Don’t base your decisions on intuition alone

There is no replacement for sound expert advice when it comes to money

You should follow your own instincts when it comes to investments, purchases or savings. Or does following your intuition lead to the wrong decisions? It’s not so much a question of weighing the pros and cons of intuition, but much more about realising when it makes more sense to rely on help. When managing your finances and handling money generally, you want to avoid costly mistakes.

Gut feelings can be deceptive

Even if it’s easily recognisable, intuition is difficult to describe. Many are familiar with their own intuitions and admire people who confidently display a certain instinct when handling complex situations. Intuition is a type of immediate recognition, a feeling for what is right. But even this isn’t totally irrational. In fact it is based on experience gained and knowledge accumulated (this is called expert intuition).

However, as far as experience is concerned, we must be cautious of a distorted picture that could cloud our judgement without us realising it. What we think is intuition may in fact be an expression of overconfidence. We have a tendency to only consider information that confirms the validity of the opinions and values that we have built up over many years.

So it may be that when investing our savings, we so want to be right that before taking a decision, unconsciously we will only consider information that confirms our own line of thought. To put it simply: whether consciously or unconsciously, we shape the story to suit our purposes.

What we think is intuition may in fact be the result of impulses, preconceptions, illusions and the influence of a variety of factors in our direct environment. How can we prevent this? Only by really making sure that we thoroughly test our feelings of certainty. We need to learn to classify our feelings as efficiently as possible in order to avoid any cognitive illusion that could undermine the decision-making process.

We shape the story to suit our purposes.

There’s no replacement for expertise

You may be tempted to think that even experts such as financial advisers act on gut feeling. That would be expert intuition, which is not the product of chance. If a surgeon suddenly decides on one procedure rather than another during an operation in order to save a patient’s life, this is based on a long history, characterised by concrete experience and specialist knowledge.

It is a fact that spontaneous judgements are most reliable in areas where we have sound expertise. So we shouldn’t kid ourselves: expert intuition is accumulated over years of experience and practice and saved in our brains. That’s why an experts can recognise a situation that exhibits a stable structure and has been encountered previously, and follow their professional instincts.

Trusting expert intuition also means taking the advice of someone who can act with the necessary calm and prudence in circumstances that are not predictable, or in a completely new situation. For example, in times of turbulence in financial markets, it is better to remain calm and analyse the available information before taking any decisions. In this situation it is dangerous to rely solely on our instincts. An experienced investor is aware of this and has the necessary distance, particularly in turbulent times, to contribute to professional and considered decisions.

Note that in order to work as efficiently as possibly, a financial adviser and/or relationship manager doesn’t just need expertise and the necessary distance, but also knowledge of what the client wants. This means being familiar with the investor’s profile that describes their knowledge and experience, ability to bear losses and investment objectives.

A three-step exercise

Intuition requires work and training, like a muscle. In order to test the reliability of our own intuition we must pay particular attention to information that contradicts our gut instincts. Try this short exercise:

Step 1: think of a situation when you relied on your intuition and the result was a positive outcome. What was the context? What happened, what was the outcome? Can you name the factors that led you to follow your intuition? Describe them.

Step 2: think of a situation when you relied on your intuition and the result was a negative outcome. What was the context? What happened, what was the outcome? Can you name the factors that led you to follow your intuition? Describe them.

Step 3: draw conclusions from this about your personal convictions. In which fields and under what circumstances can you put more trust in your intuition?

Don’t forget that you always have the last word.

But don’t forget that you always have the last word on all this. Maintaining a deep inner balance is always positive when taking decisions.