Most people say – “you judge by results”. But given that people don’t understand chance (http://www.mindfulmoney.co.uk/6942/investing-strategy/its-our-only-chance.html)
and have hindsight bias (I’ll talk about that another time, but basically we all think we understand why the past happened, when all we actually know is what happened) results aren’t all they are cracked up to be.
Maybe the person was lucky – after all, with lots of bankers and lots of traders, if they all closed their eyes and threw darts at a copy of the FT to pick stock, the law of averages says some of them would do really well.
Maybe they seem to be doing well but their luck is about to run out – like Fred Goodwin (sorry, Sir Fred, European banker of the year) who within three years was a pantomime villain.
Maybe they are smarter than the rest. Maybe they are only going along with the lunacy (like the sub-prime market in the US) because everybody else is. And before you say – “they should have the courage of their convictions”, remember Tony Dye. Media, colleagues, competitors and finally employers and investors laughed at him or thought him mad. And a few months after he left, he was proved right and his funds went from 36 out of 37 in the sector to top for all periods to about 12 years. But he didn’t get either his job back, or an apology.
Maybe Sir Fred would still be just plain Fred if he’d been smart enough to see the problems coming and pulled out. The stockholders (you and me) would have voted him out for losing us the lovely profits all the other banks were making.
So what makes a good banker or trader, irrespective of herd behaviour?
It’s hard to say, because it’s quite rare that any top job is subject to proper job analysis at all, let alone independent of the conventions. That’s the sort of thing that is my “day job” as an occupational psychologist. You determine what qualities make somebody able to do a task exceptionally well.
There are some common misconceptions about that too.
One is that there is only one type of person who can do it – the stereotype.
So all traders are either Oxbridge physics graduates or Essex boys.
There’s an element of truth in stereotypes (or you don’t have stereotypes). Trading, for example, is usually a competitive, aggressive, high-stress environment. Any environment attracts people who like that environment. In this case people who aren’t competitive, concerned with proving they are the best and prepared physically and/or mentally to beat people up (negotiate hard) are not going to like it and won’t stay around to find out whether they are good or not.
I’m not sure whether trading needs to be like that (I haven’t analysed the work they need to do, I’ve only done some observation of the way that it tends to be done).
But that is the way it is done and it’s possible to design simulations to find out who is likely to succeed (whether it is trading, banking or anything else). So you can test people at low cost, instead of letting them loose with millions of pounds.
But you can only select people well if you know what you’re selecting them for.
As I said to a Chartered Institute of Personnel and Development audience a week or so ago, you have to measure the hole first, and the peg to fit into it afterwards.
So it might be handy if we did some analysis of what would make a good trader, banker etc. in terms of what they actually need to achieve, rather than rely on stereotypes and conventional thinking about “traders have to be aggressive”.