Humility in Investing: Why It’s Important

We’ve all been humbled at one time or another in our lives.  You know, at a time you thought you were doing well, were the best at something, or should be sought after as the imminent expert on a matter, but were then “knocked down a few pegs.”  I had this experience recently in a funny sort of way.

I had been faithfully executing my New Year’s resolution to go to the gym, eat healthier, and had been making progress. I started to lose weight, and was feeling pretty good about myself.  I talked to my wife about going to the beach for the weekend so I could show off the improvement, and I imagined she’d look at me adoringly like when we first were married.

I was watching television with my five year old son when a commercial for a new diet came on the air.  You know the ads I am talking about, where they compare the before and after photo. And I’m sitting there thinking that they should put me on the commercial. But then my son, with all of the innocence that comes with only five years in this world stopped playing with his Legos and intently started listening to the message of “eat all you want and still lose weight.”  He then looked at me in all sincerity and said, “Dad, you should do this.  This would be good for you.”

“I am on that diet,” I told him.

“Why isn’t it working?” he asked.

Of course, we all had a laugh about this interchange, but it got me to thinking that it is inevitable for all of us to be humbled in one shape, way, or form in life, but it is our reaction to those experiences that can make all the difference in the long run. I could quit the program, or I could look back and see that I had eaten fast food more than I wanted to admit, and there were a few weekends where I had lost my dieting mojo. And then with honesty, I came to the decision: do I change and get better or rationalize why the plan didn’t work and give up?

Overconfidence tells you that it must be the other thing that was wrong—I see it all the time in my work. But humility allows you to say, “I’m not perfect, was there something that I might have been able to do better?”

Because I’m not perfect, I’m going to be honest here: I told myself that the diet wasn’t working and gave up.

For a few weeks. Realizing that my weight was climbing again, I’ve reconsidered my approach and decided to make a habit of what I could do differently.

Now, considering I spend my days (when not going to the gym faithfully and eating kale at any and all opportunities) counseling clients through financial decisions great and small, I wondered about how humility might play a role in our decision making. I looked for anything written on the intersection of how we plan and invest for our futures and the idea of humility. I found article after article about believing in yourself. But I found nothing of import on the subject of humility, let alone the idea of humility as an asset in that arena.

I think part of the silence on this subject is what I would say is a common misunderstanding of what humility is (and is not).

For my purposes, I don’t view humility as a denial of my abilities or expertise, but rather, a denial of my infallibility.  If we have the attitude of mind and heart based on this general premise, I can think of three definitive perspective changing benefits (although I am sure there are more) we can take from and reinvest back into our planning and investing activities.  They all revolve around our recognition we are not the Creator of the universe, but a potentially integral part of it – if we allow ourselves to be.  I think humility allows us to face the recognition of our limitations, our mistakes, and, ultimately, the purpose for which we toil.

Recognition of our Limitations:

I am often referred to folks who, prior to meeting me and engaging in the process of hiring a professional advisor, managed their hard earned money by themselves.  The general story is that they started investing when they were younger and were beginning to save some money.  They spent a fair amount of time reading and researching and, in some cases, did fairly well.  However, as their lives became busier with children, a growing career, and all that goes with those things, they did not have as much time or energy to devote to this important task.

Eventually, they made some mistakes in their decision making or simply didn’t do the basic rebalancing and adjusting a portfolio requires.  Later, as they had further need to establish an estate plan, find someone to tackle an increasingly more complex tax return, or develop an insurance plan which made sense, it all became a bit overwhelming.

For some, they finally bit the bullet and sought after someone who can organize all of that and come alongside them and their family to build a plan centered on their unique goals and priorities.  For others, though, they determined to continue going it alone.

While I don’t disparage either decision, one has to ask one’s self:  What’s the criteria for making that call?   Whether one looks to continue on their own or hire some help, we need to recognize we only have so much time.

We have natural limitations.

Humility then is what enables us to see our limitations where they exist.  Armed with this recognition, though, we have the opportunity to learn from our mistakes and become stronger and more successful as a result.

Nobel-prize winning research in behavioral economics reveals that we tend to make decisions from a more emotional standpoint rather than through a rational process.  (I would encourage anyone to read the works of Daniel Kahneman, Amos Taversky, and Daniel Ariely.)

We each have mental shortcuts—or what behavioral economists call cognitive biases—and we often fall victim to making bad decisions as a result.  Why is this important? Because if we know the patterns of bad decisions we may make, then we can create patterns to overcome them.

Some common biases are overconfidence (“I have been doing an amazing job on this diet!”), availability bias (what we can easily think of is most likely), and anchoring (our tendency to rely too heavily on the first piece of information we get, regardless of relevance).  The answers to these decision traps are to plan out your decisions beforehand, when you’re not emotional, and have clearer views.

For an investor or planner, this may mean creating a criteria by which you would evaluate an investment or a plan of action on your finances. It should be noted that these plans change, so keeping them updated is important.

Recognition of Our Mistakes:

My dad used to say to me when I was growing up that he had never made a mistake in his life except for that one time he thought he had made a mistake – but was mistaken.  Aside from his quintessential Irish sense of humor, I think too many share this view and as a result gloss over or shy away from our mistakes.

Often, we blame others to push away any thought we might have done something we might regret.  As a planner and investor, I can tell you mistakes are an integral part of what makes us who we are.  Only when we have the humility to admit where we have erred and the discipline to review how we got to that conclusion can we become better at investing and planning.

Even the most talented and revered in any profession have these stories of what John Maxwell calls “failing forward.”  Take, for example, Warren Buffett.  In an irony of ironies, he said in a recent interview with Fortune Magazine that his original purchase of Berkshire was a “monumentally stupid decision.”  He was young and overconfident.  He bought the company because he thought it was cheap and because he had the indefatigable view that he could turn the struggling textile company around.

However, his conflict with then CEO Seabury Stanton led him to pursue a hostile takeover rather than cash out a solid 52 percent  gain for his two year’s worth of time and investment.  Unfortunately for Mr. Buffett, the takeover was successful, but the company never proved to be and shuttered its doors two decades later after significant additional investment dollars were brought to bear.  The experience humbled him, showed him he is not invincible as an investor, and paved the way for him to become one of the most successful investors in modern history.

We all have to earn our stripes as investors.  If we earn from them through willful humility, we can grow, improve, and make better decisions yielding better results in the future.  On the contrary, if we stubbornly refuse to allow for any recognition of errors in judgment, we are simply doomed to repeat ourselves to our longer term harm and to those we care for.

Recognition of Our Purpose:

A humble mind leads to a humble heart.  The genesis of this transformation is the basic recognition that the world does not revolve around me.  I am not all that, and neither are you.  Coming out the other side of that, though, is freedom – freedom to look beyond myself, to have a more patient perspective of others’ lives, and see the world more clearly. For if I have the humility to understand that others are imperfect, that I am imperfect, that means that we need each other, and that each has their limitations and unique skills and, most importantly, a purpose.

This insight has helped me understand why I want to do what I do.  I see others struggling with finances and feel like I can help them in my small way. This extends to my family too.

For me personally, my wife and I invest so our kids can go to college and start out their adult lives financially healthy – not wealthy, mind you, but also not digging out from under a mountain of debt.

We also have charities and causes near and dear to our hearts we want to support.  I wish we had more to give, but, as we all do, we do what we can.

Don’t get me wrong, this idea of humility is not one you deal with as an event.  It is a process. As my five year old noted, I clearly still have work to do on the fitness front.  That said, humility gives us the framework to recognize our limitations, allows us the opportunity to learn from our mistakes, and gives us a purpose of serving others while not negating our own true needs.  It might be the most essential tool in the toolbox of those becoming a financially successful and fulfilled person in the truest sense.

About Michael McGrath: Michael McGrath, MS, CFP®, CLU® is a vice-president with EP Wealth Advisors. Mr. McGrath graduated from Pepperdine University in 1994 and received his Masters of Science in Finance with an emphasis in Financial Planning from The College for Financial Planning. Active in his home community of Santa Clarita, California, McGrath was elected to the Newhall School District Board of Trustees and has served as an adjunct faculty member at The Master’s College in Newhall, Calif.  Michael and his wife, Shelley, have been married since 1992 and have five children, Garrett, Brody, Alleah, Collette, and Griffin.

About EP Wealth Advisors: EP Wealth Advisors is a fee-only registered investment advisory and financial planning firm headquartered in Torrance, California. EP Wealth Advisors manages more than $2.5 billion for clients as of December 31, 2016. With additional offices in the San Francisco Bay area, West Los Angeles, Irvine, California and Denver, Colorado, the firm provides client-centric financial planning, wealth management and investment management services to individuals and businesses. EP Wealth was listed among the Top RIA Firms in 2015 by Financial Advisor magazine and in 2016 by Financial Planning magazine (This ranking is based on a firm’s assets under management as reported on Form ADV. Firms eligible for this ranking must be independent registered investment advisors providing services to individual clients with at least 50 million in assets under management as of December 31, 2015. Our presence in these rankings should not be construed as an endorsement of the advisor by any client nor is it representative of any one client’s evaluation or opinion of the advisor. Third-party rankings are no guarantee of future investment success. Working with a ranked adviser does not ensure that you will experience a higher level of performance or results.). For more information, visit:

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