Unraveling the Forces Impacting Investment Decisions

FOR IMMEDIATE RELEASE

“Investment decision-making is a process driven by forces that can destroy value,” according to Juan Pablo Martinez-Blat, Founding Partner, OnNe Consulting. “People think they are rational human beings, but cognitive biases get in the way of our decisions. Private wealth managers must be aware of these forces and implement practices that would help individuals and groups to make better decisions,” he recommends.

Martinez-Blat is the Chairman and a speaker at the marcus evans Latin Private Wealth Management Summit 2014, taking place in Panama City, Panama, September 25-26.

What are the behavioral, cultural and structural forces that drive how the decision-making process takes place? How do they impact the quality of decisions made?

There are three ways to look at the decision-making process. The point of view of the individuals themselves, the group dynamics that influence how those individuals interact and the organizational culture or members of the family. Individuals have cognitive biases, ways in which their brain distorts the perception of reality. When a group of people sit down to make a decision, they are influenced by the way they interact with those around them. There may be forces that drive them to withdraw or not participate. Perhaps one member has too much authority and prevents the group from developing synergy.

These habits are hard to perceive, but some of them are unhealthy and prevent a group from making the best possible investment decisions.

Once wealth managers are aware of these forces, how could they improve the decision-making process?

My first recommendation would be for the head of the investment committee, management team or chairman of the board of directors, to make sure to understand all these unconscious behaviors; otherwise he or she will be a victim of the same problem. I do not necessarily think the easiest or best way is to try to change people, instead, to implement the right rules of the game to drive the group to behave in a manner that creates synergy.

One way is to ensure people understand their role in the investment committee and how they can contribute. Secondly, create an environment where everyone is open to talk and contribute. Thirdly, the group must know the importance of having a devil’s advocate, someone questioning decisions, as it is very easy to converge too quickly into a non-optimal solution. Just because everyone is biased towards a specific solution does not make it the best one. Many times a group does not take the time to consider alternative options. Having a set up where people can identify and discuss different options would prevent the group from falling into “groupthink”. The head of the investment committee must be aggressive in requesting additional potential solutions for the group to consider. He can also prevent autocratic behavior from showing up. It is hard to realize our own behaviors but if the head of the decision-making process realizes that, the right steps can be taken to create the right structure and prevent those unconscious forces from derailing the process.

What opportunities for creating value are often lost?

Not being aware that decision-making is a process driven by these forces can destroy value. Just look at some investment committees and families making bad decisions because there was no analysis or confrontation of ideas. I believe it is the responsibility of the head to bring good practices to the decision-making process. The quality of decisions, in fact the value of the organization and quality of relationships in the family, get created or destroyed if the right or wrong decision is made.

Contact: Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits Division

Tel: + 357 22 849 313
Email: press@marcusevanscy.com

About the Latin Private Wealth Management Summit 2014

The Latin Private Wealth Management Summit is the premium forum bringing leaders from Latin America’s leading single and multi-family offices and service providers together. Taking place at the Trump Ocean Club, Panama City, Panama, September 25-26, 2014, the Summit includes presentations on mitigating the risks of investing in private equity, developing investment strategies, resolving family conflict and examining the global economy.

For more information please send an email to info@marcusevanscy.com or visit the event website

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Please note that the Summit is a closed business event and the number of participants strictly limited.

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