In my work, when I hear the words intuition or gut, my radars switch on for what comes next. When someone says, ‘I just have a good gut feeling about this investment or my gut tells me that the currency will be at 20 by year-end’, I listen up.
Gut feeling or intuition can mean many different things.
The meaning of the word intuition is derived from Latin and means ‘watch over’. It is seen as a ‘sixth sense’, frequently in the sense of a foreboding, apprehension or a warning. Others understand it in a spiritual sense where some can sense things not evident to others.
I don’t discredit spiritual sensing, in fact, I have made major life decisions based on my spiritual interpretation of the right path. But I am not talking about spirituality here.
I am also not referring to intuition gained through years of experience and deep knowledge of a specific field. Daniel Kahneman, Nobel laureate, relays in his book, Thinking Fast and Slow, the following story about a team of firefighters that entered a house in which the kitchen was on fire: Soon after they started hosing down the kitchen, the commander heard himself shout, “Let’s get out of here!” without realizing why. The floor collapsed almost immediately after the firefighters escaped. Only after the fact did the commander realize that the fire had been unusually quiet and that his ears had been unusually hot. Together, these impressions prompted what he called a “sixth sense of danger.” He had no idea what was wrong, but he knew something was wrong. It turned out that the heart of the fire had not been in the kitchen but in the basement beneath where the men had stood.” Kahneman calls this expert intuition.
Expert intuitions enable people to deal quickly and decisively with complicated problems. It enables them to recognise patterns previously seen and apply it to a new problem, sometimes without being aware of a conscious decision to do so. They act on their instincts and will often say that their instinctive choice was the only natural or rational outcome or solution.
My decades of experience in advising private clients, have grown this kind of intuition. Sometimes, it is difficult to explain why I’ve come to certain conclusions, but I just ‘know’. Yet, what those same years of experience have taught me is that using intuition in personal money decisions is very often dangerous. What is called intuition is often a guise for fear or lazy thinking. In fact, it frequently points to the absence of reasoning and an ignorance of facts or lack of skill. Because whilst I may be an expert in my work, I do not necessarily have the personal experience needed when it comes to personal money decisions like say, buying and selling a home.
Most people never become experts in personal money decisions. For example, most people buy only a few properties in their lifetime or retire only once. If you are investing in a property based on your gut, based on one previous successful property investment, you have a high chance of failure.
People also confuse fear with intuition – it points to the root of the word. We assimilate current and potentially dangerous situations and our brains process it into a ‘hunch’ about a potential future loss. In money decisions, we must do the opposite of what we fear in most cases.
Unfortunately, people who make money decisions based on their intuition, seldom measure the success of their decisions honestly. You will hear about their successes but not their failures. In financial planning, we must make decisions based on a high probability of success, not on one previous success after a string of failures.
It’s better to discuss gut feelings with experts, analyse the facts and think it through properly.
Beware of trusting your gut. Your gut might be lying to you when it comes to your money.
//01 November 2019.