Behavioral Investing—Managing the emotions behind our decisions
Tony Roth, Chief Investment Officer, Wilmington Trust Investment Advisors
Stephen Shu, PhD, Visiting Lecturer, Cornell University, Principal at Digital Nudging Tech
TONY ROTH: This is Tony Roth and you’re listening to Capital Considerations. We have a really cool episode today with a great guest. And this episode, the way I think about it, it’s all about the instincts of fear and greed and how they play against each other and what they do to investors when they invest. And if you’re the kind of investor that follows the plan, meets with us once a year, gets the update, and then goes and lives your life and doesn’t really think about what’s going on with your portfolio and doesn’t really look at the level that the S&P or the Dow Jones every day, I think you’ll find this pretty interesting.
But, if on the other hand, you’re the kind of investor that is asking how’d the market do today every day and you are opening your account and you’re saying, gee, I lost this amount today or I made this amount today, then I think you’re going to find this conversation vital and indispensable and really just personal in a lot of ways.
So, Dr. Shu has just an amazing career in behavioral finance. He’s been in the decade for three—he’s been in the industry, excuse me, for three decades as a behavioral finance specialist and he’s worked as a consultant, he’s worked at a lot of industry-leading firms. He’s currently a principal at Digital Nudging Technology, which is a behavioral economics consultancy, and he’s a behavioral finance advisor to Voya Behavioral Finance Institute for Innovation. He’s also a member of faculty at Cornell, at the Dyson School of Applied Economics and Management, and he’s written lots of studies on behavioral finance.
So, with that background, welcome, Stephen.
STEPHEN SHU: Thank you. Thanks for having me here.
TONY ROTH: And also, please keep in mind, that nothing we say today is an endorsement to buy or sell any given stock or security. I think maybe the starting point for the conversation is that I’ve learned over many years that the best way to provide financial advice to clients is to help them ferret out what their goals and objectives are over the long-term, figure out sort of what their psychological tolerance is with risk, and we define that as drawdown exposure. So, if you lose 5% or 10% or 20% in your portfolio, what is your reaction to that going to be? Are you going to lose sleep? Or are you going to sort of roll with the punches and be okay?
And we roll that all up into an investment plan. We even create what we call an investment policy statement for many clients, which is sort of a, an agreement so everybody knows the rules and responsibilities and we have our long-term goals codified, if you will, in that plan, in that IPS, and we put everything in motion and we follow it. But then, something happens, which is the world turns out differently than we expected, either to the positive or to the negative. And in the case where we have a situation like we’d have recently where we’ve had this big, huge spike down and then up in stocks with the pandemic and then in the wake of the pandemic we now have a war in Eastern Europe and we’ve got a recalcitrant China to do a lot of the things that we thought that they would do as a more modern and evolving and opening country and it’s causing a lot of stress for investors, inflation, etcetera.
And not a day goes by we don’t have clients calling up saying, gee, I think I should de-risk, I think I should get out. And it’s that fear coming into the equation and it’s always that way, right? It doesn’t matter whether it’s 9/11 or Black Monday, or you can go through the history of stress events in the market and there are always things that just resonate and that bring that fear to the surface for people, and you want to run for the hills.
So, Stephen, how should we get into this conversation? What are the basic concepts, psychological biases, archetypes of behavior? How do we start to think about, look in the mirror and think about how we act and what are the tools to have this conversation we need to start with?
STEPHEN SHU: So, behavioral finance is really the combination of psychology and finance. And so, I think one of the most useful models that I’ve seen put forth was by Nobel Laureate Daniel Kahneman. He put forth this sort of dual-process way of thinking, which is kind of this system one thinking, which is fast thinking, autonomous thinking. It’s like thinking when I throw you a basketball; you kind of catch it. Versus kind of the system two thinking, which is like this more reflective thinking when you take a test.
And I think we don’t realize that we make tens of thousands of decisions every day. We’ve probably already made thousands of decisions today. And so, talking about the process that you had with setting goals and assessing tolerance for risk. It’s a really good thing, because the system one fast, autonomous thinking is like the predominant, easiest method of thinking. But having the structured process for reflecting, reflecting on your goals, pre-thinking about how you will address risk, I think these are important processes because you want to not give everything kind of this system one attention. There are certain things that you do want to reflect upon and kind of bring that to bear.
And then, in terms of biases, lots of people have them. I don’t like to use the term irrational. They’re just sort of this natural. I mean I have a bias. I'm kind of near-sighted, right? I have to use corrective lenses.
But there are some biases that definitely affect like how people behave in the financial world. One of them is kind of this present bias thing, which is you see things that are very near to you much more closely than things far away. It’s a bit harder and takes time to reflect. So, the example that I use of this is imagine you're standing like three blocks away from a building and between you and this building is this lamppost and you’re standing close to the lamppost and the lamppost looks larger than the building when you’re standing close and it really takes you effort to kind of step back and see that actually the building is much larger.
So, I think that there are these biases. But I think having good processes can help you kind of work through some of these biases. So that, those were two points. We have to recognize that there’s this fast and slow thinking, system one and system two thinking, but also recognize that there are biases that can kind of throw us have us misperceptions and judgment.
TONY ROTH: Yeah. I love the way you’re framing that, and they’re related, obviously. So, I read the, I read Dr. Kahneman’s book, Think-, Thinking Fast and Slow. Recommend it to anybody that may be listening; a great read, great for the summer, by the way. Can actually read it on the beach without falling asleep, which is tough for me.
So, when I think about what we do with all that planning work, it’s really trying to appeal to your system two brain—
STEPHEN SHU: Yeah.
TONY ROTH:—which is go slow and buy into the process, get committed to and understand why you’re doing it, because inevitably, system one is going to try to overtake and deflect you and you’re going to see things with that recencey bias, right?
STEPHEN SHU: Exactly.
TONY ROTH: The light post is going to look bigger than it is and then you're going to try to divert from the plan, right?
STEPHEN SHU: Exactly, yeah.
TONY ROTH: We’re all rational people, 90–95% of us fall in the camp of how’d the market do today? Open up the evening news or look at your phone and see what the S&P did or even up your account and see what your portfolio looks like every day, how much did I win or lose today when you know it’s just, it doesn’t mean anything, right, until you actually realize those gains or losses. Why do we do that? Why don’t we just know that it’s always worked in the long-term and you're going to be okay and live your life and don’t be so stressed by your portfolio every day and the market, you know, every two hours, you know, open up CNBC? Why do we do that to ourselves?
STEPHEN SHU: It’s a bit of curiosity. I mean everyone’s a little bit different about these things. I think that’s another piece that we have to recognize that there’s this fast and slow thinking. There’s a lot of individual differences. I mean do like kind of those hits and getting the sensational things in the news and talking about it and I think that can be okay to some extent. It depends upon your individual sort of personality type or the way you think.
But I think it’s also you have to recognize are you going to take action on that? And I think you have seen a lot of studies where folks maybe weigh things like less reliable sources, things like bulletin boards and news sites, and don’t look at more reliable information coming out of things when they make decisions. So, I think it’s just it’s in our nature to kind of look at these things.
I mean gaming is all built on, you get some feedback, you make some investment, you kind of get addicted to things. So, I think there’s sort of addiction and habit and just things that we’re kind of used to and we kind of fall into those traps.
You have to then separate out sort of, and we do this in the field, which is separating out judgments from actual decisions. So, we might feel a particular way. But then before we make a judgment, we do want to reflect, if you will, or make sure that we understand to what extent we impact our judgments.
TONY ROTH: So, in order to make smart decisions, you know, intuition can be helpful, can lead us in the right direction sometimes. But even if we have an intuition, we still want to be able to step back and say, hey, does this make sense? So, how do we as human beings—sometimes the level one just takes over level two.
STEPHEN SHU: Yeah.
TONY ROTH: So, what are some tools or what are some ways that we can control our fears, if you will, when we have moments like the market’s down 20% or maybe the market’s back up 15%, as it is today, but you just look at the inflation every day and you think this is the time to sell, because it’s got to go back down. But it’s not really a—it’s an intuition and it’s maybe based on one or two data points with some recency bias and stuff, but it’s not looking at the full picture. So how, what are some tools that people can use to try to walk back a little bit of that level one taking over and that sort of emotion?
STEPHEN SHU: There’s two things that come to mind immediately based on kind of what you said. One is this like immediate like things of fear and immediate things that cause issues. And I think one example is this known of like whether you’re in a hot state or a cold state. You can be very influenced by kind of the things that are close to you as—so you don’t want to make kind of these decisions when you’re in a hot state. You want to recognize when you’re in a hot state versus a cold state. And so, I think that’s one critical perspective is make sure –
TONY ROTH: Wait. Is this marriage advice or is this investing advice? I want to make sure I understand what is going on here.
STEPHEN SHU: Exactly, exactly. And the other thing that is really tricky and it’s part due to some of the technology that’s around us. I mean when we think about a company like Google, it’s a trillion dollar-plus market cap firm, has really optimized like what I'm looking for. So, if I, like for example, search whether I should buy GameStop stock, you’ll get like 76% of the results confirming my result or maybe 90%. If I look for, why should I sell GameStop stock, I might get 80%.
But people tend to look what they’re looking for as—and that creates this sort of confirmation bias. And really, people should be kind of stepping back. And also, whenever they do kind of look for confirming information, they should look for some disconfirming information as well. So, this is hot state and cold state; don’t make decisions when you’re in a hot state, all this stuff that’s salient, all these emotions that may be driving decisions to your disadvantage.
And then, there’s this notion that we tend to be kind of overconfident and have kind of these confirmation biases.
TONY ROTH: I always tease our Economist Luke Tilley, who's brilliant, but I'm always teasing him when the employment report comes out and it shows that the labor market’s on fire and wage growth is strong. And he, Luke has a thesis that inflation’s actually going to come down a little faster than people realize. So, he’ll look at that report and he’ll say, oh well, this is very confirmatory of my thesis because—and he won’t see those data points.
Now, he’s a professional; he sees both sides of it. I like to tease him.
But it’s hard to, it’s really hard, isn’t it, to not confirm your own? And, of course, this is not a political conversation. But in, you know, in politics, right, if you’re on the left you watch MSNBC or CNN or whatever it is and it does nothing but confirm your bias, you know, your own thoughts and feelings. And if you’re on the right, you’re going to watch FOX and do the same thing, right?
STEPHEN SHU: Right.
TONY ROTH: How many FOX people watch CNBC or NBC or vice-versa, right? People don’t do that because they just want to hear what they want to hear.
STEPHEN SHU: Exactly, yeah. It, and it takes energy. At the end of the day sometimes we’re tired and, you know, there’s this depletion of like resources. You only have so much energy; how can you direct it?
And looking for that confirmation or disconfirming evidence can be painful. It takes energy. It takes a little bit of work. The more we can get help, the more we can get outside perspectives and sort of like share the load of doing that, I think that’s helpful. That's, I do think advisory or even guided processes for kind of working through these alternate forms of thinking I think is powerful and good, because we live in an uncertain world.
And actually that’s another barrier to human thinking is that we have a hard time forecasting. We have a hard time thinking about multiple futures. My brain gets twisted anytime I see one of these Marvel movies with multiverse. You know, it really like twists my brain.
But that is part of thinking about risk is multiple futures. What happens if something goes well? How do I feel about it? What if it went wrong? Why did it go wrong that or if it went wrong. I think stretching through that thinking.
TONY ROTH: Really. What we have to do is we’ve got to deescalate the emotion and then we have to make sure that we’re seeing both sides of the picture.
STEPHEN SHU: Exactly.
TONY ROTH: And that takes work to see both sides and before we make our decision. And that’s really, I think, what you’re saying. So, when you look at the folks that are investing in meme stocks, do you think that’s bad or good? Because I think there’s a very rational perspective for investing in meme stocks, which is that you look at the cycle of these stocks, right, and there’s been 5, 10, 15 cycles where they go down, then they go up, they go down, they go up.
And so, if you're rational you might say, well, when they hit this level going down because they’re so volatile, right, that’s an, that’s a very powerful trading opportunity. Just go back in it for a short period of time and it goes back up and then sell it. Then what happens is the greed instinct comes in, right, and then you don’t sell it and then you just hold onto it, and it goes back down again. Same thing with Bitcoin and crypto, right?
And then there’s this fear of missing out. You’re on the sideline. You have a very boring, unsexy plan. You're not really playing in those markets. You're not day trading. You're not day trading cryptocurrency.
But I think that for certain person there’s—there could be a rational basis for getting involved in that kind of stuff. But then again, you get—you start feeling the adrenaline of winning and then greed takes over and you don’t follow through with your plan.
STEPHEN SHU: Yeah. I mean I do like sort of there’s two sides to this. I mean cryptocurrencies, meme stocks, different trading apps, I think they have made things more accessible I mean to folks, which I think can be a good thing. I mean I remember back to the early ‘80s and I don’t know if you remember the Value Line investment books, but they were like phonebook-sized things and the computers were 16K computers, had less memory than my phone and it was not that accessible to do trading per se. And so, I think having access to that is good.
I’ve seen some things on the other side of the spectrum too though with companies that have made trading very similar to social media. One company, and I'm not saying whether it’s right or wrong, but there’s the company I know called eToro. I don’t know if you’ve seen that one. But you basically see like the equivalent of social media personalities, and you can essentially follow their investment portfolios. And you don’t actually know. All the stuff that’s kind of buried inside is maybe buried five, six clicks deep in.
So there’s a tradeoff between kind of accessibility, but there’s also this notion of do people, are they educated? Do they have the capabilities to actually know what they’re getting into? So, there’s capabilities and confidence. And I think some of these things like crypto and meme stocks have made the discussion easier for folks and made it more accessible. But I think there’s also this kind of tradeoff as to like do I fully know what I'm getting involved with? So, there’s two sides there. I don’t know if that helps answer you.
TONY ROTH: Well, I guess it just leads to—it does, and it leads to the I think recognition of the world we live in where there’s just such a proliferation of information available that it does psychologically, I think, allow all of us to be experts and have, at least have an opinion on everything. And if you have an opinion, it’s easy to think that your opinion is worth something, right?
STEPHEN SHU: Right, yeah.
TONY ROTH: And I think that underlies a lot of the sort of this and I don’t know how to characterize it, but this really sort of crazy behavior in meme stocks and such.
STEPHEN SHU: I mean it also brings the notion of this kind of digital world. There’s actually quite a few studies right now that are around does the mere presence of your smartphone basically inhibit your cognitive capabilities? And there have been studies that and we ran some studies too where people are asked to make a decision on a smartphone versus using pencil and paper versus on a computer. And the quality of the decisions, I think the general view is that they go down a bit when you have it, even if you have the phone, you turn it upside down, or you put it in your bags. If you put it in the outside room, if you turn off just to vibrate, these things can kind of distract you and also kind of make cognitive decision making a little bit more challenging.
So, I think we have to recognize that all this world of digital stuff and the social stuff and the news, I think, it does create a different environment than we’ve been faced with in the past.
TONY ROTH: Anything you do on a phone intrinsically feels like it's a level one going back to the Kahneman archetype of level one versus level two, right? It’s going to be a level one decision, right?
STEPHEN SHU: Yeah. Absolutely.
TONY ROTH: And there is that bias, right, that if it makes it onto the, onto your phone that there’s probably some validity to it.
And we know, of course, in reality that half the stuff we read on our phone is probably not true. So, anything you read on your phone is going to, just by its nature, be more of a level one fast decision and it’s probably going to good chance of being predicated on something that’s not well thought through.
STEPHEN SHU: Yeah
TONY ROTH: So, let’s change up and talk about what’s available on our phones, you know, robo apps and that whole ecosystem of being able to access trading in real-time from anywhere based on information that is often pretty incomplete, if not misleading. On the one hand is it good because it provides—knowledge is power? Or is it the way it’s being actually engaged in and disseminated typically is just pretty dangerous for most people?
STEPHEN SHU: So it is a diverse landscape. I have seen some positive things about robos. I’ll give you one example. Like I think kind of complexity in the world is a bit challenging. Sometimes robos have been able to use data on things like spending or things on income. And advisors can do this as well.
But I’ve seen it done kind of with robos where they might accumulate that data and see things like maybe you’re—you have, you know, excess cash that you can actually kind of put to work and they can essentially draw on data and provide kind of this just-in-time kind of consultation. Now, this is not widespread by any means yet. But in the cases where I’ve, you know, they’ve pulled together data and thoughtful advice, if you will, and a just-in-time kind of capability, I think it can be beneficial. And I think that advisors that can also do the same sort of thing where they understand a person’s individual differences and their circumstances, and they can interact with clients in the way that they need to be interacted with I think is positive.
On the other hand, yes, I agree that most of these decisions for most people probably should not be done on a daily basis. You should have these longer-term plans, kind of stick with them, not be sucked in by emotions. And so, I hesitate when robos try and just have people engage regularly be—for the sake of engaging them. There should be some purpose, if you will.
It’s not like a news site, per se, where we want everyone to engage every day. It’s financial decisions probably don’t have to happen on that level. So, I think there’s a balance.
TONY ROTH: Somebody asked me recently, do you think it’s okay if I trade crypto on a particular site? And he showed me his phone and app on the site. And I said here’s how I think about it. I said, if it’s important to you and it’s going to give you some type of meaning or satisfaction by doing that and you can quantify an amount of money that wouldn’t matter to you if you lost it all, then you should do it. Do you think I gave him the right? You know, does that sound to you?
STEPHEN SHU: Yeah, no, absolutely. I mean there’s that behavioral thing. You—people want to have a certain amount of control, but you don’t want to have them make a disastrous decision. And so, I think that’s a very good high-level advice that you can kind of give on the spot.
STEPHEN SHU: Let people have some fun if they want. But control the amount of fun.
TONY ROTH: Right. You put some parameters around it, right?
STEPHEN SHU: Yeah.
TONY ROTH: Don’t become addicted to it, right?
STEPHEN SHU: Right.
TONY ROTH: It’s not a Monte Carlo. I mean it may be actually Monte Carlo, which is why you want to keep it to just a small portion of your asset base.
STEPHEN SHU: Absolutely.
TONY ROTH: So, Stephen, one of the areas that I find to be most fascinating when I think about behavioral finance and biases is the residential real estate market. And this is a really interesting time to talk about it, because we think we’re reaching a peak in that market. We don’t think it’s going to be a collapse at the level of the great financial crisis, but we do think that we’re seeing a pretty significant turn in the residential real estate market and things are going to come down as the overall economy deflates and the economy slows. And that’s normal and that’s natural in a cycle.
So, what happens in the real estate market when you get into a situation like this is just classic. Prices hit a peak and then they start to go down because, for example, mortgage rates go up, so affordability goes down. People can’t afford those homes as much, so prices start to go down. But they don’t really go down very quickly.
What happens is sales volume drops actually, not prices, because buyers become anchored in their expectation of how much they can get from their home. So, if my neighbor sold their home for a million dollars last year and I hear the market is starting to slow down, I put my home on the market for a million dollars. I want a million dollars. I don’t want to get less than my neighbor got. And so, what happens is interest rates have gone up, affordability’s gone down, and not only have I put my home on the market, but three other people are getting nervous about the opportunity to sell their homes.
So now, there’s four homes on the market, all asking a million dollars. Instead of being four buyers, now there’s only two or three buyers because the other one or two incremental buyers can’t afford to pay a 4.5% or 5% 30-year mortgage. And so, the market dynamic has changed, the supply demand has changed, but the level of housing cost is a huge lagging indicator. It’s not a leading indicator because buyers usually won’t adjust their prices downward for 6 to 12 months after the real estate market has actually hit its peak from a volume standpoint. And usually, by the time they adjust their prices downward, we’re in a recession.
Instead of trying to mark the price down to $900,000 in my example and just sell it, I want to get what the other folks got at the peak of the market and I'm not going to budge until it’s too late. And by the time I have to budge, I'm probably going to sell that house for $700,000.
STEPHEN SHU: I mean the trick is this endowment effect. When you have something, you think it’s of more value than maybe the general market is worth, that's one big thing that happens in finance. When I buy real estate, I generally think of living in it. Studies by like Nobel Laureate Robert Shiller indicate that people kind of over-predict kind of the returns on their home, the real returns on their home.
There’s probably exceptions. You can look at specific markets and you might know the market well and be able to look at it as the investment vehicle. But I think people should think about sort of buying properties for kind of living in them, if you will.
And then that other thing they have to be careful is that endowment effect when they sell, that it’s harder to sell. You think it’s worth more. You’re anchored by other prices.
TONY ROTH: That's right.
STEPHEN SHU: It’s a value to you. It may be worth 30% more. You may feel the value is $1.3 million and the market’s saying it’s a one million, right, and that can cause problems. That has problems with just general investments too
STEPHEN SHU: It depends on the closeness how you feel I guess to that, what you hold.
TONY ROTH: That's right. And so, I talk about it in the context of the housing market. It’s a little bit less prominent in the stock market. But it’s still there where, well, the market was X amount, and I don’t want to sell until it gets back to that level because it was there in the past, it’s going to get there again. Anyways, I made a mistake or what.
And that’s why, you know, we say the hardest thing to do in investing is to get back into the market after you’ve sold because if you sold at the peak and the market goes down, you don’t want to get back in because things are bad and you’ve done well. And if the market goes up after you sell, if it wasn’t—turned out not to be the peak, you don’t want to get back in because you made a mistake by selling when you did and you want to wait for the market to come back down.
So, the hardest thing to do is to get back in after you sell, after you get out of the market. And, again, when the market is going down, very hard to get back in because you’ve sold. If conditions are actually deteriorating, why would you go back into the market? And by the time you get back in, the market may be back, right back up where you sold in the first place.
STEPHEN SHU: Exactly. Yeah. It’s hard to time. So, I think given all the trauma that we’ve been through, I think it’s a good time for kind of a fresh start and kind of looking at the total picture again and not reflecting so much whether you’ve sold and now it’s worth less. And you should really think about the goals and people should think holistically about kind of long-term plans for retirement, their investment of their net worth, emergency planning.
People are in different situations because of job changes, job layoffs. Maybe they had to go into some of their reserves. Other people may have gotten big boosts in their income because of labor shortages and they may be new to investing because they’ve started a new job. They don’t really visit kind of these decisions that often.
And so, I do think it’s a good time to kind of do this fresh start. Some people do it at the—in the new year. But I think now’s a good as time as any.
TONY ROTH: I mean human nature is immutable. We know that pretty much. Maybe over 10,000 years, it changes.
So, human nature being immutable as it is, I guess there’s not going to be massive changes. But I look at the pandemic and I see some changes in people. For example, the fundamental nature between work, between labor and life, has changed for many people. You hear about the quiet quitters or young people that just want a job, but they don’t really care about their job. They just want the income so they can have their life. You hear about people that are retiring earlier, much earlier, just because they just don’t want to work anymore, the work from home trend or a split hybrid work arrangement.
People just feel fundamentally different, many people, about work. And it now is much of an enabler of an existential lifestyle instead of working for an end to get something later in life. And that’s just fascinating. And I'm wondering is the relationship between people and their portfolios changed as well? Or anything else that you would want, that you see that’s just different from the rest of your career now that we’ve had this sort of once in a generation or several generations pandemic?
STEPHEN SHU: I’ve seen two opposite ends of the spectrum. Some students came to me for they were building a fintech app and they asked me about how they, should they think about building this app and how should people provide advice around saving for retirement, investing wealth, and saving for emergencies. And as a consultant I said, well, it depends. And I said one mode of thinking is saving for emergencies first and then saving for some of these other things and investing in all these other things.
And I was dismissed right away because they said saving for emergencies, that’s just bad karma. We’re like wishing upon, an emergency upon ourself. So, you have that one end of the spectrum.
There’s the other end of the spectrum which is getting closer to kind of the age for retirement. And I think there’s a number of people that are starting to think of this is not when I retire, but this is going to be when I do something different. And they might do something like throw bags or help out with airline companies, get the benefits of being able to travel. And I think we’re starting to see some of those creative opportunities in this new world where maybe people can create additional financial capacity for themselves to be able to change their portfolios based on looking at life differently.
So, I don’t know whether I see any direct relationship with the portfolio. But I think this whole nature of how people think about their lives and the big buckets. And then when you think about the big buckets differently, that naturally portfolio theories, you can’t look at things in isolation, right? You have to look at if I have an investment in a house and I have an investment in fire insurance, it only makes sense when I have the two together, right? It doesn’t make sense for me to have fire insurance for my house when I don’t have a house.
So, I think kind of this portfolio look is an important piece that we’ll have to help people see and the most natural point is advisors. But, I think kind of convergence of data too, where we can draw on data from different sources. I think that’s, those are two things that will happen or should happen.
TONY ROTH: It’s—that’s fascinating. Young people, I don’t know whether it’s generation, the Millennials or the subsequent generation, but you do see this. There’s this big debate that economists have around how people’s values have changed towards life in this country, and you see younger people not needing to have the big house. They want a smaller house in order to enable experiences, not things or what they consider quality of life on a day-to-day basis. And I think it’s very healthy. And some of that existed before the pandemic certainly, but I think that a lot of those trends were accelerated by the pandemic.
Have you noticed any difference in—the relationship between people have between their portfolios and their charitable goals, whether it be the environment. Obviously, there’s a lot going on with the environment, hottest summer ever pretty much wherever you are.
Have you seen a—any kind of fundamental change around how people think about the accumulation of things or wealth versus charitable instincts and goals? Or is that more immutable? That's just sort of set in how people think.
STEPHEN SHU: I think, no, I think it is changing. The one that immediately comes to mind is sort of this, the ESG-type funds and I do see a lot more activity in those. And even when I talk with younger folks with whatever dollars they have starting out earlier, they’re starting to think about those things.
Now, I don’t know whether everyone knows exactly what’s inside of those things and they also may focus on one thing versus the other. But I would see some of that happening but it’s very early. I probably see more in kind of what you described about the how you live your life, smaller places, doing more experiences, kind of less things, renting if you will type of goods.
On the bequest side, I haven’t seen as much there. But the—those were two of the areas that came to mind.
TONY ROTH: Well, I think that it’s probably naturally something that’s going to take root in younger generations where they haven’t had the wealth transfer yet. But maybe as wealth is transferred to them over time you’ll see it in their behavior as opposed to their parents or grandparents, who didn’t necessarily grow up with this set of challenges.
STEPHEN SHU: Yeah. That's right.
TONY ROTH: Well, really fun conversation. And I want to just, the one thing that I think is—I want to go back to the beginning distinction you made as sort of a takeaway, which is something that we all know intuitively, and we’ve probably learned in many lessons in our own lives. But I think it’s interesting to think about it as this level one versus level two, which is thinking carefully and calmly and taking your time versus overreacting, so—
STEPHEN SHU: Yeah.
TONY ROTH: Which is a term that’s leveled at me frequently. And so, getting in that level two frame of mind and going slowly and making sure that you're putting in the effort to have both sides of the picture before you make a decision, it allows human beings to thrive is if they do that versus not doing it.
STEPHEN SHU: Yeah, no. That makes sense. I mean I probably think more of which hotel I'm going to stay in than which financial decisions.
TONY ROTH: Yeah.
STEPHEN SHU: And I would say that that’s probably not the right way to think about things.
TONY ROTH: Right. If you’re going to go on vacation, you got to go to the right resort. So that’s important.
STEPHEN SHU: That's right.
TONY ROTH: Well, Stephen, it’s just been really fun, and I wish you good luck with the semester. The kids are back. When do you start teaching?
STEPHEN SHU: I start teaching next week. Everyone’s really energized to start.
TONY ROTH: Oh, that’s great. I hope you incorporate some of these ideas in your work or we incorporate your work in our actual practices. Thank you so much. And thank you to our listeners.
I want to remind everybody they can go to wilmingtontrust.com for a full roundup of all of our intellectual capital and our thought leadership on—there’s a lot going on in the markets and we’re publishing pretty much every day. So, thank you again, Stephen, and thank you to our listeners and we’ll be back with another episode soon.
STEPHEN SHU: Thank you.
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