In My Neck of the Woods

In Michigan we take our winters very seriously. Everyone has an opinion whether they love the white stuff and related outdoor adventures such as skiing and snowmobiling or they are counting the moments until spring. Having grown up in warmer parts…Texas and Kansas…I’ve always considered surviving Michigan winters a badge of honor. For me, it’s a long season you put up with (of course there are a few outdoor highlights) in anticipation of some of America’s most underrated and beautiful springs, summers and falls.

If you’re in Michigan this year, you know that the weather is more than a passing conversation. Things are out of kilter here with one of the mildest winters on record. This can be either a major bummer or great news depending on who you ask. Personally, my nearly seamless commutes are truly something to talk about!

While we Michiganders are worrying about plants taking a cue from the weather too early and birds being fooled into flying north, Europe is experiencing one of their most brutal winter seasons. Temperatures are at record lows and scores of people are dying due to the punishments of cold and ice.

The dichotomy of winter in two areas of the world is something that is difficult to process. The default judgment for the human mind is to take what you know to be true (for me and my neighbors an exceptionally balmy winter) and extrapolate that information creating assumptions about what is occurring elsewhere. Unless distracted by a story on the nightly news or the internet, the whole world is experiencing a winter thaw. If you know someone in Europe, they would be quick to correct you!

This type of mental accounting is known as anchoring in the behavioral finance world. An investor takes a small piece of information they are familiar with and relies on it for far broader assumptions and decisions. So, you may look around your city or state to extrapolate economic conditions around the world, or take knowledge you’re very familiar with about a local company or industry and apply it with a broader brush across markets.

While it’s shaping up to be a rotten year to be in the mitten business in Michigan, it doesn’t make it a bad year to sell snow shovels in France. Knowing your local forecast and realizing its limitations is really no different than thoroughly understanding your investments. As Al Roker might say, it’s all about what’s happening “in your neck of the woods”.

 


Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.