One of my favorite examples of this is from The Little Book of Behavioral Investing: How to Not Be Your Own Worst Enemy by James Montier. Montier wrote an excellent book that goes into detail about our many misgivings as a species when it comes to poor investment behavior.

In the book’s conclusion, Montier makes an admission:

It is confession time. As anyone who knows me can attest, I am overweight (although I prefer to think of myself as simply too short for my weight). In fact, according to the body mass index which compares height to weight (designed by size fascists, I’m sure) I am on the borderline between overweight and obese.

I know how to correct this problem. I should simply eat less. However, I find this incredibly hard to actually do. So despite the fact I know how to change, I don’t change, so my knowledge doesn’t translate into better behavior. Rather I file the information in the category of “things I know and choose to ignore.”

He knows what he should do but information is no match for human nature.

You have to put systems in place to protect against your lesser self.

Another study observed hundreds of diners at Chinese buffets across the country to get a better sense of their eating habits and what caused people to eat more or less.

They found people ate less when they used chopsticks or smaller plates. They ate more when they used forks and larger plates. Thinner people surveyed the buffet before diving in and picking out the most appetizing foods while the heavier eaters grabbed a little bit of everything.

People who sat closer to the buffet ate more food, while people who sat in chairs facing away from the buffet line consumed fewer calories.

There are obvious investment parallels here.

Some investors need smaller portion sizes and broader diversification. Sometimes you need to face your chair away from the buffet so you’re not focused on short-term performance or the returns of other investors who have different goals and time horizons than you.

It might not seem optimal to someone with the willpower to stay the course, but some investors need a behavioral escape hatch. If a 10% allocation to a strategy allows you to stick with the other 90% that’s more long-term in nature, that’s a win to me.

I know plenty of investors who have the ability to follow a portfolio come hell or high water. They don’t need any behavioral enhancements. They can sit on their hands and do nothing during a bear market and don’t act on FOMO during a bull market.

These investors do exist and they can optimize their portfolio as much as humanly possible.

I also know plenty of investors who don’t have the ability to ride out the storms or completely set-it-and-forget-it.

These investors might need to turn down the risk dial or incorporate other strategies to keep them on course.

It really comes down to knowing your weaknesses as an investor.

For individuals, that means know thyself. For advisors, it means know thy client.