Understanding your own psychology and biases key to better investing: LTU speaker
October 8, 2021
SOUTHFIELD—The investment markets might make sense in the long term, but from day to day they can look pretty crazy.
After all, somebody paid $10,000 for a Cheeto on eBay that resembled Arnold Schwarzenegger. Somebody else paid $69 million for an NFT—a non-fungible token, a form of online art—which anyone can access and reproduce. The almost $70 million buys only the cryptoasset that attests the owner’s version is the real one. And investors have bid up the market capitalization of Tesla to more than twice that of General Motors and Ford combined, despite its much smaller size in sales and profits.
But if an investor keeps a clear head and doesn’t give in to emotion? They can make a nice return.
That was the word Thursday night from chartered financial analyst Sam Huszczo, founder and investment advisor at Southfield-based SGH Wealth Management, who spoke on “Is Your Mind Getting In The Way of Your Money?” in LTU’s 11th annual Harold Hotelling Memorial Lecture.
Huszczo’s entertaining presentation used as examples everything from soccer goalies stopping penalty kicks to walking down a monkey-lined street in Thailand with a bag full of peanuts. (The latter is a bad idea.)
“We all have a fetish for the complex,” Huszczo said. “We think the most complex solution is the correct one because it gives us a sense of intellectual superiority. But it also gives us blind spots.”
“The value of a stock is subjective,” he said. “The price that things are today is centered in psychology. Long term it’s rational. Short term it’s psychological.”
Huszczo also pointed out that highly successful people are frequently, well, just lucky. “Bill Gates—super intelligent, one of the hardest workers, but his middle school was the first middle school in America to have a computer inside its walls. He just happened to be alive at the moment when that became available. He had a head start over everybody because he’d been absorbing that since he was 11 years old.”
Following the super rich doesn’t help the W2 worker, he said, and too often investors fall victim to various ingrained biases that can lead to bad decisions. Listening to so-called experts “allows us to turn our brains off” when statistically they’re rarely right. A “herd bias” prompts us to the safety of the herd, even when it’s wrong. An “action bias” leads us to do something—anything—with our investments, when frequently the best course is to do nothing or make small changes. “I’m not saying do nothing, I’m saying do a little bit less than you think you should,” he said. An “ego bias” leads to overconfidence in our abilities. “Seventy-two percent of men think they are smarter than average,” Huszczo said. “You might want to hire a female investment manager. And with apologies to present company, 94 percent of college professors think they do a better job than their peers. That’s statistically impossible.”
Huszczo advised attendees to “over-analyze their own beliefs” to remove those biases, invest for the long term, automate as many processes as possible, and remember hardly anything beats time in the market. “Every bear market has recovered,” he pointed out.
But he said there are also rare opportunities to make money in the short term when the market falls. “You might want to create a list of companies that you really like, but consider overvalued, and when the bear market hits, that’s the time to take action,” he said.
Huszczo also pointed out that highly diverse investment teams outperform homogenous investment teams by more than 5 percent, meaning a wide variety of viewpoints is best and can lead to fewer blind spots.
Huszczo earned a bachelor’s degree in economics from the University of Michigan in 2003, and earned Certified Financial Planner status in 2005 and Chartered Financial Analyst in 2009. He was 2016-17 president of CFA Society Detroit, the 2017 Volunteer of the Year of the CFA Institute, and a finance and audit committee member of the Detroit Economic Club. He has also been named to the “30 In Their 30s” list of dBusiness magazine, and has made numerous media and speaking appearances.
This year’s Hotelling Lecture was arranged by the LTU College of Arts and Sciences with assistance from the College of Business and Information Technology.
The Harold Hotelling Memorial Lecture Series was founded to honor an esteemed scholar and colleague. Harold Hotelling (1945–2009) joined Lawrence Tech as an associate professor of economics in 1989 and taught courses in business law, business ethics, constitutional law, urban social issues, and law and economics. His life was marked by an unwavering dedication to his family, his church, his students, and his profession. Everyone who knew him benefited from his keen intellect, tireless devotion, quick wit, and wonderful sense of humor. Hotelling’s contributions to Lawrence Tech will always be remembered, but more importantly, he will be remembered as a great person and a dear friend.
Lawrence Technological University, www.ltu.edu, is a private university founded in 1932 that offers more than 100 programs through the doctoral level in Colleges of Architecture and Design, Arts and Sciences, Business and Information Technology, and Engineering. PayScale lists Lawrence Tech among the nation’s top 11 percent of universities for alumni salaries. Forbes and The Wall Street Journal rank LTU among the nation's top 10 percent. U.S. News and World Report lists it in the top tier of best in the Midwest. Students benefit from small class sizes and a real-world, hands-on, “theory and practice” education with an emphasis on leadership. Activities on Lawrence Tech’s 107-acre campus include more than 100 student organizations and NAIA varsity sports.