For many SMSF trustees, the events of the GFC really put the pressure on to ‘do something’. Scared, angry and sometimes even panicked, many people felt that action needed to be taken over the rapidly falling value of their portfolios.
Hindsight is a wonderful thing. Recent history has shown, as it always had, that the prudent approach was to hold your ground and retain a diversified portfolio and a long-term strategy.
It’s interesting to note, however that you are not alone in feeling this pressure. There was a great study a while back on the pressure felt by professional goal keepers when faced with a direct penalty kick. That’s the one when it’s just the goalie and one of the opposing players kicking the ball from a mere 11 metres away. In fact, 80% of the time a goal is scored, and the pressure on both the goalkeeper and the kicker must be enormous.
An analysis of 286 penalty kicks in top leagues and championships worldwide was conducted to determine what the optimal strategy for the goalkeeper was, and how this strategy was determined.
So what choices does the keeper have? In broad terms the choices are to; jump to the left, jump to the right, or stay in the centre.
Careful analysis reached the following conclusions:
94% of the time the goalkeeper dove for the ball
30% of the time they caught it diving to the left
25% of the time they caught it diving to the right
60% of the time they caught the ball by staying in the centre.
In psychological terms, the reason the keepers were diving was action bias. Because the norm is for keepers to dive, the feeling of loss from a goal is amplified following inaction. In other words, it hurts more to have a goal scored against you by standing still, than it does diving in one direction – even if it is the wrong one.
The goalkeeper can rationalise that they ‘had a go’ and was simply ‘unlucky’. If they simply hold their ground, they look like an idiot. Now remember, 80% of the time a goal is scored anyway, so the goalkeeper is simply minimising their feeling of loss, but at the expense of costing their team a better chance of winning the game.
The analogy is an interesting one. We are not for a moment suggesting that strategies and portfolios do not need to be adjusted, rather that making changes just to be seen to be doing something may not be the best approach.
We are not suggesting you avoid action. Rather, you should consider guarding against your compulsion to act – such as making drastic portfolio changes – just to appear well-intentioned and decisive.
Something to think about. You might also like to speak with your financial adviser about this.
