Personal Benchmark: Integrating Behavioral Finance and Investment Management

Praise for Personal Benchmark "This book is an exciting advance on how behavior research can and should influence investment decision making. Its focus on how the individual investor and their advisor begin with developing a personalized set of economic expectations and managing a portfolio in the context of the investor's own economy is an important and actionable insight. I strongly recommend this book, not just for individual investors, but especially for those who provide investment advice to individuals." —Carl J. Schramm, University Professor, Syracuse University; former President, Kauffman Foundation; serial entrepreneur and venture investor "In a business where investment returns and investment benchmarks have been analyzed thoroughly, the subject of personal benchmarks and their construction, suitability, and measurement is in its infancy. Taking principles from behavioral finance—for example, creating a disciplined approach that reduces the emotional temptation to buy high and sell low that plagues so many— Personal Benchmark specifically and Brinker Capital generally make a great contribution to financial advisors and their clients in seeking to create satisfactory investment experiences." —Robert C. Doll, CFA, Chief Equity Strategist, Senior Portfolio Manager, Nuveen Asset Management, LLC " Personal Benchmark is an ode to a commonsense realization—investing is a social science rather than a physical one. Combining tried and true investment techniques with cutting-edge research on behavioral finance provides a wonderful new approach for those charged with managing other people's money." —Jason DeSena Trennert, Managing Partner, Chief Investment Strategist, Strategas Research Partners LLC "Investment management and behavioral finance are both critical to achieving the objectives of every investor, but integrating these two concepts—which often seem diametrically opposed—has proven difficult. In Personal Benchmark: Integrating Behavioral Finance and Investment Management , Chuck Widger and Dr. Daniel Crosby have found the touchstone by fashioning elegant investment solutions for the mental accounts or 'buckets' that come so naturally to investors." —Gregory Curtis, Chairman, Greycourt & Co., Inc.; author of The Stewardship of Wealth ; developer of the Moneybags mobile financial application "For too many years, investors have measured their performance against standard benchmarks such as the S&P 500 Index or the Dow Jones Index. But as Chuck Widger and Dr. Daniel Crosby meticulously demonstrate, beating an index and meeting one's financial goals are not the same thing. In fact, striving to beat an index or a universal benchmark may lead to investment decisions that fail to meet those goals. Instead, Widger and Crosby offer another path, based on a personal benchmark tailored to the unique needs of each investor. Astutely recognizing that long-term financial health has little to do with beating the stock market or the average bond index, Widger and Crosby chart a new course, based on rigorous analysis but grounded in common sense." —Zachary Karabell, Head of Global Strategy, Envestnet, Inc.

Introduction References Part 1: Why Do We Need to Look at Investing Differently? Chapter 1: Freedom in the Market and Advisor Responsibility The Financial Markets What We′ve Been up to as Advisors What Investors Really Want and Need Brinker Capital and the Personal Benchmark Summary References Chapter 2: Investor Emotions and Financial Decisions The Origins and Evolution of Behavioral Finance The Myths of Efficiency and Rationality A Definition and Framework for Behavioral Finance Summary References Chapter 3: Risk, This Time It′s Personal Fallacy 1: Risk and Return are Systematically Correlated Fallacy 2: Investors Have a Single, Static Level of Risk Tolerance Fallacy 3: One Man′s Risk is Another Man′s Reasonable Probability Behavioral Risk and You Summary References Part 2: What is the Personal Benchmark Approach? Chapter 4: Brinker Capital′s Multi–Asset Class Investment Philosophy History of Multi–Asset Class Investing Theory Theory: Equity Bias Multi–Asset Class Theory Application Establish Neutral Asset Class Weightings and Ranges Implementation Implementation: The Role of the Six Asset Classes Implementation: Develop Asset Class and Sub–Asset Class Expectations Implementation: Strategy Selection Active Manager Selection Process Implementation: Themes and Risk Controls Summary References Chapter 5: The Power of Buckets Intentional Framing Framing with Purpose Mental Accounting for Increased Rationality Goals–Based Mental Accounts: A Case Study Summary References Chapter 6: Selection of an Active Investment Manager Passive versus Active Management The Successful Investment Firm The Successful Investment Manager In Effective Investment Management Process Monitoring and Assessing Performance Summary References Part 3: How Can We Execute a Purpose–Driven Investment Strategy? Chapter 7: Using A Goals–Based Approach The Allure of Determinism in Economics and Psychology The Economy of One Our Inner Demons: A Field Guide Let Your "Why" Teach You "How" Summary References Chapter 8: Pursuing Your Personal Benchmark The Difference a Frame Makes Limitations in Our Decision–Making The Joneses, Jealousy and Missteps The Anatomy of Better Decisions Summary References Chapter 9: Providing an Easy–to–Understand Explanation Your Best Investment Once More, With Feeling Changing the Conversation The Brinker Capital Personal Benchmark Solution Summary Chapter 10: Leveraging a Scalable Offering for Investors and Advisors Using Personal Benchmark Beginning the Process Accessing the Investor′s Portfolio Viewing and Creating the Investor′s Personal Benchmark Reviewing the Investor′s Portfolio Investment Strategy Implementing the Strategy and Monitoring Investor Performance Reaping Benefits for Advisors Summary References Conclusion The Centrality of Purpose Finding Meaning in the Mundane About the Authors Index

CHUCK WIDGER is the Founder and Executive Chairman of Brinker Capital, an investment management firm with $17 billion in assets under management. Chuck is currently Chair of the Villanova University School of Law Board of Consultors. Chuck is a past Chair of the Gettysburg College Board of Trustees and is chair-emeritus of the Money Management Institute's Board of Governors. The Money Management Institute is the industry association for the $3.5 trillion managed solutions industry. He served as a Lieutenant in the U.S. Navy. D R . DANIEL CROSBY is a psychologist and behavioral finance expert who helps organizations understand the intersection of mind and markets. Dr. Crosby constructed the "Irrationality Index," a sentiment measure that gauges greed and fear in the marketplace from month to month. His ideas have appeared in print and online, and Daniel was named one of the "12 Thinkers to Watch" by Monster.com and a "Financial Blogger You Should Be Reading" by AARP. Dr. Crosby's well-reviewed first book, You're Not That Great (2012) , applies elements of behavioral finance to the pursuit of a meaningful life.