Looking at what was recently fashionable in the investment world, unicorn IPOs just aren’t that captivating anymore. The recent “Super Six” hype has shown signs of fading out of fashion in favor of the SPAC craze. Trends fueled by media fervor and online discussions have created frenzies of capital inflows into certain areas of the market that may go the way of parachute pants.
Investors may feel they’ll miss out on the next big thing—but I believe it’s your role as an advisor to help them recognize the potential benefits of a more rational risk management style. Using behavioral finance tactics to try to steer investor’s emotions away from overhyped names or sectors and toward a more balanced approach may help realign priorities and avoid heightened risk while still gaining exposure to market rallies.
A potential pivot in the field of risk management akin to Blue Jeans may be the emergence and adoption of well researched hedged equities and adaptive fixed income strategies. Our industry seems to finally be seeking a balance between behavioral and economic needs. While the efficient markets hypothesis is supported by significant data, few would be able to successfully argue that there are not moments of significant mispricing.
Finding Your Style As An Advisor
Perhaps advisors should focus more on investor’s dispositions and how their overarching goals may be achieved with potentially less stress and volatility, allowing them to position portfolios accordingly. A personalized approach that acknowledges the specific challenges we are all likely to face may enable advisors to find their own style and address issues ahead of market volatility.
My advice is to not get caught up in trends of the moment. Ask yourself whether your approach fulfills investors’ wants and needs both financially and emotionally. The answer to this question may guide the portfolio-building process toward a well-tailored design.
Eben Burr is president of Toews Asset Management. Prior to Toews Asset Management, Eben Burr worked in New York City real estate. Before that, he worked in fashion and design in New York and Europe. Eben serves as a lecturer and coach of applied behavioral finance for Toews’ Behavioral Investing Institute, where he assists in training advisors to build a process for managing investor behavior.