Privacy Please! The narrative changed. The bias didn’t.
Ever since I was a young advisor in the Family Wealth Planning and Tax Department at Arthur Andersen, I noticed something interesting. Many of the wealthiest clients gravitated toward private and alternative investments. What struck me wasn't their enthusiasm. It was how little many of them understood about what they owned.
Every tax season, I would have conversations with clients trying to make sense of investments they had purchased years earlier. Many couldn't explain how the investments worked, what purpose they served in their portfolio, or even why they had bought them in the first place. What they did understand was that these investments required high minimums, were available only to wealthy investors, and made them feel as though they were investing alongside the people they admired and wanted to emulate.
What I remember most, though, was the frustration. Many of these investments generated K-1 tax forms that routinely arrived after the normal filing deadline. Clients were forced to file extensions, incur additional accounting fees, and deal with the same inconvenience year after year. I can still remember hearing versions of the same complaint:
"This investment hasn't done much for me. I don't really understand why I bought it, and now it's delaying my tax return and costing me even more money." Looking back, I think much of the attraction had less to do with investing and more to do with belonging.
Over the years, I continued to see variations of the same theme. Private investments were often marketed as sophisticated, exclusive opportunities capable of producing superior returns. Some delivered. Many didn't.
One experience has always stayed with me. In the years leading up to the financial crisis, one firm I was affiliated with heavily promoted an investment known as the Falcon Funds. Investors were told they could potentially earn stock-like returns while assuming risks similar to short-term Treasury securities. What many investors and advisors didn't realize was that the strategy was heavily exposed to mortgage-related securities backed by loans that ultimately proved far riskier than advertised. Those securities carried investment-grade ratings. Many ultimately proved to be anything but investment grade. This is the only time I can remember clients experiencing a permanent investment loss, other than losses they created themselves by selling during a temporary market decline. Back then, my skills as a behavioral investment counselor simply weren't developed enough to prevent many of those decisions.
That experience reinforced something I've observed throughout my career. When I hear the words "private investment" or "alternative investment," I don't automatically think of spectacular returns.
I think of higher fees.
I think of complexity.
I think of limited liquidity.
I think of limited transparency.
I think of unfavorable tax treatment.
I also think about the simple reality that complexity often benefits the seller more than the buyer. To be clear, that doesn't mean private investments are bad. Some have produced exceptional results. But it does mean investors are often attracted to them for reasons that have very little to do with investment merit.
Which brings me to something I've noticed recently. For much of the last decade, investors were repeatedly told that private markets were where the best opportunities existed.
The argument was straightforward:
- The number of publicly traded companies had shrunk dramatically and was expected to continue shrinking.
- Innovative businesses were staying private longer.
- Investors who limited themselves to public markets were supposedly missing the future.
In short, the best opportunities were believed to exist in private markets.
Then something interesting happened. The narrative changed. Now many of the same sophisticated investors are directing fresh capital toward publicly traded stocks. The emphasis is no longer on exclusivity.
It's on liquidity.
It's on flexibility.
It's on transparency.
The underlying facts haven't changed very much. There are still fewer publicly traded companies than there once were. Many innovative businesses remain private. What changed was the story. And that tells us something important about investor behavior.
When private investments were the fashionable success story, investors wanted private investments. When public stocks began outperforming and private-market exits became more difficult, investors rediscovered the virtues of public markets.
Even Hamilton Lane, one of the world's leading private-market investment firms, recently acknowledged that private equity had underperformed almost all the public benchmarks it examined over one-, three-, and five-year periods. Its analysis also noted that the underperformance remained even when the S&P 500 was measured without the Magnificent Seven. That doesn't tell me private equity is "bad." It reminds me of a behavioral tendency for which I've coined a phrase:
Market-Driven Optimism/Pessimism Bias:
When an investment has been performing well, we naturally become more optimistic about its future. We begin treating a recent pattern as though it were evidence of a predictable future pattern, even when none may actually exist.
The reverse happens when returns disappoint. An investment we once loved suddenly appears less attractive, even when its underlying fundamentals may not have changed nearly as much as its recent performance. We become optimistic because prices have risen and pessimistic because they have fallen, even though the underlying facts surrounding those businesses may not have changed very much at all.
When something is working, we hear more reasons to own it. When it isn't, we start hearing more reasons to own something else.
The story changed.
The behavior didn't.
People naturally want to belong to successful groups. Sometimes investors buy an investment because they believe it is appropriate for them. Other times, they buy it because it is owned by people they admire, envy, or aspire to become.
Throughout my career, I've found that distinction matters. A lot. In behavioral psychology, this is known as affinity bias.
For decades, we've encouraged clients to focus less on what they might be missing and more on what they may be risking. Missing an opportunity can be disappointing. Risking what you need while pursuing something that merely sounds exciting, but that you don't need, can be far more damaging.
Another lesson I learned during my years inside large financial institutions is that facts and narratives are often not the same thing. The facts may be accurate. But the facts being emphasized can change dramatically over time. Five years ago, the emphasis was on shrinking public markets and exclusive private opportunities. Today, the emphasis is on liquidity and flexibility in public markets. Both arguments contain elements of truth. What changed was the frame through which investors were encouraged to view those same facts. In behavioral psychology, this is known as framing bias.
Imagine choosing between two doctors for the same procedure. You're told that the first doctor loses one patient out of every ten. You're told that the second doctor has a 90% success rate. The outcomes are identical. Yet most people feel more comfortable choosing the second doctor because the same information was framed positively rather than negatively. That is exactly what investment narratives can do. The facts may not change, but the frame can make the opportunity feel entirely different.
As I was putting the finishing touches on this article, I came across a timely Wall Street Journal column by Jason Zweig, discussing proposed SEC rule changes that could make private investments more accessible to individual investors.
One observation particularly stood out. Former SEC official, Robert Plaze, suggested that the proposals might be viewed less as providing individual investors with greater access to private funds and more as providing private-fund sponsors with greater access to individual investors. Whether or not one agrees with that interpretation, it reinforces an important point:
Sometimes it is worth asking not only what story is being told, but who benefits if we believe it.
Interestingly, I explored this exact issue earlier this year in my Fix It Friday episode, "Private Equity in Your Retirement Plan: Opportunity or Trap? Why Private Markets Are Targeting Small Investors."
In that episode, I discussed the industry's push to "democratize" private investments, along with the roles affinity bias and fear of missing out can play in making these investments so seductive.
I've included the episode link at the end of this article for your convenience.
That's why I'm naturally skeptical whenever someone tells me that today's investment narrative is fundamentally different from yesterday's. Because the story always changes. Human behavior rarely does.
The Behavioral Takeaway:
The next time you hear a compelling investment story, ask yourself:
• Is this a fact or a narrative?
• Am I attracted to this because it's appropriate for me?
• Or because successful people are talking about it?
• Does it improve my financial plan?
• Or does it simply satisfy my fear of missing out?
Most importantly:
Am I making this decision because it improves the probability of achieving my goals, or because I'm afraid of missing someone else's opportunity?
Because the greatest threat to long-term wealth is rarely missing the next great investment.
It's abandoning a disciplined plan in pursuit of one.
Wishing everyone a wonderful Fall season.
Additional Reading and Resources:
“Family Offices Are Moving Back Into Public Stocks Without Giving Up Private Markets” The Wealth Advisor
“Private Markets Performance”
Hamilton Lane 2026 Market Overview
https://www.hamiltonlane.com/2026-market-overview/performance
“Private Equity Has a Problem. Uncle Sam Says Your Wallet Can Fix It.” By Jason Zweig The Wall Street Journal, October 2, 2026
Related Fix It Friday Episode:
“Private Equity in Your Retirement Plan: Opportunity or Trap? Why Private Markets Are Targeting Small Investors”
