TEDx: Alpesh Patel on the Mind of a Trader

|March 2, 2023

Alpesh Patel explains the surprising factors that influence success and the personality traits exhibited by successful people.

3 a.m. That’s when my alarm clock goes off… not because I don’t need sleep but because by 3:30 there is a car waiting outside to take me to the TV studios where they will hand me five news stories which I’ve not seen before and I’ll be on air about 20 minutes after that but not before somebody’s put makeup on me – lots of foundation which I’m not used to on a daily basis. I should say all the while I’m trying to work out what I’m going to say about these five stories. They could be about politics, economics, they could be outlaw it could be anything could be the story from Japan anywhere in the world it could be taken from so and with the global Audience by the way potentially of 300 million people so after about 10 years of doing it’s not on a daily basis thankfully I had lunch with one of the investors in my hedge fund and you can imagine if you’re an investor with a hedge fund you’re doing rather well and he was doing rather well and we had lunch off with one of the mornings where we’ve had uh my BBC broadcast and he said how do you do it how do you how do you manage to talk relatively coherently uh after each one of these sessions uh on TV where they haven’t told you what the news is and as I began to tell him and gave him some Guff about my experience as a barrister and get being able to assimilate lots of information making over an argument I realized he was actually looking over my shoulder at the waitress and wasn’t really paying attention to my answer so I said to him I have an IQ greater than that about Einstein and that caught his attention and equally facetiously he replied well if you’re so clever why aren’t you rich hence the title for today’s talk and his definition of rich is going to be different to mine and since we have a young audience I’m sure you’re interested as well in the answer to that of course it’s a relative matter but as I started researching this talk  the thing that became abundantly clear was that’s not an easy question to answer there’s ample research done on this as you’d expect Nobel Prize winners that I’m going to share with you the findings from some of those but it also took me on a journey of research into well a whole bunch of surprising Revelations to do with happiness and wealth didn’t bring that just as our gut instinct is that it might not necessarily do so but also an interesting journey into the lives of psychopaths and narcissists oh yes there’s a whole heck of a load of those who are rich as well and I’ll show you the findings so that you avoid that dangerous path path as you go into your careers two other things which came to mind before I dive deep into this research one was this you only have to look into the parking lots of the world’s leading universities to see that there isn’t much of a connection between intelligence and wealth that’s clear enough not everybody wants wealth and that’s fair enough as well the other thing to remember and again the research Drew this aphorism out is if you want to know what God thinks about money just look at the people he gives it to and I’ll explain how the research shows that that not only is that true of what that message is actually saying but we better do a few things with our personalities to avoid the problem should it be wealth that we actually want so without saying that it’s as simple as saying we don’t want it we do let me just explain first of all what a fund manager does that’s probably an oversimplification of what a fund manager does and you can see elements of narcissism and psychopathy in there as well before you get worried that you’ve got the wrong person speaking here I better move on and get on to the subject matter if you’re so clever why aren’t you rich and let’s take it as read for a moment if you would just make the assumption that I have got an above average IQ that’s me at the age of six being my uncle uh chess I’m the one on the right hand side of the picture and at nine I had my first computer at 12 I’d made my first investment so where on Earth are my billions where’s where’s my Elon Musk like reputation for making billions and billions or if not trillions so what went wrong you might say why was I asked by an investor in my hedge fund if you’re so clever why aren’t you rich don’t get me wrong it’s been helpful knowing how to make money it paid for a few bills and it’s not a bad thing but as I delve deeper I realize this is more than just a flippant lunchtime conversation with an investor what suddenly became clear is this is important and it matters because research from Brewing dolphin the UK stock broker found that 94 of respondents said Financial worries led to stress got worse 36 said Financial worries impacted their sleep or their ability to do their job so it had an economic impact Beyond just your own Mental Health of that 36 percent they also said it impacted their relationships so it impacts family life the life of children as well and it led to days of work additional sick days just because of financial worries that’s a macroeconomic effect on the whole country so it’s not just a mental health issue the fact that people didn’t have as much money had all of these impacts and we’re not just talking people at the absolute bottom of the pyramid we’re talking all the way up so if it is important how do we solve the problem and what are the unintended consequences because they’re always unintended consequences of wealth creation we know that it doesn’t take a Nobel prize-winning piece of research to tell you that well part of the problem which became clear in researching all of this is we might actually even be going about it the wrong way if wealth creation is a good thing in and of itself and becoming richer is good for your mental health and for society as a whole if and we’ll come to that in a second that when I researched this for my very first book published by the financial times some 25 years ago a book called Mind of a Trader where I interviewed 10 of the world’s leading traders who were extraordinarily Rich Annex are already successful at their jobs which is why I interviewed them because I wanted to get into their profession and I asked them what made you so successful and which is another way of asking them how did you get so rich and can you tell me and doing it through a book is a is a good way of finding that out the only answer which was consistent amongst all 10 of them and they didn’t know each other the only Factor they gave and it was a frustrating answer was they were detach from the money they said we just locked the process you know that old annoying phrase that oh if you’re passionate about your work you’ll never work a day in your life it was sort of that um well that isn’t really a satisfactory answer but my God it’s important and there’s people choose their next career moves or move on into the world of Life do bear that in mind it wasn’t the ones who were just chasing the money in the world of hedge funds outside of it who were the most successful it’s actually the ones who just love the task and the job they were doing just far more important than what’s the end goal or will this make me Rich so maybe I picked the wrong attitude well we’ll come to that as well what more can the research tell me that’s my mum by the way well there’s some disappointing research about Ferrari owners if that’s a uh an illustration of wow what we found is and it’s one of the unintended consequences of rich and it’s some of the things you already know it’s only the parents I’m sure will know is Rich made for Bad characters which is satisfying to know it also made for unhappy people and there’s nothing nicer than seeing a rich person who’s unhappy I mean admit it deep down it makes you that much happier it’s just that bit of shopping for you but what was the research then well Professor Paul piff at Berkeley rigged a game of Monopoly he rigged it so that only one participant would become extraordinary wealthy in a very short space of time and everybody else would be poor and then they kept doing this exercise with control groups and at different audiences and the findings were always the same the findings were that whoever became rich in that game their behavior changes they used to observe Behavior through a two-way mirror what they discovered is that the wealthier person grew meaner their posture changed into a more dominant posture and they began talking down to their poorer counterparts it’s a game it was monopolies not even as if they achieved anything in the real world and they might have cause for aragos you could do this with a game Lord of the Flies kind of thing that’s shocking so we may well go from richness for our mental health but the unintended consequences to personality we better be careful of what monsters are we creating in society further as I delved into the research for this talk I came across some delicious sounding articles and pieces of research in particular one by Institutional Investor it was entitled sports cars Psychopaths and testosterone research papers which showed that initial success in whichever career you went into was not actually a good predictor of subsequent success oh it got better here are some of the other articles which laid into this research a hedge fund manager who drives a Ferrari will probably underperform seems counter-intuitive the very characteristics we want in society of people who are good initially are exactly the same characteristics which lead to their destruction and worse still those around them financial crisis probably some testosterone-ridden Psychopaths happens in politics as well won’t delve deeper into that other articles covering this psychopath hedge fund managers make less money than nice guys there are personality traits will want to encourage the more attractive Psychopathic ones the crazy narcissistic personality traits which people often flow towards they’re not good for your company they’re not good for your country eventually those people underperform and they end up destroying things around them why alpha males make bad hedge fund managers narcissism machiavellianism and psychopathy lead to the worst hedge fund managers the women in the room will be pleased to know that women make better investors than men but that’s a whole different tool so where does this bring us well I’m going to draw these strands together in terms of what kind of society we might want when we ask the question I Want to Get Rich or I’m so clever why aren’t I Richard one thing that I want to draw to your attention is the Nobel Prize winner Eugene Famer he again found fund managers tended to underperform the market well wait a minute summarize with my industry it’s really simple either you make money or you don’t there’s no hiding place at all it’s not like any other profession either you made money or you didn’t what Eugene Famer Nobel Prize winner discovered is and he took a go at virtually every Investment Bank on Wall Street Goldman Sachs for instance under one percent of their funds he said delivered a market beating return When you allowed for duration you allowed for risk under one percent but how come they’re so rich and surely they clever at Goldman Sachs they’re rich and clever and yet they’re underperformed so what were the factors which led to being rich and actually being pretty rubbish according to Nobel prize money from the financial times in 2004 they ran a competition when I was just a private investor I was not a professional fund manager I was a private investor I was a regular individual and over the space of the year they ran a competition to forecast the markets so pretty simple to see who’s good who’s bad Neil Woodford came 14 narrowly beating the editor’s cat the cat had to just pick some numbers from the floor it was random he narrowly beat the cat over the subsequent decade and a bit he managed to raise billions I didn’t sadly neither did the cat by the way you should know and then he had to apologize for his poor performance so how is it that you can be poor performing and keep going and the answer it seems to lie and several things one is name recognition as investors people give their money to names they recognize they vote for names they recognize a leadership contest for instance name recognition and marketing is far more important than competence how many others know that through the workplace it’s not who’s actually good at the job it’s who’s good at making out they’re good at the job that helps cognitive biases there is ample evidence to show that people have in my industry at least a bias against certain colors of skin there’s research to prove it gender men raise more money than women do they shouldn’t if you went on performance those are biases well we have a word for it sexism they’re cognitive biases that’s unfair jaw lines that’s really unfair apparently the stronger your jawline the more you’re perceived as a leader and trustworthy and the more you’re likely to succeed maybe I was just too fat to be rich I kid you not jaw lines are important some of you looking at me as if you don’t believe me it is true it is true I said name recognition behavioral Finance research shows it time and time and time again so again where does this leave us well in bringing all the strands together James Heckman another Nobel prize-winning researcher he said IQ only had about one to two percent effect on whether or not you would be rich so the answer to the question well if you’re so clever aren’t you rich could be because clever is not that relevant I’m afraid what James Heckman again Nobel Prize winner said is personality motivation conscientiousness and diligence were far more important they were far more predictive than I do now this is important because IQ can’t be changed personality can the parents in this room will be relieved to know so those of you who are on the extreme side of IQ part of the lucky sperm or the luckily ovary Club guess what personality can Trump your natural god-given talents which is good and it’s fair to know as well it’s more likely to lead to wealth another thing more likely to lead to wealth the right spouse I’m not just saying that the research shows it and the personality of the spouse whether male or female were they supported these things intuitively parents in this room will relate to but intuitively we didn’t realize there was ample research to prove it so for all the unmarried people in the room choose your spouse carefully it has more to do with your wealth than your IQ which is barely relevant so strutting around being all clever it’s not going to be the thing that’s going to help I will close with this notion which is this how do I answer that question then if you’re so clever why aren’t you rich well research from Grossman of the Royal Society said actually it’s wisdom we need wisdom it’s needed to resolve conflict whereas wealth doesn’t help do that so at least I’m not unhappy richer people weren’t happy if they weren’t generous again research showed that you got richer but you got meaner you got unhappier unless you were generous of your time and of your money so at least I’m not unhappy I’m not ungenerous I’m not narcissistic and a psychopath lacking in wisdom maybe I was just a bit unlucky with a jaw which wasn’t Square enough also if you’re extremely clever then there was an increased probability you are likely to be poorer they’re still looking into the reasons why it could be that you just felt you were too clever for the system they’re not sure but that’s what the research suggests I hope within our schools therefore we’ll talk a lot more about character Beyond grades and test not for IQ alone but for personality traits such as narcissism as they can be changed unlike unlike IQ and therefore create a wiser happier population that is less likely to cause Financial destruction which my industry knows a heck of a lot about thank you