Mountain climb

The Blessings of Regret

In the mid ‘90s, as I was refining our investment process, I was asked to present for a national teleconference. I was surprised and flattered to learn that I would be presenting with Professor Meir Statman from Santa Clara University. He covered the academic theory; I covered the practical application. I had run across his initial research on Regret Theory several years earlier. He and a colleague, Hersh Shefrin, had written one of the earliest papers on the topic in 1984. As Professor Statman continued his research, he was the one who concluded that the emotion of regret is 2½ times more powerful than the emotion of pride. This finding has had a profound effect on how we have developed portfolio allocations for the past thirty years.

A classic example of Regret Theory was found in the behavior of those who lived through The Great Depression. They were financially scarred for the rest of their lives by the losses they experienced. People like my grandparents had difficulty putting their money in anything other than guaranteed financial instruments like savings accounts, certificates of deposit and annuities. Yet they became a generation of amazing savers. They never wanted to face a situation where they had no financial reserves to feed and clothe their family.

Regret shapes our lives

Over the past three decades, I have come to realize that regret goes well beyond investments. Regret shapes our lives and may be the greatest agent for change that we possess. Regret can cut two ways. It includes acts that we do and acts that we fail to do. Regret initially comes across as “feeling sorry” for:

  1. Something you have said
  2. Something you failed to do
  3. Something or someone you lost
  4. A moment in time in which you failed to act
  5. An event that you missed

Yet, true regret lingers. It does not go away like an early morning dream. It lingers like the smell of sweet perfume or the strains of a pesky musical piece. It sticks in your brain and surfaces when least expected. The more powerfully it lingers, the more dramatically it can shape our future. It is the source of “I’ll never do that again” as well as “If I get another chance, I’ll speak up and thank him next time.”

You see, several years ago, I was in a Delta SkyClub in Atlanta and walked past Congressman John Lewis. Rather than thanking him for his service to our nation, our eyes briefly connected and I walked over to my seat. I made the decision “not to bother him.” I have regretted that decision ever since. Now it can’t be corrected. Sometimes you just have to live with the regret.

What do you regret?

When you reflect on 2020, what do you regret? Here are a few questions to assist your reflection:

  • Who or what have you lost this year?
  • What do you find to have less value in your life?
  • What habits have you developed that you want to maintain?
  • What are the relationships you want to strengthen?
  • Who are the people that you should forgive or that you should ask for their forgiveness?

Regret plays into all of this. It empowers us and propels us to the determined changes that make life better. It is truly a blessing.

Rick Adkins, CFP®, ChFC, MBA

P.S. I would recommend Meir’s latest book, Finance for Normal People: How Investors and Markets Behave, available at fine book stores everywhere.

© 2020 The Arkansas Financial Group, Inc., All rights reserved.

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