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We're All Overconfident

I consider myself a student of human behavior, especially in the realm of investing. I’ve read (and reread) all the important books on the subject (Thinking Fast and Slow, The Psychology of MoneyYour Money and Your Brain, Blind Spots) and studied the topic for over twenty years. Over the course of my long career, I’ve seen overconfidence manifest itself many times with clients.   

And I still fell victim to overconfidence.

Earlier this month our family gathered in Austin to celebrate my 60th birthday. During one of our dinners my wife, a personal trainer, was sharing details of a new class she was teaching which required completing a variety of different exercises. One of the challenges was completing 100 pushups within the hour class. My son Brooks, who is a former college athlete and works out daily, opined that there was no way that I could do that. Whether it was pride, ambition, or stubbornness to relent to Father Time at a milestone birthday I quickly accepted the challenge. I made a bet with Brooks that I could do 100 pushups in 15 minutes.

I would preface this by sharing that I take yoga twice a week in addition to playing pickleball 2-3 times a week. But I don’t regularly do pushups.     

The things that led to my overconfidence are classic behavioral mistakes:

  • Extrapolating expertise or competence in one field or area to another. I assumed my yoga planks and down dogs would translate to pushups. Spoiler alert – they didn’t.
  • Thinking I was above average. Given that I workout regularly, I thought I could easily complete an exercise clearly geared to fitness instructors.
  • Mistakenly thinking I had an edge. Before taking the bet, I quickly formulated a strategy I thought assured success. I would do 10-12 pushups at a time, then take a 30 second break. What seemed simple failed to account for the cumulative effect which my muscles weren’t accustomed to.       

For the record, I completed 62 pushups in 8 minutes. Then my arms completely ignored any direction from my brain. My chest and stomach cramped rendering me nearly incapacitated. Father Time is undefeated. 

Many consumers exhibit the same traits when it comes to investing and personal finance. Just a couple of examples I’ve seen over the course of my career:

  • Very intelligent and successful people often erroneously believe their intellect equips them to be “expert” in personal finance and investing. Our best clients are smart, successful people who have a very keen awareness that their circle of competence is small and deep, not wide and shallow.
  • Not fully understanding risk. I’ve seen several successful businesspeople assume their past success would continue unabated into the future. Capital markets have a way of humbling all of us. A fundamental law of capitalism is high profits attract competition, something no smart business owner forgets.
  • Personal finance is interrelated. An experienced advisor understands how the myriad pieces of one’s wealth picture must fit together and how ignoring one area may have a domino effect in another.

Fortunately for me, the pushup challenge was both sobering and motivating. It reminded me I share the same deficiencies as the clients we serve, albeit in a different arena. I’m committed to completing a “rematch” at our family beach vacation in July. I’ll be putting in the proper training between now and then, humbly confident that I can redeem myself.