Psychopaths Aren’t the Best Hedge Fund Managers After All

By Lacy Schley | October 19, 2017 1:58 pm
american-psycho

(American Psycho screengrab)

Pretty much everyone agrees investing, whether it’s your own money or a company’s, is wise. And hiring someone to manage that investment portfolio could get you the most bang for your buck. So, who to choose? Probably someone who would do whatever it took — no matter how many friends they’d lose or people they’d leave dead and bloodied and dying along the way — to get the job done, right? In other words, a psychopath or a narcissist. (Or, if you’re Derek Zoolander, an investigatory journalist.)

But a new study in Personality and Social Psychology Bulletin suggests hedge fund managers who score high on the so-called Dark Triad personality traits of psychopathy, narcissism and Machiavellianism aren’t quite as good at investing as their colleagues.

A team of experts from University of Denver, University of California, Berkeley and the privately owned San Francisco investment firm TeamCoAdvisers tracked 101 hedge fund managers from 2005 through 2015. Ultimately, the team found that managers who displayed more psychopathic traits fared worse on their overall yearly returns than did their less psychopathic peers. The difference was minimal —only about 1 percent — but in the world of high-stakes investing, every little bit counts. And when it came to how many risks a manager took with their clients’ money, those who were more narcissistic took more chances only to end up with the same amount in returns as their less self-absorbed peers.

Granted, this work does have a rather glaring limitation: The Great Recession hit in 2008. So despite the study’s 10-year duration, the authors note there is a possibility these sinister traits may be more beneficial in a different financial climate. Still, the findings add to some of the authors’ previous work examining the ideal personality traits in U.S. senators. Results from both studies hit on a similar theme: At least in some contexts, these Dark Triad traits don’t seem to lend themselves to successful leaders.

CATEGORIZED UNDER: Mind & Brain, top posts
MORE ABOUT: psychology
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  • http://www.mazepath.com/uncleal/qz4.htm Uncle Al

    www(.)enlightenmenteconomics(.)com/blog/
    index.php/2014/09/investment-rats/
    … Remove parens, one line.

    Discrimination of market trends through murine vectors. One then supposes it is either eldritch random or AI-trainable, as opposed to cocaine-fueled. Do the rats perform better on caffeine, or (strike-speed-strike) Ritalin, Adderall, magnesium pemoline; Armodanifil?

  • John C

    Psychopaths are impulsive and have a grandiose and unrealistic estimate of their abilities when facing risk. Not good traits for long term investment success.

    • jswagner

      Many successful psychopaths, and we’re only talking about very successful psychopaths here, are as patient as a seal hunter standing over a ice hole, if they see their selfish goal as worth it. Also, grandiosity is a nebulous term in this context, esp because many psychopathic leaders (I’ve worked for some) don’t have a grandiosity that drives them but a simpler desire for personal power or money or independence. Some turn on grandiosity to be practical to their own ends, whether grandiosity looks like aggressive manipulation, grand goals for visioning, or narcissistic excesses.

      Whatever the failings that make for lower returns, they result from the lack of social connection that waylays the psychopath’s motivations from the health of the company. I think researchers will eventually find that that covers a lot of behavioral territory, because psychopathy is much more common, especially in executives, and much less understood than we think. I like to recommend “The Making of a Psychiatrist” to people in this context, where a wonderful treatment of barely-unsuccessful psychopaths can give one a sense of how destructive and yet promotable they can be. It shows that the lack of integrity that creates personal goals where there should be social ones creates a million ways the common good deteriorates through relying on the personal optimizations of anti-social creatures.

  • OWilson

    As a Management Consultant, I found that the most successful businessmen, as opposed to “investors”, are those who think in terms of win/win, fair value exchange. There is definitely a profitable market for honesty and sincerity.

    In a free market system, when inefficient, uneconomical, dishonest or incompetent folks deviate from that, they fail!

    (Unless propped up (bailed out) by governments, of course) :)

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