Groupthink is a style of thinking that people can engage in when they are deeply involved in a cohesive group. When groupthink occurs, the desire for group unanimity overrides the motivation to realistically discuss and appraise different alternatives.
For financial advisors, groupthink occurs all around. Wall Street is an exceedingly subjective and psychological environment where there is a marked tendency towards groupthink.
For those financial advisors who work with investment committees of foundations or employers, group decisions can lead to significant behavior and psychological biases.
There are several noteworthy pieces that explore this interesting topic.
- For those of you who have read Michael Lewis’ The Big Short, you know the story of how a quirky band of unknowns made hundreds of millions of dollars by thinking differently than the “Wall Street Machine”.
- There is also a wonderful research piece from Vanguard on groupthink called “Group Decision-Making: Implications for Investment Committees.” This is a must-read article for any financial advisor who works with investment committees on an ongoing basis.
- There is also a thoughtful piece on Art Petty’s Management Excellence blog entitled, “Six Steps for Avoiding Groupthink on Your Team.”
Many financial advisors are getting sucked into the groupthink philosophy because they are hesitant to break out from the pack. There could be several reasons for this, including compliance rules and regulations, fear of a lawsuit from a client, or worries about hitting their numbers and potentially losing their job if they say or do the “wrong” thing.
It’s interesting to note; however, that some of the most successful investors in the past decades, e.g. Benjamin Graham and Warren Buffett, have achieved their success by avoiding the trap of consensus, groupthink investing. Coaching questions: What about you? Do you participate in groupthink, or do you stand up for what you believe and speak out on your own?
Perhaps Doris Lessing, the 2007 Nobel Prize winner for Literature, summed it up best when she said, “Think wrongly, if you please, but in all cases, think for yourself.”