Why are so many investors boors?
I’m not talking about a couple of bad eggs here or there. As far as I can tell, there’s a distinctive phenotype that may not describe all investors, but certainly seems to capture far more than chance alone would dictate.
Boors, you ask? Yes, boors: loud, opinionated, and definitive about most everything, including areas (such healthcare and life sciences) characterized by remarkable complexity and great nuance. Present a difficult problem, they provide a clear, direct, and preposterously simplistic answer.
You could be generous, and attribute this certitude to youth; to be sure, the most extreme examples I’ve seen are from young hedge fund associates, young CEOs, and young VCs. I’ve previously described a similar phenomenon in medicine, where some junior doctors seem eager to offer all the answers, while the more seasoned physicians typically bring more humility.
In the case of investors, however, I think it’s more than just youth. The near-universality of the boorish phenotype makes you wonder if there’s a competitive advantage to it. There has to be. How do you convince other people to let you invest their money? How do you convince yourself that you deserve to do this?
My sense from talking with a number of investors is that most place great weight on the concept of a distinctive view, an investment thesis. In other words – everyone recognizes that life is complicated, and eagerly — desperately – seek someone who appears to have found a seam, a line on the world that no one else has appreciated.
In their defense, I suspect many investors would say that at the end of the day, they have a fairly discrete decision to make: where do I put my money? Thus, in contrast to academics and others who can gracefully dodge complex issues by writing lengthy scholarly articles (or less scholarly blog posts), investors need to arrive at a bottom line, and make real decisions.
Clearly there are refreshing exceptions – Michael Mauboussin, Chief Investment Strategist of Legg Mason, is one of the most thoughtful practicing investors I know. I’m sure I’ve encountered several other examples as well – but they are very, very unusual.
Unfortunately, the boorishness of most investors seems to contaminate many of the journalists that cover investing as well. It’s sad to watch reporters who you know can do better offer up ridiculously reductive fare. And social media tools probably don’t help things along – I recall a recent tweet from highly-regarded financial reporter asking if an intricate series of clinical trial results meant that a company had “crapped the bed.” Good luck trying to explain that “it’s complicated.”
I’m equally certain that the much-hyped upcoming EASL hepatitis meeting – already the subject of enormous investor speculation — will similarly generate a series of snap-judgments about winners, losers, and forecasts about exactly what the HCV market is likely to look like ten (or more!) years down the road.
Of course, it would be one thing if these marvelously simplistic judgments were basically correct. Yet a slew of academic research, captured perfectly by Kahneman in this NYT magazine article, and also summarized memorably by Taleb in The Black Swan, demonstrates that there’s no correspondence between confidence and competence. The kicker, as Kahneman also discovered, is that no one really cares, because the system works so long as everyone believes it does. In other words, it seems to be an extremely useful fiction.
My fundamental question is: does it have to be this way? Surely, it should be possible to arrive at the same point – a clear investment decision – through a process that acknowledges complexity, accepts uncertainty, and values reflection – in contrast to the more typical emphasis on crude reductionism, false precision, and rapid, definitive pronouncements.
My hope is that the real problem is just ascertainment bias – perhaps the blowhards are simply far more visible than the more thoughtful (and ideally, more successful) investors.
My fear is that the boors may be winning – their approach may attract cash, their advice may move markets (at least in the short term), and their approach, for lack of a better word, may be good. Perhaps boorishness works.