Praise for Personal Benchmark
"This book is an exciting advance on how behavior research can and should influence investment decision making. Its focus on how the individual investor and their advisor begin with developing a personalized set of economic expectations and managing a portfolio in the context of the investor's own economy is an important and actionable insight. I strongly recommend this book, not just for individual investors, but especially for those who provide investment advice to individuals." —Carl J. Schramm, University Professor, Syracuse University; former President, Kauffman Foundation; serial entrepreneur and venture investor
"In a business where investment returns and investment benchmarks have been analyzed thoroughly, the subject of personal benchmarks and their construction, suitability, and measurement is in its infancy. Taking principles from behavioral finance—for example, creating a disciplined approach that reduces the emotional temptation to buy high and sell low that plagues so many—this book makes a great contribution to financial advisors and their clients in seeking to create satisfactory investment experiences." —Robert C. Doll, CFA, Chief Equity Strategist, Senior Portfolio Manager, Nuveen Asset Management, LLC
"This book is an ode to a commonsense realization—investing is a social science rather than a physical one. Combining tried and true investment techniques with cutting-edge research on behavioral finance provides a wonderful new approach for those charged with managing other people's money." —Jason DeSena Trennert, Managing Partner, Chief Investment Strategist, Strategas Research Partners LLC
"Investment management and behavioral finance are both critical to achieving the objectives of every investor, but integrating these two concepts—which often seem diametrically opposed—has proven difficult. In Personal Benchmark: Integrating Behavioral Finance and Investment Management, Chuck Widger and Dr. Daniel Crosby have found the touchstone by fashioning elegant investment solutions for the mental accounts or 'buckets' that come so naturally to investors." —Gregory Curtis, Chairman, Greycourt & Co., Inc.; author of The Stewardship of Wealth; developer of the Moneybags mobile financial application
"For too many years, investors have measured their performance against standard benchmarks such as the S&P 500 Index or the Dow Jones Index. But as Chuck Widger and Dr. Daniel Crosby meticulously demonstrate, beating an index and meeting one's financial goals are not the same thing. In fact, striving to beat an index or a universal benchmark may lead to investment decisions that fail to meet those goals. Instead, Widger and Crosby offer another path, tailored to the unique needs of each investor. Astutely recognizing that long-term financial health has little to do with beating the stock market or the average bond index, Widger and Crosby chart a new course, based on rigorous analysis but grounded in common sense." —Zachary Karabell, Head of Global Strategy, Envestnet, Inc.
CHUCK WIDGER is the Founder and Executive Chairman of Brinker Capital, an investment management firm with $17 billion in assets under management. Chuck is currently Chair of the Villanova University School of Law Board of Consultors. Chuck is a past Chair of the Gettysburg College Board of Trustees and is chair-emeritus of the Money Management Institute's Board of Governors. The Money Management Institute is the industry association for the $3.5 trillion managed solutions industry. He served as a Lieutenant in the U.S. Navy.
DR. DANIEL CROSBY is a psychologist and behavioral finance expert who helps organizations understand the intersection of mind and markets. Dr. Crosby constructed the "Irrationality Index," a sentiment measure that gauges greed and fear in the marketplace from month to month. His ideas have appeared in print and online, and Daniel was named one of the "12 Thinkers to Watch" by Monster.com and a "Financial Blogger You Should Be Reading" by AARP. Dr. Crosby's well-reviewed first book, You're Not That Great (2012), applies elements of behavioral finance to the pursuit of a meaningful life.
Preface xi
Introduction 1
PART 1 WHY DO WE NEED TO LOOK AT INVESTING DIFFERENTLY? 7
Chapter 1 Freedom in the Market and Advisor Responsibility 9
Chuck Widger
The Financial Markets 10
What We’ve Been Up to as Advisors 15
What Investors Really Want and Need 18
A New Investment Advice Delivery System 26
Brinker Capital and Personal Benchmark 29
Summary 45
References 46
Chapter 2 Investor Emotions and Financial Decisions 49
Dr Daniel Crosby
The Origins and Evolution of Behavioral Finance 50
The Myths of Efficiency and Rationality 52
A Definition and Framework for Behavioral Finance 57
Summary 77
References 79
Chapter 3 Risk, This Time It's Personal 83
Dr Daniel Crosby
Fallacy 1: Risk and Return Are Systematically Correlated 85
Fallacy 2: Investors Have a Single, Static Level of Risk Tolerance 90
Fallacy 3: One Man’s Risk Is Another Man’s Reasonable Probability 96
Behavioral Risk and You 102
Summary 104
References 105
PART 2 WHAT IS THE PERSONAL BENCHMARK APPROACH? 107
Chapter 4 Brinker Capital's Multi-Asset Class Investment Philosophy 109
Chuck Widger
A Brief History of Investing 110
Our Multi-Asset Class Investment Philosophy 119
Applying Our Philosophy 122
Implementing Our Philosophy 137
Summary 151
References 152
Chapter 5 The Power of Buckets 153
Dr Daniel Crosby
Intentional Framing 158
Framing with Purpose 160
Mental Accounting for Increased Rationality 161
Goals-Based Mental Accounts: A Case Study 164
Summary 166
References 166
Chapter 6 Selection of an Active Investment Manager 169
Chuck Widger
Passive versus Active Management 170
The Successful Investment Firm 172
The Successful Investment Manager 175
An Effective Investment Management Process 176
Monitoring and Assessing Performance 179
Summary 187
References 187
PART 3 HOW CAN WE EXECUTE A PURPOSE-DRIVEN INVESTMENT STRATEGY? 189
Chapter 7 Using a Goals-Based Approach 191
Dr Daniel Crosby
The Allure of Determinism in Economics and Psychology 193
The Economy of One 200
Our Inner Demons: A Field Guide 202
Let Your “Why” Teach You “How” 209
Summary 211
References 212
Chapter 8 Pursuing Your Personal Benchmark 215
Dr Daniel Crosby
The Difference a Frame Makes 217
Limitations in Our Decision Making 219
The Joneses, Jealousy, and Missteps 221
The Anatomy of Better Decisions 226
Summary 235
References 235
Chapter 9 Providing an Easy-to-Understand Explanation 237
Chuck Widger
Your Best Investment 238
Once More, with Feeling 240
Changing the Conversation 247
The Brinker Capital Personal Benchmark Solution 251
Summary 258
References 258
Chapter 10 Leveraging a Scalable Offering for Investors and Advisors 259
Chuck Widger
Using Personal Benchmark 259
Reaping Benefits for Advisors 280
Summary 282
Conclusion 283
The Centrality of Purpose 288
Finding Meaning in the Mundane 292
References 293
About the Authors 295
About the Companion Website 297
Index 299
