RWH069: The Psychology of Investing w/ Emily Haisley

**SPEAKER_1** (0:00)
You're listening to TIP.
You're listening to the richer, wiser, happier podcast, where your host, William Green, interviews the world's greatest investors and explores how to win in markets and life. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your host, William Green.

**William Green** (0:40)
Hi folks, I'm absolutely thrilled to welcome today's guest, Emily Haisley. Emily has really one of the most fascinating jobs in the world of investing. She leads the behavioral finance team at BlackRock, which is the world's largest asset manager with more than $14 trillion in assets under management.
She's a PhD psychologist with a very strong background in academia.
But what I think makes her so unusual is that she has this extraordinary depth of experience working in the trenches with fund managers and investment teams within BlackRock, basically helping them overcome their behavioral biases and deal with their emotions and make better investment decisions. I'm particularly excited to have Emily here today, not least because her expertise is really usually on display behind closed doors. She's a kind of secret weapon within the world's largest asset manager. So this is a very unique opportunity to learn directly from her about the psychology of investing and all sorts of practical ways that we can use psychology to become more successful investors. So Emily, welcome. It's really lovely to see you.

**Emily Haisley** (1:45)
Thank you so much for having me, William. I'm most excited just to have a conversation with you because I always enjoy our talk so much.

**William Green** (1:53)
Thanks. It's a real delight. I've been looking forward to this, I think, for two years now since we first met. And so we're finally actually getting to do this in public. So thank you for coming. You have such a unique and interesting job that I really wanted to start by simply asking you to describe what it is you do at BlackRock as head of the behavioral finance team. Can you give us a sense of your role and your responsibilities there?

**Emily Haisley** (2:19)
Absolutely. So I work within the risk and quantitative analysis group at BlackRock.
And this is a group that really prides itself on being an independent and consultative function for investors within BlackRock.
So within that space, I really have this amazing kind of position of being able to bring another perspective to investment teams, help them review their process, understand their biases, understand their team dynamics so that they're really working for them and not against them. And doing this all from a place of consultative independence, rather than kind of doing it from a place of kind of where I'm in their reporting line and they may be worried about exposing their biases or talking about their pain points or talking about their mistakes with me because I have this independent function. And within a risk and quantitative analysis, it's very much a quantitative approach. So our kind of first part of call is where we can, where it's available, is shedding light on what's going on in an investment process using our behavioral analytics. So these are a suite of analytics that will quantify biases that you may have heard of like loss aversion, and the disposition bias and endowment defect that are driven by loss aversion, overconfidence, myopia, is there excess trading? We basically started from the behavioral finance literature and said, what are the biggest problems identified there? And let's try to calculate them in portfolios. And then from there, we will help the investors understand systematic mistakes that they're making that are costly, biases consistent with the literature, which then are a drag on returns in their portfolio. We'll help them understand their edge and try to get them to essentially change their process to help their biases or take less risk where they don't have an edge and take more risk where they do have an edge. So that's the main kind of area that we work in. With some teams, it's not possible to have analytics. Maybe just one example is with maybe private and private assets where there's not enough of a transaction history, new portfolio managers, not enough of a transaction history to quantify biases. There will mainly work just around what's going on in the investment process. How aligned do we think that investment process is to behavioral best practice? What are the pain points in that investment process?
With every process, even if it's a really, really strong process, there's always something you could do. There's always some work to do to add some discipline or subtract some process that's just bureaucracy and not working. There's always something.