There is plenty of evidence to show that mindfulness has a range of health benefits. But can it also help us to become better investors?

Someone who thinks so is the financial writer George Kinder, who has practised mindfulness for more than 50 years. In this video, he explains to Robin Powell how focussing on the present moment and being in touch with our feelings can help investors make more rational decisions.

You will find plenty of helpful videos like this one in our Video Gallery. Why not have a browse?

Video transcript:

The last few years have seen a big increase in the popularity of mindfulness.

Mindfulness is a state of mind created by focusing on the present moment, while calmly acknowledging and accepting our feelings, thoughts, and bodily sensations.

George Kinder is a financial writer, and trains financial advisers. He has practised mindfulness for more than 50 years.

He says: “So it’s a training in paying attention. And you’re paying attention in here. You’re paying attention, in a way, to who you are. You’re paying attention to these moments where you feel wonderful, these moments where you feel frustrated, these moments where you feel fearful or anxious or guilty or shameful, which we all have as human beings.

“The primary practice that is taught in mindfulness is to really focus on the present moment, which as you know is impossible to do because it keeps disappearing on you. But what that does is that it makes you much quicker in the moment, much clearer in the moment, much more capable at a moment’s notice to focus and be present, so you’re really much more alert.”

One of the mistakes investors commonly make is they allow their emotions to get the better of them.

By making you more aware of your emotions, mindfulness can help you control them.

George Kinder says: “The most common pattern in investing is not to buy low and sell high, which is the smartest thing to do. The most common pattern in investing is that we all buy high, when everybody’s enthusiastic about something, and then we sell low when everybody’s pessimistic about something. So what happens, that’s driven by greed and fear. What mindfulness does is it creates more patience, more equanimity, more quietness, less reactivity. So you’re more able to be here, be present.

“My main recommendation would be to, if you aren’t doing mindfulness, get a practice going. And if you are, I would double your practice time. And I think the third thing is find an advisor who’s trustworthy, because they will help settle you down. They have listening skills inside of them and they’ll help settle you down so you don’t make foolish mistakes.”

Mindfulness isn’t for everyone. And although it looks easy, it actually isn’t. It requires plenty of practice.

But if you invest the time required to learn it, George Kinder says you won’t regret it.

Picture: Dingzeyu Li (via Unsplash)

Some financial professionals are dismissive of academic research, arguing that it’s too far removed from the realities of today’s financial markets. True, academic models are, by their nature, theoretical. But that doesn’t mean investors can’t learn practical lessons from them.

In this video, Gerard O’Reilly from Dimensional Fund Advisors briefly explains what those lessons are.

You can find plenty of helpful videos like this one in our Video Gallery. Why not have a browse?

Video transcript:

When we talk about evidence-based investing, what we’re really referring to is academic evidence.

Some financial professionals are dismissive of academic research, arguing that it’s too far removed from the realities of today’s financial markets. True, academic models are, by their nature, theoretical. But that doesn’t mean investors can’t learn practical lessons from them. Here’s Gerard O’Reilly from Dimensional Fund Advisors.

“Academics come with models of the world, and those models are usually incomplete. But what do you learn from the models? You gain insight about the real world. The models have to be incomplete for you to learn from them, but you do learn. You can gain insights about better ways to invest, better ways to structure portfolios, so that when you come to the real world, you’re better equipped and have better frameworks to make rational investment decisions.

“So academia, by its nature, has to simplify the real world so that you can understand the real world better. But that’s the beauty of how academics approach the problem: they simplify it just enough so that it’s real enough to be interesting, but understandable enough so that you learn something. “

Dimensional is possibly unique among asset managers in that everything it does is based on empirical evidence. Over the years, the firm has worked with some of the most famous names in academic finance.

Gerard O’Reilly explains: “Gene Fama, who won a Nobel prize a few years ago, is an academic that we have been very closely related to since the founding of the firm. Along with Kent French who’s a co-author and a very close collaborator with Gene Fama. And what we’ve used from their work, and they have shared their work with us and the world over time, is really the intuition that their work has given to us about prices - securely prices reflecting information.

“Other academics are academics like Robert Merton, who also won a Nobel Prize, Myron Scholes has also won a Nobel prize - and their work has also given us tremendous insights, whether it’s in lifecycle finance or in how to structure portfolios. So they’re to name just a few of what I would call some of the great academics in finance, and there’s many more that we’re associated with and that we work with. But the work that they have done has really led to some big innovations in the field of practical investing that I think Dimensional has been able to use to the benefit of our clients.”

The most famous contribution that Fama and French have made to our understanding of the financial markets is the so-called Three-Factor Model, and an updated version, the Five-Factor Model. In a nutshell, Fama and French have demonstrated how certain types of stocks — for example, value stocks, small-company stocks and stocks of firms with high profitability - tend to outperform the market as a whole, over the long term.

Gerard O’Reilly elaborates: “We think that there are differences in expected returns across stocks and across bonds. How do you identify those? With the intuition from the Three and Five-Factor Model. Lower price, higher-expected cash flows, higher-expected returns.

“So, we say, how do we structure portfolios? Let’s look for low-price stocks relative to some fundamental measure of firm size, high-expected cash flow i.e. high profitability. That’s higher-expected returns, less overweighting those stocks.”

It’s not necessary for investors to have a detailed understanding of the work of Fama and French, but it pays to use an adviser who does have that level knowledge. Academic research really does provide us with insights that you, as an investor, can benefit from.

Picture: Alfons Morales via Unsplash