Transcript
Speaker: Welcome to the Alternor's Mason Podcast with host Brittany Mason, Chief of Staff at Bonner & Capital Management. You'll learn how to build alternative knowledge brick by brick. Bonner & Capital Management uses technology to help independent advisors scale and educate themselves on alternative investments. Since education is such a big piece of what we do, we are excited to kick off the series to dive into the mission and bricks of the alternative space.
Speaker: Hello everyone, I am Brittany Mason, Chief of Staff of boundary and capital and we are back for another episode of the alternative Mason building all knowledge brick by brick. we're really excited to bring you another exciting episode with a very special guest right here.
Speaker: Um, for the 2024 season, I'm really, really excited about this guest, Daniel Crosby. I've been following his work, um, for probably about a year now. And so I've learned a lot from him. I'm really excited to have him on. Thanks for coming on, Daniel. Oh, my pleasure. Happy new year.
Speaker: Thank you. Happy New Year to you. I want to just give our listeners a little bit of your background. So Dr. Daniel Crosby is a renowned psychologist, behavioral finance expert, and known for his best selling books and innovative work in market sentiment analysis.
Speaker: He has authored several acclaimed books, including Personal Benchmark, The Laws of Wealth, and Behavioral Investor. Dr. Crosby's expertise lies in decoding market psychology and helping organizations navigate the intersection of mind and markets. His insights have been featured in various publications and he's been recognized as the leading
Speaker: Thinker in this field. Thank you so much, Daniel. I'm so excited to have you on. Like I said, I've been following you now for like the last year. I didn't realize you and Shana are so close actually that you guys are such good friends. So no, we were talking before you hit record where we're all praying for her and rooting for her to get better. And thank you for, thank you for everything you've done to take good care of her.
Speaker: Yeah, well, she's our girl. And I will say she is literally the strongest person I know. And so we're just excited to have her, you know, have her kicking butt with us. And it's been it's been exciting, you know, so yeah, she's she's awesome. And she's been a great mentor to me and
Speaker: Um, it's just, it's awesome that, that you guys have that connection. We can have you on and have this discussion today. So yeah. So I, I really love your work because the way you present it is so relatable. Um, you know, like I find like you share stories where, you know, they're, you're the reader can really connect to it, you know, cause I feel like we.
Speaker: like real life experiences and you bring it back in an educational way. And I am specifically interested in human behavior and why we do the things that we do and all of that. That's actually always been very interesting to me. And so I want to know, like, how did you go down this path and why?
Speaker: You know, yeah, it's a great question. It's been quite a journey. So my dad is a financial advisor. So when I started college, I thought that's what I was going to do. I thought I was going to be a financial advisor. I thought I would do investment management.
Speaker: And after my first year of college, I actually dropped out of college to spend two years as a missionary in Southeast Asia. And so, you know, being 19, going across the world, learning about a different culture, learning about a different way of living certainly puts you in mind of sort of human first type considerations.
Speaker: And so I came back from that two -year experience, and I had a very close friend who had a very severe eating disorder. And so helping this friend, I became sort of the liaison between this friend and her family, which was across the country. She was receiving inpatient treatment near where I was going to college.
Speaker: And so I got to interface with the doctors a lot. I was doing a lot of personal study to try and help her out. And sort of the one -two punch of my time in the Philippines paired with this process of trying to help this friend overcome this eating disorder, interfacing with the doctors and stuff, I said, you know, why would I study economics? Why would I study finance when I could study this? Which is just so much more interesting to me.
Speaker: So that put me on a path to become a clinician, to become a psychotherapist. And indeed, my PhD is in, I mean, I'm a clinical psychologist. That's what my PhD is in. But long story short, we can get into it more. About halfway through my PhD, I sort of started to burn out just the process of
Speaker: you know 40 hours a week of talking to people who are having the worst week of their lives is it just really an enormously heavy thing i was you know i was all of you as well yeah you know that emotional fatigue that secondary stress is real and i mean i was 23 years old when i started my phd program so like i probably wasn't
Speaker: And I was taking it home with me in a big way. And so basically I came to my dad and I said, look, I I love thinking about and studying human behavior, but I want to do it in a way where it's not life and death. And, you know, he said, look, there's a ton of psychology in my work. And that comment, you know, lots of stuff happened in between. But that that sort of comment was the original impetus
Speaker: for me to start looking at markets and start looking at this intersection of investing and behavior. Wow. So, since your dad is a financial advisor, was he teaching you money tricks early on, young? Was that something that was always instilled in you at a very young age?
Speaker: Yeah, absolutely. I mean, I remember, you know, we grew up in a close family, always had dinner together. And we would talk about, you know, stock picking at the dinner table and sort of fundamental analysis of equities at the dinner table. And why would you choose this stock over another? And, you know, we would take companies that, you know, I don't remember who it was at the time, but, you know, the Disney's, the Nike's, whatever a kid is into.
Speaker: And he would be like, OK, well, let's look at them as a stock and not just the Jordans you want and let's sort of break them down. And so, yeah, definitely definitely grew up steeped in talking about money and investing in a way that I think is fairly unusual. I think the other thing to say is that debt was like a four letter word in our house. Like, I mean, my dad.
Speaker: hated debt. And so much of my childhood was sort of my dad's maniacal efforts to get us out of debt and pay off the house. And we ate a lot of beans and rice while he was trying to pay that off. But you know, money was always like very top of mind around the dinner table.
Speaker: So I always like to ask the background of my guests and what led them into the financial industry because my journey was so unusual. This is entirely different than what I was doing before. And a big part of my journey has been my relationship to money. And I didn't think I was smart enough. I didn't think I was capable enough. I didn't have the confidence in myself
Speaker: And I had a lot of, a lot of my upbringing was fear -based. And so, and I know you talk a lot about shame. There's actually a shame and fear. There's a quote that I have from you that I like that came from your behavioral investor book. Shame and fear are poor motivators of good behavior and can even lead to a paradoxal reaction. And like, I feel like that was something that
Speaker: I really did for a long time in my life was I just kind of had my my head in the sand for a long time and I ended up going into I what I was doing before I was more production and
Speaker: um you know entertainment and I had a production business and trusted the wrong people with the financial aspect on it. One of them was actually even a mentor of mine of 20 years but unfortunately that human behavior he saw an opportunity and those people that I was in business with profited off of me and dismantled everything I built.
Speaker: And that at that point, that's when I was like, okay, what am I going to do? I'm running towards my fears. And I really believe that you have to face your fears because on the other side of that is freedom.
Speaker: And so that's what led me into the finance industry and why I'm so interested in human behavior and why we do the things that we do. And I think the last few years specifically, I've just really debated probably the most, is it nature or nurture? What are your thoughts?
Speaker: If you don't mind I will answer that but I want to run with that the shame and the shame and the guilt if you don't mind because I think that's a really great point and I think it's something we need to talk about so first of all kudos to you for
Speaker: you know, confronting those fears, not taking this one negative experience you had and letting it define you, but instead sort of jumping in with both feet and taking that on so you could have a different experience the next time around. We're excited to see what all the great things you do. But, you know, if you think about some of the reasons why people overspend or mismanage their investments or something like that, a lot of times
Speaker: it's sort of scratching a psychological itch, right? You know, whether it's retail therapy or, you know, any anything like that. It's like we're feeling an emotion. We're feeling sad. We're feeling uncertain. We're feeling whatever. And we're going to try to scratch that itch with in a financial way.
Speaker: Now, if we as a profession double down on fear and shame and guilt and ridicule people for this behavior or make fun of them or judge them, we're actually going to elicit a stronger set of emotions that's then going to lead to more of that bad behavior trying to cover up those negative emotions.
Speaker: And I primarily work with financial advisors, and when you talk to clients about what's the number one reason why you don't go see an advisor consistently, the number one reason why is fear of judgment, right? They feel like they're gonna bring their whole financial life, lay themselves bare before the advisor, and he or she is gonna laugh at them or judge them or scold them.
Speaker: And so I feel like I'm a big believer that no financial behavior is irrational. They're not all good, right? I mean, they're not all equally adaptive or positive, but all of it makes sense if you have enough context. So I think that we as an industry have to move away from judgment and towards curiosity about
Speaker: this person that's sitting in front of me, what is their financial life telling me about their path and their journey and who they are? So, had to, that's a soapbox, had to get that out there. Oh, I'm glad that you did because Shane here, it's so true. I mean, it can just change the course of your life and keep you from so many things. So what is PETA overcoming that? I mean, how does the average person
Speaker: Overcome that. Well, so maybe let's let's go circuitously. Let's talk about the nature and nurture and then we'll get to what that what that means for overcoming it. Right. So it's it's an imperfect parallel. Right. But if you look at something that's been well studied.
Speaker: like the contribution of nature versus nurture to something like happiness, right? Something like happiness, if you look at the data, because we have good data on this, happiness is about 50 % genetic.
Speaker: It's about 50 % just nature. And people have a set point for happiness or positivity or anxiety or stress the same way that people have a set point for something like weight, right? Diet and exercise absolutely contributes, but some people are naturally thinner or heavier than others, just sort of organically, right?
Speaker: The remaining 50%, so half of it's just sort of down to your mom and dad, right? Like did they give you a good genetic endowment or did they not? So that's kind of the luck of the draw. The remaining 50 % though is where it gets really fascinating because of the remaining 50%, 10 % of it is your situation
Speaker: and 40 % of it is your mentality, right? 40 % of it is mental, 40 % of it is volitional and choice -based, and only 10 % is sort of like what's happening to you.
Speaker: And what's fascinating is if you look at things like there's studies that have been done on lottery winners and then people who get into horrific accidents that leave them paralyzed. And if you look at these two groups of people, you would assume that one year on
Speaker: the lottery winners and the paraplegics are going to be in very different sort of happiness camps. But what you see is that they've both returned to kind of where they are, right? The lottery winners have an initial boost in happiness, of course, but then they kind of come back down to the level of both their genetics and their choices. And then the people who've had a negative health event have an initial dip, but then they come back to the level of their genetics and their choices.
Speaker: So I think the takeaway is, you know, is financial decision making nature or nurture. It's probably about half nature, which is a little frustrating, I think, for some folks, but it is, it is what it is.
Speaker: And then most of the rest of it is not whether we get good breaks or bad breaks. It's sort of how mentally tough we are and how much we're accepting of that responsibility and doing what you did, right? You had that bad break, that 10%, a crummy 10%, but your 40%, right? Your mental toughness, your mental strength,
Speaker: You overrode your baby. No one's more resilient. Well, Shana actually might be more resilient. Yeah, you took your 40 % and you overrode your 10%. So that's, you know, I think begins to answer the question of what do we do about it? Yeah. Yeah. And
Speaker: That, that is fascinating. I did not know all of that. So it really is a combination of both nature versus nurture. It really is. I did not realize that so much of it was dependent on genetics. As far as mental, um, well, mental toughness, how do you, um, the, I'm sorry, the part I wanted to get into,
Speaker: the part where understanding yourself and learning about your own internal biases, how that might influence a financial investor's decision -making. So what is the best way to really understand your own tendencies and get to know yourself so you can make better investment decisions?
Speaker: OK, so I'm going to throw a little cold water on this idea. We're going to see if we can blow some minds today. So understanding yourself in the way that most people go about it is not as powerful as they think. So let me let me qualify that a bit. Right. So first of all, all of us in the world have a bias towards thinking we are
Speaker: smarter, better, faster, stronger than we actually are, right? It's called optimism bias. Not everyone has it, but most people have it. And the people who don't have it tend to suffer from pretty severe depression and things. So optimism bias, more pronounced in men than women, which won't surprise you, I'd imagine, but you know, optimism.
Speaker: Over no comment right over so this is over optimism. It's sort of an airbag for our ego so so all of us we kind of think we're, we're better than we actually are in some predictable ways.
Speaker: There are some things you can do about that, right? You can read a book like mine or lots of the other great books that have been written on this subject with an eye to like, you know, who am I? What do I do well? What do I do poorly? But there's always going to be limits to that because you are so sort of well insulated to just think that you're kind of better than you are. And there's a real
Speaker: There's a real positive lift that comes from that and your mind and your body don't want to be rid of that. So I think, you know, that's step one, and you're going to get whatever 10, 20 % of the way there by introspecting. Step two, though, is you actually have to surround yourself with people who will give you hard feedback.
Speaker: And that's really hard for most people to do. So, Brittany, there's this fascinating study. So think about it with Shana and the other people you work with, right? There's this fascinating study that shows that our coworkers tend to be dramatically better predictors of our behavior than we are.
Speaker: So like you can tell Shana what she's going to do next better than she knows and she can do the same for you because you see her as she is and she sees you as you are without the need to sort of put this glow of excessive, you know, righteousness or optimism around it.
Speaker: So other people see us more clearly than we see ourselves. And so we have to surround ourselves with people who love us enough to give us that feedback and those insights into who we are in a way that's palatable and based in love. Right. Because a lot of people will give you critical feedback to try and knock you down a peg. It takes a real friend to give you critical feedback.
Speaker: because they want you to look good, right? And then the last step that I would talk about is the environment. So the environment has a huge, huge predictor on how we act. There's some really fascinating studies. Some of them are kind of
Speaker: Some of them are kind of inappropriate, but they're really interesting that talk about human behavior when we get put in a bad situation. Right. And basically we are, we like to think that we're going to act as, as well as our motivations or our goals, but typically we act as poorly as our environment. So, you know,
Speaker: And an alcoholic shouldn't go to bars, right? I mean, it's this sort of thing where the environment is mega predictive of how we act. So surrounding ourselves with the right people, standing in the right places, reading the right books, watching the right shows, all of this is really like far more predictive of what we're going to do.
Speaker: than just sort of our goals or our values, which I think is a hard thing for most people to hear. They want to say, no, I'm a good person. I have good goals. And so I'm going to do good things. Well, you're usually about as bad or as good as your friends and your surroundings. And that's not anything that I think most people understand intuitively. I was just about to ask that. It came to mind that age old saying you're like the five people you spend the
Speaker: I'm like, you believe that. That's true. Yeah. Well, there's, there's, there's fascinating. There's fascinating back set up. There's fascinating. Yeah. So around, around happy. So we'll look at some behaviors that get well studied. One's happiness, right? I'm going to forget the exact numbers, but it's like, if your friend has a 10 % reduction in happiness, that's good for a meaningful reduction in your own happiness.
Speaker: If your friend gains or loses 20 pounds, that's worth four or five pounds to you on average. And we see this, right? Like we see this that usually you are about as fit, as happy, as wealthy as the people you surround yourself with. And it's kind of a weird comment because people can take it in a weird way and say, okay, well now I'm going to surround myself with,
Speaker: you know, wealthy supermodels or whatever, but I don't think you need to take it that far, but you do need to understand environmental influences on behavior and know that you're going to be materially impacted by the things you read, the things you watch, the places you go, and the people you surround yourself with. So what about, I want to ask you about biofeedback.
Speaker: I love biofeedback. Have you had any experience in biofeedback? I have. What are your thoughts on it? Oh, it's super powerful. So we used to talk about your experiences. I just feel like no one talks about biofeedback. And I'm curious to know your experience with it because it is so important because removing the emotional biases when it comes to investing, I mean, you're going to be you're going to be a better investor. So, you know,
Speaker: I, there's so many things I want to get to with like AI and so many questions I have for you about, you know, what your thoughts are on all of that. But, um, I, I wanted to talk about biofeedback first because, um, I, I stumbled upon it and it has been so life changing for me. Um,
Speaker: And just, yeah, and learning about myself, understanding my own emotions, being able to control emotions better, communicate better, all of those things. And so I just don't think we talk about it enough when we talk about brain health. And so, yeah, what's your experience with it?
Speaker: So I'd be interested to hear how you've used it. So the way that I've used it historically back in my counseling days, I think back to this environmental thing, I think that people underestimate the link between the mind -body connection. So when I was a counselor,
Speaker: I would commonly have people come in with some constellation of, you know, anxiety or depression symptoms. And I would begin to ask them about their diet, you know, their diet, exercise, substance use, things like that. And sometimes people would kind of get pissy with like, like sort of like, what does this have to do with anything?
Speaker: And I'll never forget, I had a client who began his day with six Mountain dews. Like he would, he would wake up and drink, you know, half a case of Mountain dews. And he's complaining of irregular heartbeat and anxiety. And I'm like, well, the first thing we have to stop doing is, you know, main line.
Speaker: Yeah, it was like mainlining sugar and caffeine every morning when you wake up, and he was frustrated for that. Everyone wants this sort of silver bullet or this magic pill, and they want it to be some deep psychological thing, not understanding that one of the most powerful treatments for anxiety or depression is exercise.
Speaker: you know, and appropriate nutrition. So biofeedback, what we would do is we would measure someone's galvanic skin response, basically how warm or cool their hands were.
Speaker: And you could take someone through meditation exercises, mindfulness exercises, relaxation, and you could actually watch them move their body temperature and get that feedback real time. And it was such a simple but powerful thing for people to understand the connection between the mind and the body. It's such a simple thing, but it's so powerful and so much of what
Speaker: This is again, a soapbox, like so much of what passes for bad behavior or mental illness is poor self care of the body. Yes. Yes. You talk a lot about that. That is how important it is to have, you know, a healthy emotional wellbeing and, you know, take care of yourself. What are some ways that you like to take care of yourself?
Speaker: So I am guilty of too much caffeine, but I'm very good about going to the gym. I go to the gym, I have two buddies and, you know,
Speaker: One of the best things you can do is there's a four -part system for trying to change a behavior, right? So it's called EAST, easy, attractive, social, and timely, right? So let's talk about those four things.
Speaker: So I go to the gym seven days a week, right, with two of my buddies. So I make it easy by laying my clothes out the night before, right? Because when I wake up early, it's like you don't want to make it any harder than it needs to be. Let's get everything right there. I make it attractive
Speaker: by attractive and social by the fact that my friends will be there. They're going to be there. They're counting on me. We're counting on each other. And so that's a fun way for me to start my day. We talk. We joke. We hang out. That's an attractive social way for me to spend 6 .30 to 8 every morning. And then timely, I do it at the same time every day. Another thing that you can do to change a behavior is to pair it with an existing behavior.
Speaker: If you want to read more books this year, read one chapter every night when you brush your teeth. Something you're already doing with a great deal of consistency, marry those two behaviors up and make them timely. That's what I do. Look, I'm imperfect in lots of other ways, but I'm very good about going to the gym. I've used that framework to
Speaker: to help it. And I promise you, I promise you if
Speaker: If left to my own devices, I mean, my mental health would drop 25 % if I stopped going to the gym. Like I'd immediately need to be on medication or something. And I'm not poo -pooing psych medications. Lots of people need them and they're good. But for people who are in that kind of worried well category or sort of on the cusp, this mind -body connection can be a really powerful thing.
Speaker: Awesome. Yeah, I was curious about your experience with it. And it's, you know, also the topic of AI has been such a big topic recently. And I actually was just having a discussion with a friend earlier today on on AI robots and where that is leading us with human relationships. And, you know, so how do you think AI is going to disrupt the finance industry?
Speaker: Yeah, I think AI is going to be absolutely huge, but not in the way that some people think.
Speaker: A couple years ago, 2016, Merrill Lynch did a study of all the ways that advisors add value to their clients' lives. And the good news for financial professionals, like the ones that we work with, is that every single thing was additive, whether it's, you know, product selection, asset allocation, you know, all these things are additive, tax management,
Speaker: But what they found is the things that were the most additive were the things that AI did worst. So the things that were least additive were things like, you know, stock selection, asset allocation, tax management, rebalancing. All of these things were important and AI does them very, very well. So AI, I think will eventually completely overtake
Speaker: Some of these functions that are wrote that are memorizable that are Programmable the things that added the most value to clients lives of the number one additive piece was behavioral coaching
Speaker: That's nothing that AI does. Well, it's creepy, right? Like, I mean, it's not even, it's not even desirable to try and have sort of like a real interaction with an AI. So behavioral coaching is the number one. Number two was I believe personality assessment, right? Like sort of understanding your client's values and their personality.
Speaker: So, the most additive things were all on this behavior trust connection front. And what I think is going to happen is AI is coming like I hear I hear some people try and say like, Oh, it's no big deal people will always need human advisors.
Speaker: Yeah, that's true. But what it's going to happen is AI is going to so thoroughly overtake certain parts of our business that I think it's going to free us up to really add value on that human connection front. So the people that are trying to compete on things that AI does well, I think are in big trouble. But people who are automating those processes and then trying to compete on the connecting are going to do very well.
Speaker: Okay, good. Yeah, I was wondering what your thoughts were because, because, you know, is this going to eliminate the advisor entirely? You know, that's the question I think on everyone's mind. Sure.
Speaker: Not, I'm not worried about it. I think it's going to free advisors up to do more of what they do best. Yeah. I hope so. I hope so. I think, you know, there's so many exciting things with AI and, but yeah, I mean, there, there is nothing like the human, the real human, you know, so, um, but yeah, that was, I was having that discussion earlier about AI robots in relation and having in like actual relationships with, with AI.
Speaker: Um, you know, and, and where we're heading. I mean, do you think the human race is in trouble? Well, like the, like a population decline type thing. Yeah. I'm almost thinking. Yeah. What if we just stop procreating?
Speaker: Well, I mean, look, we're going to go pretty far afield here, but hey, let's go. So we've got, we've got, we've got two problems here, right? I mean, the, the most developed countries in the world have a birth rate that is declining at an incredible rate. Like even, I mean, you're much younger than me, but like even, even in our lifetimes, the birth rate
Speaker: in the developed Western world is, and then in the most developed parts of Asia, I think Korea and Japan are some of the worst offenders. It's dropping like well below replacement rate. So you've got this sort of thing happening, which is
Speaker: I think partially a consequence of, of technology, but also a consequence of, you know, people waiting later to get married, people like fewer people getting married, people being more self -sufficient, uh, inflation and other things that make it expensive to have a family. So I'm trying to buy a house. Yeah. Right.
Speaker: Yeah. So I think it's, um, I think it's a multifaceted problem, but I think it's a real problem. And then you've got, uh, you know, you've got sperm counts declining in a really incredible way, uh, all over the world, do largely to environmental and health concerns. And so I think those two things you see that the population decline is, is something we really, really need to really need to get smart about and really need to worry about. But.
Speaker: I think I'm happy to hear that we're not too worried about AI though. No, I think the industry, I think it will serve us very well.
Speaker: Well, Daniel, I don't want to take up all of your time, but is there anything else you want to, you want to add or that you think can be a value for our listeners? I mean, there's so much, I mean, I could, I could talk to you all day, but you know, I know you got other things to do. Yeah, no, thank you. Thank you for the opportunity to talk about some of this stuff. It's a joy. So thanks for sharing your platform with me.
Speaker: Oh no, it's been wonderful to have you on. I've learned so much from you and I look forward to meeting you in person one of these days. For sure, for sure. Thank you so much. Thank you everyone who tuned in and listened. We really appreciate it. Thank you and be sure to follow Daniel on all of his social networks. What are they?
Speaker: So I'm on Twitter, I'm mostly on Twitter and LinkedIn. So at Daniel Crosby on Twitter and Daniel Crosby, PhD on LinkedIn. Awesome. Yes, go give him a follow and definitely pick up his books. I've learned so much from Daniel. So thank you so much again, Daniel Crosby, for coming on and everyone listening. We will see you again on the next episode live from the green. Thank you.
Speaker: The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or any specific
Speaker: It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is your guarantee to consult. And if industry's investments will be appropriate or managed, you cannot take investment into the record. As always, please remember, investing involves risk and possible loss of capital. Please seek advice from a licensed professional.
