What makes a good banker?

Posted on September 26, 2011 by Kim Stephenson

 

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”.

 

 

 

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Radio interviews

Posted on August 27, 2011 by Kim Stephenson

 

I did a series of radio interviews yesterday.

 

It’s for a site named Cash is Cool which, as the name suggests is pro-cash as opposed to credit cards. 

 

Although in theory people can use credit free (if they handle it right) the majority of people, being human and not Vulcan, don’t.  Most people end up paying more on credit, they pay charges for misusing it and they lose track more easily with credit cards than cash.

 

So, being generally in favour of giving people choice, I tend to support the idea of rejecting a cashless society – because that would mean that you couldn’t choose to budget with cash if you want to.  Incidentally, I’d also be against abolishing credit cards, they can be useful and convenient.  But I don’t like the Big Brother idea of compelling everybody to do the same thing, when each person is different.

 

The stuff I was talking about was based on a survey of 2,000 people (for which I helped design the questions).  The full results of the survey are going up on the site, but basically they showed that people in the UK are probably smarter than the authorities and “experts” give them credit for.

 

People seem to realise that it is easier to budget with cash, that if they have a credit card they are more likely to overspend with it and that they get hit for charges such as minimum spends, missing a payment deadline or having an outstanding balance. 

 

I did radio spots with

 

The Bee

2BR

106.5 Central Radio

(all of which are around Lancashire)

The Bay (which is also North Lancashire and S Cumbria)

BBC Radio Humberside

Kingdom (Fife)

Sun FM (Sunderland)

Swansea Sound 1170 MW

Cheshire

 

 

Only a couple were live (Swansea and Humberside) so the rest that were pre-recorded may go out at any time over the next week or so. 

 

We also did a pre-recorded general piece that may be picked up on other stations.

 

 

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BBC News 24

Posted on August 19, 2011 by Kim Stephenson

 

I’m on TV – BBC News just called about doing a brief interview at 8 PM this evening about the economic news from a psychological angle.

 

It’s based in part on my comments about the Double dip depression at  (http://www.mindfulmoney.co.uk/6610/investing-strategy/will-there-be-a-doubledip-recession-we-ask-the-experts.html).

 
 
 
 
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Do you identify with your job?

Posted on August 10, 2011 by Kim Stephenson

 

I’m doing a radio interview on BBC Radio Wiltshire at 11.10 tomorrow (August 11th).

 

It’s about how much we think of ourselves in terms of our job.

 

In theory, a job is just a way to earn money to buy things with, but many of us identify ourselves totally with it.  For example, if you meet people for the first time, one of the initial queries is “what do you do”, which people are happy to discuss, often at great (and tedious) length! 

 

But why is that? 

 

 

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Another blog

Posted on July 29, 2011 by Kim Stephenson

 

I’ve been asked to write a blog for the Mindful Money site, which will allow me to do a lot of things that don’t really fit on this site very well.
 
That’s going to be coming up soon, but if you want to read about some psychological aspects of business and money, here are links to articles about:
 
 
 
 
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The happiness survey

Posted on July 27, 2011 by Kim Stephenson

 

There are reports in the press today about the Happiness survey.

 

The comments made in the press – this is all obvious and a waste of money – are both fair and unfair.

 

They’re fair because, as I’ve said before, we know about what does make us happy from existing research, we know money isn’t really connected to happiness and therefore there isn’t much point in doing some of these surveys etc. unless it is to score political points, because we could simply use what we already know, reserving the money for practical projects based on what we already know.

 

They’re unfair because, although we “know” these things, most of us don’t actually act on them when we have the opportunity, we chase after material goods and symbols instead of real happiness and we often fail to establish what we really do value.

 

We might say, “family and friends are more important than money”, and then spend 20 years working 18 hours a day “for them” to end up divorced from our spouse and estranged from our family.  We might say, “health is precious”, and spend our money on chocolate, booze and drugs.  We might say, “spiritual values are important”, win the lottery and buy a house, yacht, plane etc. and forget about all the humanitarian projects we could start with that money.

 

 So as with many things, knowing about a subject like happiness isn’t quite the same as actually living in harmony with what we know.

 

But still, as I’ve said before, it would be better if Government and those allocating cash actually asked what we already know first, then acted to make it easier for people to use that knowledge in a practical way.  Re-inventing the wheel, or giving facile “let’s all work for world peace and we’ll all be happy” advice isn’t really going to help a great deal.

 

 

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Want what you’ve got or get what you want?

Posted on July 20, 2011 by Kim Stephenson

 

I did a brief radio interview on BBC Radio Birmingham yesterday.   It was about the couple who won £161 million on the Euro lottery, and had to go into hiding from all the begging letters.

 

The presenter, Tammy Gooding, asked me about whether that was typical, whether people winning huge amounts of money were no happier, perhaps even more miserable, as a consequence of the win. 

 

We had some great calls in, with some people whom, I think, would actually be very happy with a win.  In fact, the switchboard lit up with comments, and the common features of them echoed the best psychological advice on being happy.

 

If you don’t know what you want, you’re likely to get things you don’t want.

 

The wise thing to do (which a lot of callers had done) is to decide what you want to do with your life, what experiences you want, what causes you support etc.  Maybe you do voluntary work with youth groups or the elderly, maybe you give a bit to charities that you believe in to help those in need or to cure diseases that have emotional impact for you.  How great would it be to be able to do that full time, and to be able to fund projects yourself?

 

But most people don’t do that.  They are influenced in what they think they want by what their family friends and neighbours have, what they see in Hello magazine a celebrity likes, what it seems from the media they are expected to want.

 

Consequently, many of us go through life chasing material things that have no real value to us or the life we’d like to lead and that, if we get them, would be quite empty and leave us wanting more.  For example, we get the car, then want the yacht, the bigger house, our own island, an art collection – all the time competing with other people to have more “things” that  we don’t really care about.

 

Which is why many lottery or pools winners (like our couple in hiding) are happy to start with but don’t stay happy.  They get lots of money, buy lots of things, and never stop to think about what they really value.

 

The ones who stay happy are the ones who buy what they really want, perhaps they increase their voluntary work because they can now do it full time and fund projects personally, they help friends put their children through school, they support charities in a big way.  Sure, they may buy the bigger house, but it’s the house they actually want, not the one that a magazine or a TV “celebrity” says they ought to have because they’re now a millionaire. 

 

They have a full life and spend their time and money on activities that they value, achieving things that have meaning for them. And that is what makes us happy in the long run, not things, but activity that we feel is important. 

 

That applies however much (or little) money we have.  And of course, the more money we have, the more opportunity we may have to achieve things that we think are useful and valuable.

 

 

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Mindful Money

Posted on July 15, 2011 by Kim Stephenson

 

I seem to be getting asked for a lot of interviews lately, so I’ve neglected the site a bit.

 

If you want to see what I’ve been up to, there are a few articles on a site I’m writing for, Mindful Money

 

There are pieces on financial regulation and on corporate leadership in case you’re planning on investing in shares.

 

There will be more coming, geared to the psychology of investing.

 

I’ve also been on BBC radio Wiltshire again (July 12th, 10.10) and I’m hoping to put a recording of the interview on the site shortly.

 

There are also several quotes that have been picked up by news services – here’s a sample

 
 
 
 
 
 
 
 
 
 
 
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Budgeting and stopping unnecessary purchases

Posted on July 7, 2011 by Kim Stephenson

Three questions about budgeting:

 

  1. How do you prepare yourself mentally for the arduous task of budgeting,
  2. How do you keep yourself on track  and
  3. How do you stop yourself from unnecessary purchases?

 

I’ve talked about the one and two here’s the third,

 

How do you stop yourself from unnecessary purchases?

There are lots of things that you can do

 

One of these is environmental control. Although it is only one of the areas you can work on, it is one of the most powerful and certainly the most commonly advised, but you probably don’t know it by that name.

 

What you tend to be told is “cut up your credit cards”.  While I would say that doing this is not always a good plan, it is a form of environmental control.  What you are doing is changing the environment you work in.

There are three main ways that you can do that.  You can:

 

  1. change features of the environment,
  2. change the cues in the environment and
  3. give yourself different cues.

 

You can avoid shopping with your “shopping buddy”, if the two of you normally drive one another on to spending. Be polite, explain what you are doing, but avoid them when shopping.  This is where it can be hard.  Like the alcoholic whose social life as well as their problem revolves around bars, your problem and a part of your social life revolves around certain types of shops and shopping. You don’t have to destroy your social life, but you do need to amend it, and you might feel that you are simply killing it off.

 

That’s a way to alter the features of the environment. Instead of “I’m shopping with X, let’s spend some money”, you are no longer in the same environment so you might pause before spending.

 

You can also step away from the environment, for example, simply not go shopping.  That might be useful for a while, but it is probably not practical long term.

 

I suggest that you stay away from particularly tempting shops for a set time, and work on being able to shop without going mad in a less intense situation.  For example if you have a shoe craze, avoid all the shops for a while, and when you go back to “fun” shopping, make sure you avoid shoe shops.  The idea is to help your self-control, and gradually increase your exposure to temptation.  Don’t try to do it all at once, deciding to go down Oxford Street on the first weekend and use your will power to avoid buying anything.  You’ll be like a child in a sweetshop, and what is the point of setting yourself up to fail?

 

I’ll give examples of the others, but this is where you need to use your own knowledge of yourself to adapt the ideas to your own environment and cues.

 

Going without your credit cards is a way to change cues to yourself.  You can cut your cards up, if you find that you only spend heavily on credit cards and when you have only cash to spend, you don’t spend.  However, credit is convenient, if you can learn to use it sensibly.  So I’ve got some other ideas for cards.

 

One is to put the card somewhere where it is difficult to get at, make it hard for yourself to go mad with the card.  Do you have a friend or a parent on whom you can rely to hold the card for you?  If there’s somebody who will give you a hard time about why you want the card, you give yourself time to calm down if you are just being self-indulgent, but still have access to the card if there is a real emergency.

 

Finally, you can change your own cues.  Having reminders of what you’re trying to do can be useful.  You can have in your diary, computer, phone or other organiser, reminders of what things you want to think of and do, so that you are more likely to think first and act afterwards.

 

You can also change the action you take to your own cues.  If you feel depressed or bored and that automatically lights up the bit of your brain that tells you, “retail therapy is the answer”, then you can work out what else might help.  If you still have the gym subscription, can you go and work out (if you’ve cancelled it, go for a run or something)?  Can you tackle the project you keep putting off, phone a friend, do something other than instantly shop?

 

But these things only work if you adapt them to your own life – if you take the basic idea and use it in a way that’s relevant for you.

 

 

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Keeping on track with budgets

Posted on June 29, 2011 by Kim Stephenson
Three questions about budgeting:

     

  1. How do you prepare yourself mentally for the arduous task of budgeting,
  2. How do you keep yourself on track  and
  3. How do you stop yourself from unnecessary purchases?

 

I’ve talked about the first one, here’s the second,

 

How do you keep yourself on track?

 

Decide what is sacred – treat the rest as earned money

Start by isolating the money you have a purpose for, your “sacred” money, then you are in control.  It’s very easy to spend what you’ve got left after you’ve paid the vital bills or saved the money you want to save for your dreams.  If you say – “I’ll save from what I’ve got left”, you won’t have anything left and it makes saving impossible.

 

Setting “sacred money” uses our human habits to our advantage.

 

The remaining problem is our capacity to treat some money (credit cards, tax rebates, “found money” etc) as being easier to spend than money we earn.

 

So treat everything that isn’t sacred as “earned”.  Try sticking a “post-it” note to your credit card and ask yourself “would I buy it and how much would I pay, if I had to pay cash?”

 

Try waiting a week to see if you really want something.  In the meantime put the money into a special purpose account (as below).  This makes you treat all your money that isn’t sacred as something that must be spent carefully, so none is wasted.

 

Try thinking of money as usable or as “special purpose”

Most money apart from sacred money will be usable, it’s there for day-to-day expenses etc.

 

You might also want a “special purpose” fund.

That money is set aside for the big things, reducing the debts or covering the credit card (!) or utilities, paying for the holidays etc. that are important, but not enough that the “sacred” money goes into them

 

You put in enough money to cover those amounts (so you need to budget and know what you pay each month for the car, the mortgage, shopping etc.).  Then the big bills and regular expenses, the holiday fund etc. are taken care of.

 

If you do this, you’ll be surprised how quickly you become reluctant to dip into them for trivial things, and how much your natural instincts help you.

 

Also, if you insist that the special fund is only used to pay bills that it is designated to cover, you will not tend to spend money when you get a good month without bills (when the Council Tax isn’t levied in some months, for example) and then be drastically short when you get a bigger heating bill than usual a couple of months later.

 

The money will accumulate in the special fund for regular bills, the sacred money will go away for your long term dreams and the usable money will be all you spend.

And at that point it becomes a habit, it is your “status quo” and it will become hard for you to change and waste your money.

 

 

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