Category: FIRE

Recorded LIVE on stage at the Morningstar Conference in Chicago! We chat with behavioral finance professor Meir Statman. He breaks down the differences between standard finance and behavioral finance, making it clear that understanding human behavior is an essential part of investing.

Statman starts by explaining that standard finance assumes people are rational. They make decisions purely based on logic and aim to maximize wealth.

However, behavioral finance sees people as normal, not always rational. We often act on emotions and cognitive shortcuts. For instance, people might prefer receiving dividends over selling shares, even if both result in the same financial gain. This is because dividends feel like income, while selling shares feels like dipping into savings.

He uses a great metaphor to explain how investors view their portfolios. Think of a dinner plate: behavioral investors like their investments separated, like mashed potatoes on one side, vegetables on another, and steak in the middle. Rational investors don’t care if it’s all blended together because they only focus on the total nutrients. This shows that normal investors have different needs and want to balance safety with growth.

Statman talks about the importance of diversification. He recalls a lunch with Harry Markowitz, the father of Modern Portfolio Theory, who supported the idea of having a mix of safe and risky investments. Markowitz himself had municipal bonds to avoid poverty and stocks to grow wealth. Diversifying helps investors manage risk and meet both their safety and growth needs.

We then dive into how people manage money across their life cycle. Statman points out that young people know they need to save but are tempted to spend. They often control this urge by putting money into retirement accounts like 401(k)s. As people get older, they become so good at saving that they sometimes forget to spend and enjoy their money. Statman gives a funny example of his mother-in-law, who refused to replace an old sofa because she didn’t want to dip into her savings.

Statman also touches on asset pricing and market efficiency. He explains that while traditional finance focuses solely on risk, behavioral finance considers other factors like social responsibility. Some investors are willing to accept lower returns to stay true to their values. Additionally, he argues that market prices do not always reflect true value, and it’s hard to predict when they will.

Towards the end, we discuss the broader aspects of wellbeing. Statman emphasizes that financial wellbeing is just one part of a happy life. Family, health, work, and community are also crucial. He believes financial advisors should help clients achieve overall life wellbeing, not just financial success.

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If you’re a longtime listener, you’ll enjoy this candid, behind-the-scenes conversation about entrepreneurship and growth between Paula Pant and former financial advisor and Stacking Benjamins host Joe Saul-Sehy.

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We sit down with Jim Kwik, a brain coach and expert in memory improvement, speed reading, and optimal learning.

As a child, Jim suffered a brain injury that made learning difficult. He was labeled “the boy with the broken brain,” which deeply affected his confidence and performance in school.

Fast forward to college, and Jim is still struggling. Overworked and stressed, he ends up in the hospital.

This becomes a turning point. Jim dives into brain science. Today, he’s an expert in memory, focus, learning, cognition and mental performance.

He’s here to remind us that our brains are our number one wealth-building tool.

Jim explains that asking yourself WHY you want to remember something, like a person’s name, can boost focus. He highlights the power of being present and attentive in conversations. He shares an anecdote about Bill Clinton’s impressive memory, crediting Clinton’s remarkable presence and focus.

Jim introduces the Explanation Effect, a method where you learn with the intention of teaching. This deepens understanding. If you prepare to teach something, you’ll engage more actively, take better notes, and personalize the material.

The conversation shifts to the concept of a good brain diet. Jim lists foods great for brain health, such as avocados, blueberries, and green leafy vegetables. He underscores that what you eat significantly impacts cognitive functions.

Jim debunks myths like multitasking being efficient. He stresses the importance of focusing on one task at a time for better productivity and mental performance.

He also talks about the negative impact of digital distractions and the myth that we only use 10% of our brains.

Jim wraps up with tips on maintaining brain health, such as regular exercise, a good diet, and surrounding yourself with positive people.

This episode is packed with practical advice. If you want to improve your memory, learn faster, and maintain better brain health, you’ll enjoy Jim Kwik’s tips.

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