Mindset of players
Traditionally we have been very conservative in terms of our fascination for games which has been more or less limited to cricket. Since last few years, I have observed that Indians and specially youngsters have started taking the serious interest into the Soccer game. Most of the youngsters I have seen supporting one or two teams, and this has led me to be a little curious about the game.
Though I am not a good player either of soccer or of cricket, but I always love the players talking after the matches. I love to relate to their mindset and psychology. I love to hear from the champions of any games on how they try and maintain their focus amidst such a high level of pressures. I feel we all have a lot to be learnt from the champions of the various games on how to stay focused in whatever we are doing without getting carried away or getting pressured by the crowd’s cheer and expectations.
Goalie and Penalty Kick
When it comes to soccer, I always feel pity for goal keeper when it comes to a penalty kick. Because in case of penalty kick which is fired from the distance of just 11 meters with the speed of around 125 miles per hour, and takes just one quarter of the second to reach to the goal post, the poor goal keeper is first supposed to guess the direction of the ball before it’s fired and then second, he is supposed to stop it. When the average goals into the tournaments are 2.5 per match, penalty kicks become very crucial for both the teams as the chances of goal being made, are very high.
If goal keeper stops it, no big deal as he is supposed to do so, but if he misses, he’s guilty.
I have often seen goal keepers diving either side of the goal post before the kick and missing the save just because they jumped on either wrong direction or in wrong area. I have always fascinated about the mindset of the goalkeeper before the penalty kick. What would he be thinking exactly before the penalty kick and on what basis he would be diving on either side?
Research on penalty kick
After taking help of Google, I found that I am not the only one who is curious about studying the mindset of the goalkeeper. There is a detailed study done into this area in 2005 by some Israel based behavioral scientists. (Bar-Eli, Michael and Azar, Ofer H. and Ritov, Ilana and Keidar-Levin, Yael and Schein, Galit (2005): Action bias among elite soccer goalkeepers: The case of penalty kicks.)
They studied some 286 penalty kicks in top leagues and championships worldwide and came out with the conclusion that the best chances for a goalkeeper to stop the penalty kick becoming a goal is by staying in centre of goal, still in almost 92% of the cases goalkeeper either jumps right or left for saving the goal. Even by knowing this statistic goal keepers avoid to stay at centre and jump on either of the sides in most cases.
This is because staying in centre might be perceived as inaction by the others. If the goal is scored and goal keeper has not jumped, it might create a worse feeling of not trying. On the other hand when the goal keeper jumps on either side and misses the goal, the scene would be a little more sympathetic in favor of goal keeper. People will say that he at least tried.
Diving to the right or left gives the appearance of decisive action, even if the ball goes in a different direction. Conversely, standing still in the middle, while the ball sails past on either side gives the appearance of indecision and incompetence. Not true, but that’s what it looks like. So goalies almost always dive.
This is called action bias in the behavioral studies. We normally take actions in the situation when we know that staying put is the best option.
Action Bias in our profession
This explains the urge of a financial advisor to constantly try to predict the market’s next move and keep on reshuffling the portfolio every now and then, even when we know that market timing is impossible and staying with the asset allocation based on needs of client is the best thing to continue with.
This also explains why some fund managers constantly keep on churning the portfolio just to feel better and to prove that they are at least trying. It all comes down to the fact that humans don’t like to sit and do nothing when faced with uncertainty. When faced with a tough decision ask, “Do I have the data I need or am I letting my bias for action drive the decision?”
In life, many a times we know that doing nothing is the best option, but we still take some actions based on our action bias and to ensure that people understand that we are doing our job rightly. Doing our job rightly and trying to convince the people that we are doing the job rightly, both are different tasks and are equally important.
The role of financial advisor is also like goal keeper, many a times we know that doing nothing is the best option for the client’s portfolio, but at the same time doing nothing is also perceived negatively by clients. Client wants us to keep on jumping and trying to save and grow their portfolio by constant activity of buying, switching, profit booking etc.
Handling Investor’s Action Bias
In a situation like this you need to act more as a psychologist and counselor rather than being the financial advisor. You need to find out the ways to explain to him again and again why staying put in some situations are more beneficial rather than kept on churning the portfolio. You can in fact share the story of goalkeeper along with the help of relevant data to explain it might be good to stand still for investor in a given situation rather than keep on churning the portfolio in reaction to each small event in the market.
You constantly need to explain the portfolio position and its rationale in client’s portfolio viz a viz client’s goals again and again. Even after selling the product, you may have to sell the rationale of the portfolio and products again and again just to ensure that your client stay away from the action bias and sticks to the portfolio.
You may even design the strategy to frequently realign the portfolio without changing its composition and keeping client’s interest as a centre point while doing the active reallocation of portfolio periodically so as to ensure that your client views you as an active goalie and still you stick to the strategy which you feel is beneficial to the client.
Even doctors keep many sugar pills in different colors to give it to patients who according to doctor need no medicine to cure. These pills are called placebo. Rather than prescribing nothing and just advising the patient to take rest for couple of days, doctors prescribes a medicine which is medically ineffective in curing anything (mostly color quoted sugar pills), but still given to patient so as to make him feel better.
Think how you can create a placebo for your investor which ensures that client sticks to the asset allocation and stays away from those urges of constant churning.