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Narcissistic Investment Managers Underperform

Narcissistic Investment Managers Underperform

July 7, 2022

A narcissist investment manager thinks it’s all about them, tends to take big risks and has a lower risk adjusted returns than their peers.

The truth is money management is all about the investors, the risk they take or avoid and their return on investment. It is not about the money manager and their personal characteristics.

There has been extensive research in how individual investors react to certain situations. Behavioural finance has taught us much. Now we shift the focus to the personality traits of a money manager.

This research is from Philipps University in Germany and was presented at the 2022 Annual Conference of the Swiss Society for Financial Market Research and was reported in the Investment Executive.

The report stated the “major manifestations of narcissism include an exaggerated sense of self-importance and entitlement, a lack of empathy and constant need for attention and admiration.”

A narcissist manager often does not follow the stated investment strategy of the fund they manage. The report said those managers “tend to be attracted by bold and rather risky investments, which result in higher volatility of returns.”

That is in direct contrast to the theory of investing. Investing is all about getting a specific amount of return while taking the least amount of risk. For many investors the amount of risk is more important than the actual return.

There is a popular expression that investors want a “return of their capital” more than they want a “return on their capital.”

Safety and preservation of capital is paramount.

Money managers should always maintain sound logical and rational thinking.

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Only investment-related products and services are offered through Watson Securities of ACPI. Peter Watson provides wealth management services through Watson Investments. He can be reached at www.watsoninvestments.com