Mike LeGassick is a director and behavioural investment coach at Manning & Company, a long-established financial advice practice based in Ivybridge, Devon. LeGassick recently joined Scott Challinor on The Leaders Council Podcast to highlight and clarify some key aspects of investing that from an advisor’s perspective, every investor ought to be aware of.
One issue that was discussed on the show revolved around the tendency for investors to make hasty decisions - usually at times of volatility within the marketplace in the wake of a national or global event of influence - which often do not prove to be the right choices in the long-term.
Lifting the lid on what causes investors to suddenly become uncomfortable, cash-out and run, LeGassick [pictured] shared his view that the major driver is a confusion between volatility and a permanent loss of capital.
LeGassick said: “The biggest mistake that most investors make is panicking and doing the wrong things at the wrong time for the wrong reasons. That might be fuelled by media frenzy such as what they read and what they see on the TV. But panicking is the easy excuse, you must look at what causes the panic. I’ve done this job for over 30 years now and without a shadow of a doubt, the thing that causes the majority of investors to panic is basically confusing volatility with a permanent loss of capital.
The Manning & Company boss went on to share the story of a rollercoaster as an analogy, which he often uses to explain the nature of investment and volatility to investors.
“I basically say to all new or experienced investors that come and work with me: ‘Have you ever been on a rollercoaster?’. Most of them will see ‘Well yes’ and they either loved it or will never do it again.
"If you cast your mind back to the first time you might have been on a rollercoaster, you will probably have had mixed emotions, you’ve set yourself in the chair, brought the bar down over your chest and tightened it up. Then you get the mixed emotions of apprehension and a bit of excitement. Then comes the anxiety because as you’re slowly going up to the top of the rollercoaster, there are already people thinking ‘What am I doing here? Why am I doing this to myself?’. They then get to the top and people are screaming ‘Get me off!’ or whatever.
“Then as the rollercoaster drops down, goes over the upside-down loops and more, first-time riders are maybe thinking ‘I’m going to die, get me out of here!’. There’s a lot of up and down, a steep upward incline, a steep downward spiral, and then you come back up to the beginning again. When you get to the end, you’ll either queue up again or never go on again."
LeGassick then elaborated on his analogy, informing us that the ups, downs and loops of the rollercoaster were akin to the volatility of investing.
"The rollercoaster is like the volatility of investing. If you managed to get yourself out of your seat when upside down and mid-loop, then you’re probably looking at a permanent loss. So, what you need to understand with investing is not to get out of the rollercoaster when upside down. It’s the worst possible thing, and likewise investors tend to panic and do the wrong things at the wrong time rather than waiting it out.
“I would say 70 per cent of what I do with my clients is managing people’s behaviour and educating them to make sure they don’t get blindsided by the mistakes that investors make. If I can make sure that my clients and whoever I speak to don't fall foul of those common mistakes, then there's a far better chance they'll get a far better outcome.”
Listen to the extended interview with Manning & Company’s Mike LeGassick on The Leaders Council Podcast below.
