that eventually those funds can
a call came into the emergency depart- be used for your support in retirement.
ment and the severity of the medical Instead of having your perspective
need was confirmed, another emer- anchored to an inappropriate statistic
gency room staff member who had no like the Dow Jones Industrial Average,
knowledge of the case then contacted focus on making smart decisions each
the air transport department to deter- and every day regardless of how it com-
mine the availability of a helicopter for pares to the Dow. Ignore the bragging
the specified destination. that goes on by your friends, neighbors,
At that point the flight crew deter- and colleagues over the barbecue grill
mined whether or not they would fly and at cocktail parties. Don’t give a
based solely on weather conditions with- lot of credence to CNN and MSNBC
out being influenced with an understand- news reports. All in all, chart your own
ing of the nature of the event or the ages, course for your own purposes and don’t
genders, or occupations of the victims. let someone else force a false agenda on
This “blind” decision making was smart your thinking.
and rational and in the long run saved When making investment decisions
lives without endangering the lives of the that entail selling one investment and
medical professionals. buying another, focus on your long
In investment matters researchers like term goals. You want to make a good
Richard Thaler at the University of Chi- return over time and accumulate assets
cago show that most people want to gain for use in later life. Don’t look to your
between 2 and 2½ times as much as they portfolio to reassure you how smart you
put at risk. Probably the greatest insight are. Look to it to make money for you.
these studies provide is that there is a Many investors will sell off their winning
disproportion between gain and loss. In investments so they can brag about their
other words, people tend to be loss averse gains. Similarly they will continue to
Using information from various and feel the pain of a loss 2 to 2½ times hold poorly performing investments to
accounts, the authors conclude that Van as strongly as they feel the pleasure from defer the psychological pain of realizing
Zanten may well have caused the crash gain. You’ve heard that most folks are a financial loss.
due to a number of sway factors, chief motivated by fear and greed in investing. The Brafman brothers cite instances
among them “loss aversion.” Loss aver- Well, the fear part is twice as powerful a where past successes using certain strat-
sion causes us to engage in irrational motivator than the greed part. egies reinforces the likelihood of one
behavior when we perceive potential In October of 2009 the Dow Jones using the same strategy repeatedly, even
losses, and the bigger the stakes, the Industrial Average hit 10,000 for the first when common sense tells us another way
higher the risks we are likely to take to time in a year up from its low of 6,547 might be more successful in a new situa-
avoid those losses, the Brafmans state. last March. That sounds great and it did tion. The authors delve into the Vietnam
In other words, the threat of the loss of lift the spirits of American investors. The morass and President Lyndon Johnson’s
a sterling record for flight punctuality down side of focusing on such a statistic dilemma to illustrate the danger of com-
blurred the Captain’s judgment regarding is that it creates an artificial point of ref- mitted thinking.
carefully following routine safety proce- erence that could influence your invest- While LBJ postponed a decision to
dures on a take off. ment decisions in the future. withdraw U.S. troops from Vietnam, the
I once spoke with an emergency room “Beating the market” isn’t really why situation grew alarmingly worse, with
physician regarding the procedures for you invest. Your motivation to invest is casualties mounting and his popular-
28 . Signals . The Spokane Club magazine . January 2010
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