Human beings understand the world through story-telling. The organised structure of a beginning, a middle and an end helps us make sense of complexity. But in the world of investment, our need for tidy narratives can steer us in the wrong direction.
The Nobel laureate economist Eugene Fama was once asked to define the ideal portfolio. He looked bemused for a moment before replying that there was actually an infinite continuum of possibilities. Why? Because every person is different.
Regret has been cited by Nobel laureate Daniel Kahneman as probably the greatest enemy of good decision-making in personal finance. It is often the driving force behind panicky attempts to time the market, buying at the top or selling at the bottom. It can prompt us to place a far greater weight on the possibility of suffering a loss than the prospect of a win.
Whilst you might expect it to be something more technical, the most important thing a financial planner does is set your expectations and help you deal with your emotions as an investor.