78. Greg Davies Takes A Bird’s Eye View Of Money
This week I speak to Greg Davies, a specialist in applied behavioural finance, decision science, impact investing, and financial wellbeing. He started the banking world’s first behavioural finance team at Barclays in 2006, which he led for a decade.
Greg explains how he used himself as a guinea pig to put his research into action during the global credit crunch.
He explains the four things you need to do to have a successful investment experience.
And he explains why doing what feels comfortable is rarely good for your finances.
Find out more about Greg’s work at Oxford Risk here.
You can take the Money Types quiz on First Direct’s website here.
You can check out my YouTube channel here.
Episode Transcript
Jason Butler 0:00
In this week's episode, we look at the six money types. So hopefully you can find out yours, I give you a roundup of my new content that's going to help you and those you care about master their money. And we have a great interview with behavioral finance expert, Greg Davis, who's just super smart, and who really knows why we do what we do with our money. Hello, and welcome to the real money stories podcast. I'm Jason Butler. And I invite you to join me as I have intimate money conversations with people from all walks of life. Whether you're just starting out on your money journey, are well down the track, there's bound to be something you can learn from these stories about taking more control of your money, so you worry less and enjoy life more. Real Money stories is sponsored by Vanguard bringing value to 30 million investors worldwide. Visit Vanguard investor dot code at UK for more details. And remember, the value of investments can go down as well as up and you may get back less than you invest in. Isn't it great to see the UK economy starting to open up and people starting to be able to socialize? I don't know about you, but I'm really keen to meet up with some chapters of mine, obviously, socially distance and open air etc. and do some socializing because you know, we're we're humans, we like connecting with people. And as hopefully you get a chance to meet up with people you haven't seen for a while. And possibly you might be meeting some new people who you don't know. Rather than ask people what they do for a living or what their hobbies or interests are, why don't you ask them what their money type is. Now the chances are, they probably won't know, which is why new research that's recently come out from thirst direct, where they took a cross section of the UK population of about 14,000 people, they've basically uncovered what they call their six, the nation six money types. And whilst there are various different studies that have got different sort of money type profiles, this is quite an interesting one. And I always take the view that if you understand more about yourself and where you where you fit in terms of your relationship with money, you're halfway there to improving your relationship with money and your habits and behaviors. So let's have a quick run through these six types and see if you can spot your one there. So first of all, the first one is the juggling mom. Now this is the type that keeps up with the Joneses. And their financial mindset is they're a fan of brands. And they're known to make impulsive purchases, they regularly use their phone to manage your finances, or do online shopping. And they might have a loan or a long term credit card balance, obviously, as a result of perhaps that impulsive spending, then the next one you have is the living in the moment one, that's the type that racks up life experiences by the dozen. Now their financial mindset, they're often the one to have an idea for a new startup business, or they're always eager to try something new. And for them, it's fun first, finances second, and they don't really have a long term financial plan yet, so they might not always make the best financial decision. Then the third one is the driven one. This is the type that seems to have their life together. Now their financial mindset is they're optimistic about the future of their career and their finances. They're not afraid to make long term plans because for them, it's good to have goals to aim for. And they're a calculated risk taker and enjoy investing in things. Then you have the level headed one. This is the type that's unashamedly old school. Now, their financial mindset is owning the latest luxury brands is not for them. Instead, it's more important to buy quality products that last they spend within their means and they save regularly. It's just what they've always known. And they prefer not to borrow money if they can help it. And then we have the self sufficient one, the type that knows how to sniff out a bargain. Now their financial mindset is they're not very materialistic. They don't have to buy expensive things to feel good. They're a strict budgeter, but they are happy to spend money on friends and family when necessary. And they're thrifty and resourceful, known to make do and mend. And then we have the balanced one. This is the type that takes life at their own pace. So their financial mindset is they're reluctant to try new brands, they prefer to stick to what they know. They don't have a lot of money to play with, but they're confident with what they've got. And they're happy to take out a loan for things like home improvements, things that they can see that are tangible, so interesting. Did you see yourself there because if you can see yourself and the more you understand yourself, then hopefully that can help you improve your money, habits and behaviors and how you think about money. So interesting bit of fun there.
Now some new content on my YouTube channel. We've got we'd be doing every week we've been putting out book review videos Those last one was all about money mindset. We've got one about one's about budgeting coming out. And we've also brought back the money minutes. Now what these are is one minute just about one minute videos, where I explain a behavioral or psychological aspect of money, so that you can hopefully improve your money habits and behaviors. bit of fun, if you if you subscribe on the YouTube channel and hit the bell, you'll always get notified when a new video comes out. And we're looking to put two to three videos a week out whether it's a money minute, a book review, and explainer, or an insight one, or just, you know, an ad hoc one. So make sure you sign up on the YouTube channel. And you'll get that content as soon as it comes out. This week's Instagram Live was all about budgeting. Now, if you follow me for a while and listen to my content, you know, I'm not a keen budgeter. I don't like the word budgeting. It sounds constrictive in the sort of thing that boring people. So I talked about smart spending. So on that live, I just go through how I do my spending control what I've learned, the disasters and mistakes I've made, and also what I've learned from the research that I've done over the years. So do check that one out on Instagram TV, and it will be appearing on my YouTube channel in a few weeks time. So that's another reason to subscribe for the YouTube channel because my Instagram content always ends up mostly will end up on the YouTube channel. And so do join me on instagram lives on Tuesday nights at 730. I do what every week. Sometimes I have a guest sometimes it's me, just going solo. Normally half an hour to 40 minutes, but I will take questions. I'll answer things I'll share insights that you've got what what's working for you What isn't? So do come and join me on instagram on Tuesday nights or watch the replay over on Instagram TV, or my youtube channel? About a week or so afterwards? Good. Okay, well, let's meet finished. Now this week's interview is a great great interview with someone I really respected. I've known him a long, long time. He is just one of the Guru's in the UK when it comes to behavioral finance. That means he understands why we do and sometimes why we don't do what we do with our money. And he's got some really interesting personal insights of what we know he's had some disasters and some CS successes himself. So he's a smashing guy. super smart. very humble. I know you're gonna love it. It's Mr. Greg Davis. Hello, and welcome to another edition of real money stories. I'm your host Jason Butler pan. This week, I'm joined by good old chum of mine, Greg Davis. Hi, Greg.
Unknown Speaker 7:33
How are you? Yeah, rockin.
Jason Butler 7:34
Thank you very much for joining us, you are a super super busy guy. Okay. So we're really, really fortunate to have you on the show. Before we get into your story and your money story, and you want to just tell everyone what it is you do for your day job.
Greg Davies 7:50
Yeah, so I specialize in behavioral finance cross between psychology and geeky finance theory. And what I do is design software tools to help people make better financial decisions, things that help people more emotionally comfortably navigate their financial lives.
Jason Butler 8:08
Absolutely. Now, Greg is literally, you know, I follow all this stuff. I'm a research junkie, because I'm writing and speak about this stuff. And Greg is one of the leading behavioral finance guys in the UK. Okay, there's a handful around the world. But he's the leading guy in the UK. He's the go to guy and I'm seriously I'm not just saying it, because he's here he is. And I first moved to very small. Your investment? Yeah. The point was, I knew Greg, when he was actually headed up the behavioral finance unit of Barclays. So he's come from a big company background. So you know, and he really is a leader in the field. And that's why I wanted to get him on. But like all experts, he is only human. And he's going to explain that, that even experts top of their field, sometimes have missteps. Sometimes they make decisions that aren't based on facts, or they're based on feelings. And that's okay, so look, Greg, you're obviously not from originally from the UK with the accent. So do you want to tell us where you came from? And also, what you learn about money when you were young?
Greg Davies 9:10
Oh, well, I grew up in South Africa, in Johannesburg. And I was there until after I finished my undergrad degree. And then I came over here to the to the UK. And I spent my last four years there in Cape Town, which is just the most wonderful city, particularly if you're going to be a student. What did I learn about money when I was young? I'm not nearly enough, I think is the answer to that. When I started studying, I started economics. And I thought of myself like most young economic students as being Uber rational and following all the principles of economic theory. And whenever my friends were off, going to put money into you know, invest in something I sort of poopoo the idea and said, Well, you know, risk return, blah, blah, blah. One of the As I, despite studying economics and thinking, I knew what I was doing, I never actually tried to do it myself until remarkably late in life. And so things like, you know, the time at which a time of your life where you have the greatest capacity to make fun, for risk is at the beginning of your life, where you have years and years of potential savings ahead of you, and you've only got a very small amount of money to place at risk. So even if it does go head over heels, then you're okay. And I sort of, yeah, just really didn't engage with practical issues of managing my own money or my own finances, in anything like I should have been capable will have given you know, what I was studying for an awful long time. Hmm.
Jason Butler 10:47
So you were learning the financial theory that you were putting into practice? So look, I'm just interested. Clearly, you were doing quite a tough undergrad thing. But before that, what sort of messages did you pick up from your parents, your family, your friends about money? was it? Was it scarce? Or was abundant? Was it a source of pain or pleasure?
Greg Davies 11:10
It was a, it was a little of both, I think, you know, I can't can't claim to have come from an impoverished background. But my father was an entrepreneur, he ran his own business, and his business, he had three businesses sequentially collapse on him. And so yeah, so you know, he had one way and his financial backers pulled out, he had another one where the market dropped out of it, he was in shipping, and he was doing shipping to China, about 30 years before anyone was doing anything in China. And for most of that time, it didn't, didn't work very well. So he had these three businesses collapse on him. And that meant that although there were times when we were actually I suspect, pretty well off as a family, there are also times of financial crisis and financial emergency and you got to see the stress, and the anxiety that puts people through that said, My father was, you know, very proud of being someone who wanted to go through that, you know, he was one of these entrepreneurs, who, who definitely wanted to be on his own and not be reporting to a boss, etc. And, you know, he, with open eyes was taking, you know, was taking that plunge. And I will say, there were there were a number of moments where I think, you know, my parents who I think shielded the worst of the, of the anxiety from us. But we're deeply worried about, you know, everything falling, falling apart. And you're not even people who are relatively well off, it is interesting, you're not more than one or two unexpected calamities, away from being in a very different financial situation, that is very much, much more pressure. So I think I mean, I watched that I the whole notion of financial stress and anxiety I got to see. But also, I think the upside of, of, you know, taking control of your own life and the entrepreneurial side, and the freedom that that brought, you got got to see that as well.
Jason Butler 13:19
So interesting. Your dad was an entrepreneur, you saw the pleasure and the pain, there's peaks and the troughs, the tension and the excitement, the euphoria and the despair, which is a characteristic that not everyone sees. And in fact, you're quite privileged probably to see that, what did that what did you learn from that experience? As you were growing up and becoming a young man as a graduate? Or, you know, what did you take from that? What what was in the back of your mind? What was the story you were telling yourself?
Greg Davies 13:48
I think there are two things one, which has become ever more evident since since COVID, is the overall importance of resilience and and optionality. So, you know, my father never finished university, he left South Africa and he came over to London, he took a job on the on the Baltic exchange floor, you know, working from runner from the bottom up, etc. And I think, you know, it became clear to me that the, that's, that's one way to go through it, but if you have any options, to the contrary, build your base of strength and your base of resilience first. So, you know, I put a lot of effort into finishing the university and building up, you know, building up the what you might think of, I guess, as the human capital as a foundation for for resilience, because because from there, taking risks is fine, as long as you're taking them sensibly and with open eyes, and you've got some sort of a backstop in place, putting everything on 17 and rolling the roulette wheel, without any of that is is an issue. So I think I probably spent a lot more of my of my Life, trying to take risks offer a safer platform that I observed my father doing. The other one was, I think there's a, there's an interesting thing in the relationship between trust and due diligence and governance. So my father, in his business, everything was, you know, he was doing stuff across cultures and across country lines, etc. And in his industry, you know, that it was your word is your bond type of thing. And he placed all his, all his emphasis in people's ability to on people's trust in Him, which is, you know, why, you know, he got, he got business, but also his trust in reversing other people. And I saw him get burned by that more than a few times. And, you know, I
Jason Butler 15:51
don't know exactly where all the blame lies for these, these things. There's always two sides to the story. But if you're going, if you're taking big business risks, or big risks of any sort with people, yes, you can rely on, you know, people, I think being trustworthy most of the time, but you also want to dot your i's and cross your T's. And make sure that you've covered the due diligence and covered the governance. And I so I think, you know, not taking quite such a fly by night, cavalier attitude, to, you know, the legal process, and the importance of due process is key. So, so let's tell aspects of this growing up. And I really want to just just touch on this and stay on this for a little bit for listeners, because it's really essential, you learn very quickly that you have to understand the risks that you're running, and you have to have bolt holes or other options to be able to, if the first of all, what's the worst that can happen? Right? catastrophize thinking through, plan for that prepared for and then if that happens, I've got this option to go toward that option. So you rebuilding that resilience and optionality through your education. And then the second thing was that also that it's important to trust people and work with people you like, but you have to follow that up with due process of understanding going through what we call crossing the T's dotting the i's, as we say, just double checking everything is in place. And secondly, monitoring and making sure that that is staying on course, so that's a really good one for people thinking about doing business. Or another one is, is a lot of people I know are now backing other people's businesses. So as you know, I've invested in five or six note investing eight FinTech businesses, two of which went bust one which did brilliantly, and four, which is still going okay. But you still have to do your due diligence, you still have to think, okay, if this all goes wrong, is my wife going to be breathing down my neck and saying, Jason, you've been a silly fall? So I totally agree. That's a really important point. So okay, take us through Why did you was it behavioral? What was the degree you were doing?
Greg Davies 17:51
Initially, economics. So economics with a with a sideline in philosophy, actually,
Jason Butler 17:57
are now I like it. Because at gppa politics, philosophy and economics is meant to be a very well rounded degree. It sounds like you started with the heavy economics, the numbers, you're a numbers guy, you like stats, you like fact, and then you ended on philosophy. So So what did you learn as you were learning economics and philosophy, by the time you came at uni? What did you How would your thought process about the whole role of work money business spending, how that evolved?
Greg Davies 18:24
Well, that's an interesting question. I, it's, if I'm honest, I left University. I then went on to do my Master's in economics. And I, economics, particularly before the advent of behavioral economics coming into the mainstream was such a formalized subject. I mean, you're basically learning a bunch of mathematical models. And although I don't think I saw this, at the time, the disconnect between that and the real world was so enormous, as, as for all that knowledge, you think you're studying economics, and therefore it gives you the ability to understand business and markets and that, and the reality was, was quite the opposite. So weirdly, I although, you know, philosophy is, on the face of it, the least practically any useful subject you can possibly imagine. With retrospect, I almost think that the, the tools and techniques of critical thinking that I got from philosophy were actually more practical in my later life, then all of the stuff I learned in economics, with one exception and the the econometrics, the you know, the statistics and the quantitative foundations and that has been very, very important later, but I really came out of economics not knowing what I wanted to be when I grew up after my master's and I've always someone who is a bit of a generalist, you know, I although I like the stats or the numbers, I've also always, you know, like communicating and writing in English, etc. And so I basically looked around for what I could do that would be a jack of all trades. thing and I ended up management consulting for four years, which was, again, intriguing because I was walking into banks around the world of my platform of, you know, extreme practical knowledge of how the world works that I got, from my, my economics degree, you know, walking into banks and advising people. This was when I was in my early 20s, advising people 20 years, my senior on how they should model the risk in their businesses, etc. It was it was a fascinating things. But sometimes I wonder why we had any credibility at all.
Jason Butler 20:34
So interesting, knowing your facts, knowing your numbers, being able to quantify as we call it, the quantitative aspects, then you also marry that with the qualitative aspects, which is really what philosophy is Shades of Grey is near Where's economics as often this is fact. But there are models in economics, which we know are out of date anyway. But, but moving forward there. So as you went into the into the job market, and you've got your first job doing this management consulting activity, again, is your optionality there, your options, you're leaving yourself options open? How are you managing your own money? I mean, were you were you spending everything that came in? Did you were you building up cash? Just because you didn't spend it? Or were you a canny investor? Or, or what? How are you developing?
Greg Davies 21:13
So interestingly, this is where I wasn't an investor at all. Because, you know, I had, I had other things to do, or my life was busy, I didn't think I had very much to invest. I, you know, I, I just didn't engage with it, which in retrospect, was a was a foolish thing to do. Now, I'd landed this job, which was paying me more money than I'd ever conceived of as having, which was marvelous. And I really just, it gave me in the one level, I was so busy working, we were working around the clock, all hours, etc, that I started out sort of almost saving by accident. Because, you know, it was, I mean, retrospective because of a vast salary, but I come from being a student. And I'd come from being a South African student in the UK, where, you know, we were looking after every penny. So I felt extremely wealthy. At that point of my life, I felt, you know, now I've got all this money, I can go out and go to restaurants and do what I want. didn't invest the thing. One thing that changed is I kept in the back of my mind, this idea that I wanted to go back at my, my academic path wasn't finished, I hadn't gone as far as I could, I wanted to go back for a PhD. And I think it wasn't, it was about 12 months after I started working, that I started having this idea. So I'd only been out of academia for a year in the work. And that changed my money perspective, because I had something particular to say for I was an overseas student in the UK, I wanted to go back and do a PhD, I didn't wasn't paying home rates, which made it very much more expensive. And I had no money myself, and I, you know, I didn't want to, you know, that had to be me, that wasn't going to be, you know, asking my parents to fund any of that, etc. So I started then deliberately saving and putting stuff aside, but I wasn't investing. I was just sitting in just accumulating cash. Yeah. It was just sitting in a bank account. Yeah, yeah. Yeah, doing nothing particularly useful. But the notion that I was at that point, I mean, planning is a strong word, perhaps, doesn't do anything quite as sophisticated as planning. But I had something I was working towards, which meant that possibly for the first time, I was actually trying to balance short term and long term needs against each other. And I think that is a very important thing to get people to do. Because until you do that, you're basically going what comes in this month, what do I want to do with it, and you either spend too much or too little depending on, you know, your lifestyle and how much you've got coming in. But until you're starting to think about juggling preferences across different timescales, and what might I need tomorrow, then I don't think you're really consciously making financial decisions that are effective. So you so you move from a from a default accumulating, because I've got more coming in and going out, and I'm not really thinking about it to a consciousness of,
Jason Butler 24:05
I now want to go back to sa and do my PhD. And I really do need the money. I don't ask mom and dad. So that was the first time you had to start thinking about perhaps deferred gratification or just be more conscious. So you did your PhD, didn't you? You went back to South Africa did that. I did that here. Oh, okay.
Greg Davies 24:23
So I never quite got around to going back to South Africa.
Jason Butler 24:26
Okay, so you stayed here. Okay. So you did your PhD, and then you went back into the labor market? You went back and get a job or did you What did you do then?
Greg Davies 24:34
The idea I had was that I didn't want to be come a full time academic who didn't sort of see me I might my time consulting and I in the end, I think I spent four years consulting before I raised enough money for the PhD. But my my time consulting, brought home to me the you know the value of doing something in the world rather than just thinking about the world and my PhD Ti had flipped away from economics, pure economics or philosophy into behavioral science.
Jason Butler 25:07
Right? So that's when you did it and you did your PhD. That's when you did that flipped. So anyone who doesn't know behavioral finance is kind of like a fusion between psychology and economics. Is that right? Greg? Have I Got that? Right? Yeah. And they were always two different camps. Were they from all my studying of economics? Not that anything your level, but they were always kind of two separate camps, the psychologists, the economists. And then when they started to fuse, they, they came out of the shadows, didn't they? And they started to be hang on behavioral finance, you know, how people react is not always rational, how people use their money, how they use, how they make decisions is not rational. It's not, they don't always do what's in their best interest. So okay, so tell us what you sort of learned having to step into that area. And what that also taught you about your own relationship with money?
Greg Davies 25:50
Well, I mean, I absolutely love that area. Because it it was a it's an inherently multidisciplinary thing. It can't just be economics, or just philosophy. I mean, it's a mix of economics, philosophy, maths, psychology, you name it. And I just, it was such a rewarding thing to do my PhD and I had to sort of pick up psychology from scratch. And, you know, my psychology is still got huge holes in it, because I never did the undergrad stuff. So I know little little slivers of it quite well. And you know that that was, I think, a wonderfully rewarding thing to do. The other bit of it is it bridged this, it's a subject matter that itself bridges theory and practice. So you're not like economists we're talking about, you're not going? Well, let's assume people are rational and build some mathematical models around them. And then we'll just work it all out in this darkened room back here. It is about understanding how people actually make decisions in practice. And then you very quickly start looking at yourself. Because if you're thinking about decision making, and you're spending your life studying how people are not that rational, you have to think well hang on, this must apply to myself as well. And that really starts to change the decision making. And I think then, that it was then that I really started thinking much more about investing behavior and financial behavior and savings behavior of myself as much as as much as everyone else. It wasn't until a bit later that I started using myself as a guinea pig, but which I, which I have done. But I think, air I started to finally think all the stuff I'm doing in this university is no longer so abstracted from real life that I can't mentally make the bridge. Yeah, got it.
Jason Butler 27:40
Yeah. So so. So as you started to learn that subject, and you started drawing you in? What did you start to learn about how people make financial decisions? And, and obviously, and see it in yourself, perhaps give us an example.
Greg Davies 27:55
So I think the most fundamental thing is that what you've said, people are not always rational. I mean, that shouldn't, that shouldn't be ethically obvious to anyone with, you know, a modicum of introspection. But it's the way in which we don't come by to the standard economic principles of rationality. And that that is that is particularly valid. And a lot of it can be putting very simply as though that is a sort of multiple salesman list, there's not just me, there's, there's, there's multiple needs. And we can think of them as there being two there's, there's the there's the deliberatively, the one who can sit down and think through a problem and build a spreadsheets and plan for the future, etc. But always, alongside of the deliberative meters, there's the emotional meat, there's the me that's just having an intuitive gut feel reaction to something. And in every decision we make we as humans are trading off the right or the sensible thing to do, versus the thing that feels intuitive or emotionally comfortable in the moment. And is a long term, short term thing here. So those those things, some many decisions, the two means come to the same answer, right, the thing that feels right is also the thing that is right. But particularly when we're making decisions that are about our future selves, they start to diverge, they start to diverged dramatically. And the thing that I'm comfortable doing now is very often completely different to the thing that would be sensible for me to do now for my future self. And of course, you know, this doesn't have to be financial, if I'm on, if I'm trying to lose weight. The thing that is intuitively comfortable for me to do now is to stuff the chocolate cake into my mouth. And that is not the thing that my deliberative long term self wants me to do.
Jason Butler 29:39
The thing is the emotional self, it doesn't have to win completely. All it has to do is cause you to deviate in little ways and not from the right answer. And we can end up in a very different place. And that's how you also developed unhelpful finance that's just focused on finances. That's what this is all about. But that's how we develop unhelpful financial habits, whether they're spending Saving, not investing, investing, speculating. Moreover, it is not lying about our spending, not sharing things with our partner, not taking the job not investing in ourselves or taking the job for the high money, but we're just not really like it. So. So the focus a little bit more on the habits thing and how it is the habits, how habits affect people, rather ingrained routine activity and how we react to stuff.
Greg Davies 30:25
Well, habits can be good and bad. And a lot of the time unless we are thoughtful about the habits we build, the habits we build are the ones that are a function of repeatedly doing stuff that feels emotionally comfortable in the moment. And you know, that those those are the are the bad habits. And in fact, you know, possibly one of the worst habits for many people is simply procrastination, when it comes to your finances, is tackling my financial existence is daunting. It's complex, it's tiresome, and it doesn't seem like the most important problem today. Because it's all in the future and not fun.
Jason Butler 30:59
It's not fun.
Greg Davies 31:00
And it's not it's not fun. And so, you know, we build up this thing where the simplest habit is output off thinking about saving more, or investing or doing whatever it is getting the right insurance, and I'll put it off until next month. And next month, we do the same. And once we have 20 years of next month's, we have not saved we have not invested, we're under insured. Exactly. So what we need to do is, you know, those bad habits are basically me just following whatever feels appropriate in the moment. And then it builds up into a pattern of behavior. The interesting thing is the way of tackling that sort of emotionally led decision making is also about habits, it's just different sorts of habits. And this is about us trying to build for ourselves, principles and rules that we can follow. And that we can inculcate in ourselves over time, such that we're guiding ourselves towards the better habits rather than the worst habits. So you know, left to my own devices, until I had something to gold to chase, I wasn't really thinking about how much I was saving or spending. Once I have a goal to chase, I need to fund this PhD, you're more consciously thinking about it, and you start going well, what is a reasonable amount to be saving on a monthly basis, you can start to track that. And then that changes your consumption behavior. And once you've changed it for a while it starts to become second nature and it becomes a habit that's, that's in a good direction. So the whole path here is to how do you slough off? Like a snake sloughing off its skin? You know, how do you slough off the bad habits and start to replace them with with rules and processes that are more beneficial or more in line with my long term self.
Jason Butler 32:49
And as you say, if you can make things easy, and you can automate things, and you can sort of avoid lifestyle creep by In other words, it's so easy to take on expenses, isn't it and have a lifestyle that gets out of control when it crowds out spending? Doesn't it? So tell us tell us about some epiphany, have you ever had any epiphanies about your own financial situation or if you had a sort of a bigger learning situation? Or or, or a misstep that you've learned from this really helped you in your work?
Greg Davies 33:16
I think one is, as I say, there's a point at which I started experimenting on myself. You know, once I left my PhD, and in about 2006, I joined Barclays. I'm now working in a wealth management area, advising people on how to invest their money. And yet I'm sitting there, I've got no other theory, I know the rules of good investing. I don't even have an ICER. Right, I'm busy. They're advising clients, advising advisors, I'm the one telling the advisors what to do. And I'm not applying it to myself. And October 2008, financial crisis hits, everything comes tumbling down. And I've been working my way towards this for a while, but hadn't just hadn't really gotten off my awesome and done it. But I thought you know, one of the things I'm constantly telling people is when the when the crisis comes, you need a plan, you need to sit tight, you need to not panic, and that's the time when it's a buying opportunity. And it was such a big drop that I thought, you know, Greg, if you don't, if you don't step up and take your own advice now then you have got no credibility with myself anymore. So interestingly, the moment that I first started really investing was in October 2009, where I took absolutely every penny I had and threw it into the stock market Really? Seriously. Yeah, because, you know, asset prices have come crashing down. You know, if I believe what I'm telling other people, they're likely cook, it's going to come back up. And I thought this is where I have to, I have to put my money where my mouth is and this is where when it comes to that risk thing. You know, it is A huge risk. But I was doing it off a fairly solid base because, you know, I had my PhD I had the job there at Sentry.
Jason Butler 35:08
rationally, this was a good thing to do. But emotionally, it still felt a bit of a shot in the dark, right?
Greg Davies 35:12
It felt very uncomfortable emotionally. And it got worse because actually, initially, I don't know if you remember that time, but I'm sure you remember that time. But you know, from about mid October to December, markets came back massively. And I thought, Wow, I've been really clever here, aren't you? Brilliant. And then in the beginning of January, it turned down again and feel like a stone.
Jason Butler 35:37
March was the lowest point I can remember. It's something like 16th of March, he was absolutely like, we thought we were all gonna go back to black and white Telly, and living in mud huts and all that stuff. Yeah, it was terrible.
Greg Davies 35:49
Yeah. And that was extremely gut wrenching.
Jason Butler 35:54
Did you feel then at that stage, you weren't so feeling so smug and level?
Greg Davies 35:58
I was fine for a while. But you know that what happens is, you know, January's fine, I've got this going down again, and you start Well, I've already made some on the way up, and then it goes back below where you had. So now you have loss aversion territory. And the other thing was, because I was new to it, this is where the learning by doing rarely happens, I'd set myself up a spreadsheet, and I was tracking things and understand the other. But I hadn't done it before. So I hadn't built up the practice of doing this over years and correcting it the first time you approach something like this, you're not going to get everything right. And so there were certain things were in my rush to get going. I actually wasn't tracking what was happening accurately in every way. So there was a moment in February, where I had a look at it. And I realized that some of what I had set up there, you know, wasn't wasn't tracking my total wealth position accurately under the asset values accurately, I realized I was significantly worse off than I in fact, thought I was really, which was entirely my own fault. Right. So this is this is where, you know, even if you think you know what you're doing, you need to rehearse, you need to practice, you need to, you know, financial systems of financial behavior, good financial behavior, investing behavior, need to evolve over time with you, and they need to be right straightaway, right. And when you go for your first stock market crash, or your first recession or property crash, it's just you've got to get used to it, you're learning the ropes, right.
Jason Butler 37:24
So you came through it? Did you hold on then? Or did you catch it?
Greg Davies 37:30
I mean, yes, God, no, I absolutely held on it. And in fact, I had been, you know, I've been, I've been telling people that they should do that. And they've been studying the Behavioral Sciences. So although it was emotionally uncomfortable, it actually wasn't difficult for me to do I knew what the right answer was in my eye. I'm not gonna say I wasn't anxious. But the anxiety was,
Jason Butler 37:56
I knew enough to quell the anxiety and just sit tight. And I remember you telling me some time ago, we've known each other for quite a long time is that you said that actually that set you up that that that initial decision, not the only thing but it was a quite a big leg up in your your financial base wasn't having done very little, you felt like you made up lost ground. So. So what did you What did you take away from that whole experience of doing that actually being that lab rat?
Greg Davies 38:24
Well, the interesting thing, firstly was although you study all these biases of decision making, and you know, what people shouldn't, shouldn't do, I discovered that it was possible for me to sit down and almost watch myself doing things that I knew were stupid ideas, despite having this knowledge, I know that I should be following my rules I've built for myself, you need to rebalance this. And there's a very clear thing. And I found my emotional brain just intervening and going, you know, you read this in the newspaper this morning, maybe just delay that decision a week or, I mean, I didn't I wasn't doing I wasn't deviating catastrophic, Lee. But if you have a principle of decision making of making decisions, you need to stick to those principles. And if your emotional brain it might not tell you don't do it at all, but it might tell you delay a little bit just as his voice. Yeah, let's just do a little less of it, then you were intending. And so our emotional self kind of eats away at the sensible things that we're doing even if we're not doing anything catastrophic. So I discovered that it was possible for me to actually observe myself making bad decisions, be conscious of it and still make the bad decisions, which is a it's an interesting experience. Just the the situation to have the practice of once a month sitting down and completely going through where you are taking stock. going, what have I learned this month? What new rules can I build for myself? new things can add into my spreadsheet I'm tracking things with, it always turned it into a learning experience. So that's where I say, guinea pig, because I actually found that observing myself enabled me to build out the theoretical model that I had in my head because it was incomplete because I hadn't hadn't trialed it, as it were.
Jason Butler 40:21
And I'm interested to know that you went from a big company, Barclays, we have all the benefits that go with it. And he had all the kudos your head of behavioral finance, and you know, you were there, you were the guy they wheeled out you you had all that status and etc, someone changed the lightbulbs and all that, to essentially you you made that move, which you now head up, don't you Oxford risk, which is a very respected, as you say, consulting, behavioral software, etc, a company? How did you manage that risk? Was it just that you'd built up the options? And you'd look to the downside? Or was it this is always your calling? entrepreneurial? is a running your own business driving change? Was that always in you? And therefore that money was killing kind of a just a byproduct? Or was it a big draw?
Greg Davies 41:02
it? No, it was it was the draw was not money, the draw was a bit of more freedom to pursue things that I wanted to pursue, you know, maybe there was a little bit of my father's experience of talking talking to me there. I I never intended becoming a banker, right? You know, there I am sitting in Barclays, Barclays wealth, private bank, anything, I had no point in my life did I intend becoming a bank, I went to Barclays, because at the time, it was the only organization that was doing something farsighted. In the behavioral world, they gave me a platform to do what I what I love doing. And it was a wonderful platform. And I very much enjoyed my time there. But I, you know, I thought there are other things out there. And I don't want to be beholden to a single giant VM of financial services institution. What I will say is, from the moment that I think I first decided I was going to leave, Barclays, to the time I left was about three years. And that was me getting to the enough emotional comfort in myself to do it. Partly, so partly, it was just a fear factor, or you know, getting out of your comfort zone. But also it was building the resilience. So a lot of that three years was, I knew I was going to be doing it. So now I have to start putting aside money to build a wheelchair and I wasn't going from one company to another job. At that time, I went from one company to being completely freelance with absolutely nothing, having just had my first child and with a mortgage. So I needed to build up the base in which I could do that. And part of that base was just saving more and building the financial wherewithal such that I could survive a year of nothing coming in the door. Part of it was having different conversations with people. So you know, when you're in a big company, like Barclays, and there's a big blue Eagle behind you, you know, it's easy to get people to, to introduce you to other people that, you know, the networking becomes easy, because you've got this big seal of approval behind you. So I spent a few years, you know, taking every conference presentation, invitation I was offered
Jason Butler 43:13
laying the groundwork, right, you were laying the groundwork? Yeah.
Greg Davies 43:16
Yeah, exactly. And also, it's just some of it is figuring out what I wanted to do. So you know, you're going to talk to, should I join another bank, you're having conversations with people about that you're having conversations with consulting companies, in the end. And you know, in the end, I figured I just wanted to try completely on my own, which probably why it took longer, because that's a bigger decision. That's a risky thing to do, then to go, Oh, I'm just going to change to a different different company. But I did spend an awful long time, I think, trying to try to build the platform off which to risk.
Jason Butler 43:47
But you make a really good point. Now, Greg, that you, you don't have to be in a bear. There is a lot of people and I meet lots of entrepreneurs, I speak to them and people who want to get ahead and build wealth. You don't have to do this overnight, right? You don't don't have to have this massive change in your life, or massive dashboard growth, or it's all gonna happen in a year, you took your time, you built your human capital, your human, your skills, your visibility, you spoke to people, we built connections, as well as building savings, trimming the cost, sell in mentally getting ready with it talking to your partner, your wife, etc. So that's a really good lesson. So what have you learned in the time that you've been an entrepreneur, sort of leading the ship there at that Oxford risk? And in so far as this whole blurring between personal finances and the company finances, how have you How have you managed that transition?
Greg Davies 44:38
Well, I had about 18 months to two years of just doing my own freelance consultancy, that was quite tricky, because you certainly have to be thinking about legal contracts, whereas before there was a legal department and, you know, managing managing the company finances whereas before
Jason Butler 44:59
Yeah, that's it. Yeah. Everything and if it's totally gets blocked, you got to sort out as well. Yeah,
Greg Davies 45:03
yeah. And so, you know that that was tricky, but actually a very good learning experience. And the same has been true since I joined forces with Oxford risk, where, you know, we're, we're a software, FinTech effectively, which is not something, you know, I'm not a technical technology guy. So there's all sorts of stuff going on there that, you know, I don't know about, but you're, you're deeply committed to it. Because much more than in Barclays, my fortunes are tied to how well the company does. And so you know, you have to, you have to, you have to worry about all these things. The advantage, I think, for me is, at every step, I've been lucky enough to pursue a path that I was interested in. So I actually find that I don't tend to approach decision making either when I was, you know, freelance, or otherwise, from a purely financial perspective, this is not about about maximizing the bottom line of the profit in the next 12 months, or whatever. I think it's about, it's about building a base of intellectual property and tools that then can enable you to build the next thing on top of it. So it's, it sort of becomes a creative. And if you're doing something like that, that is halfway what is interesting and useful to the market, then I think the financial side tends to follow. Yeah. Now, which is not to say, of course, that you don't have to pay attention to cash flows, and then you've got to pay people and, you know, if, if they miss this, yeah, that's a visit I mean, you know, having all that. So again, it comes back to the there's a bunch of due diligence that needs to be done. But that due diligence doesn't need to be all of it, the due diligence is there to lay lay this groundwork. You know, a lot of this is coming back to you. I think people tend to think on either a risk taker or not a risk taker. And if you're a risk taker, there's a bit like my father, you take all the risks, you're a bit gung ho you place all your your faith in trust and personal relationships and, or you're the other side and you're someone who doesn't take risks, and everything's about due diligence and following the process, etc. You have to find a way of being both at the same time, because that's where you get to take the big risks, but do so without it. killing it. Yeah.
Jason Butler 47:27
Yeah. So it's a case of moving forward and growing outside your comfort zone and making new ground and, and getting ahead, but equally not blowing everything so that you you're you could never survive from it, or it wipes you out. Absolutely. So you've been very gracious with your time we could talk for hours. I know, look, what do you want to sort of what do you what words of wisdom would you leave people bearing in mind you are one of the UK behavioral, behavioral finance gurus, as I recall it in the UK, what what would you want to leave our listeners with in terms of your money, wisdom that you want to leave people with that you've learned from your studies, your experiences, and all the development work that you've done?
Greg Davies 48:08
Is let your money work for you. You know, many people, if they've built up savings they'd like I did they leave it sitting in a savings account, doing absolutely nothing for years. And if you can make this very complex, but I think there are only four basic rules to investing Well, one is figure out what you can afford to invest, have your war chest, have your buffer, set it aside if you need a spending buffer, because that's again, the groundwork that gives you the opportunity to take risk. Once you figure that out the rest of it rule to put it to work, put it into the markets, rule three, diversify, don't try to be clever, made by a little bit of everything. And then rule four once you've done that, leave it alone. Absolutely. And if most people follow those four rules, I tell you, they will do better than the vast majority of investors out there.
Jason Butler 48:55
Yeah, as you say, well, Ron Reed was born in the 20s. He died in 2014, age 94. He'd never earned more than the minimum wage. And all he did was he lived a simple life and he invested all his money in blue chip shares and he left $8 million when he died. Four years in my life, my new book is that I love Ron is a rural county was a petrol pump attendant for 42 years. But anyway, there we go. Look, Greg, you're an absolute superstar. Well, obviously put all your contact details in the show notes. Anything we should know about this coming up soon for you guys. Ultimate risk, got new stuff coming out or anything you're working on new piece of research?
Greg Davies 49:32
We do actually. We've been doing some research with financial advisors in South Africa around in behavioral science talks a lot about bias when bias isn't the only problem. I could be on average, unbiased, but if my decisions are noisy, in the sense that they're not biased to one side or the other, but they're a bit they flip flop from too high or too low. And it's a real question in the advice industry how much the subjectivity Human advisors is introducing noise into the process. And this is a nicely time because Daniel Kahneman, the father of behavioral economics, won the Nobel Prize in 2002. He and Cass Sunstein, who co author of another wonderful book noise with another Nobel Prize winner, they are, they are bringing out a book called noise in April and May, where they are looking very deeply at the behavioral science of how our decisions might not be, might not be biased, but they're inconsistent. And that inconsistency of decisions, our tendency to be influenced by the weather by who we're talking to, is a very, very costly thing. And we have this wonderful piece of research, which we've you know, we've been able to look at several 1000 advisors, and look at how consistent and inconsistent their decisions are. So that's coming out very shortly.
Jason Butler 50:55
Great stuff. Well, we'll make sure we we put that in the show notes when that's free. Greg Davis superstar behavioral finance expert guru all ground good guy, thanks for being on the show.
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Jason Butler 51:11
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