Editor: In The Rubble, It's All Behavioural

Financial services leaders have a shot at becoming very wealthy indeed, and sometimes it works. Succeed or fail, it's all behavioural 

Ollie Smith 2 December, 2022 | 4:15PM
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It’s never nice to see things go wrong. But I confess I am fascinated by crashes. And with that, there’s a caveat. I’m not really talking about market crashes, though they have huge relevance to what I am about to say. I mean the general sense of when things come crashing down for individuals. It really intrigues me.

There’s plenty of it going on at the moment. Several weeks ago things came crashing down for Sam Bankman-Fried, the FTX crypto billionaire now forced to admit (in the startling public court of public opinion that is a New York Times event, no less) that not all was as well as he thought.

Though the story is very different, I am still absorbed by Wirecard too. We are now days away from a criminal trial that will weigh up whether former CEO Markus Braun was complicit in wrongdoing. The process will take weeks, if not months.

Conviction And Hubris

What is it about these kinds of cases I find so interesting? It’s the behavioural bit, of course. There is a crude universality to human hubris that can very easily draw in everyone, regardless of wealth or background. But when things go wrong for the wealthy or powerful, many others tend to be affected. Onlookers like me also end up soul-searching on the issue of trustworthiness, and how it is that big business can be so big and so delicate.

From money lost in entirely-legitimate businesses that just don’t work out, to the dramatic specter of alleged wrongdoing on the global stage, the common denominator is the human being. Often it seems the protagonists just didn’t actually understand the implications of their actions, or that their actions were in fact a problem in the first place. Every time it happens, someone asks "how could they have been so blind?". Part of the answer may be money, but there is more to it than that. Humans don't like to be inconvenienced. Sometimes the truth is a very bitter pill to swallow.

A brief plug. I’m pleased to say Morningstar’s long-running podcast The Long View returns soon with two new guest hosts. Normally the series is narrated and presented by my US colleagues, but this time they have kindly agreed to give two rookies a go at the role. To that end, look out for an episode with Morningstar Investment Management global chief investment officer Dan Kemp, where he and I quiz Fundhouse’s own CIO Joe Wiggins on his new book, and what it takes to be a decision maker in finance.

I’m grateful to Joe, because, at a point where I’m pondering what it means to be a leader amid big stakes and extremely conflicting narratives around probability, he managed to put a human face on the topic of leadership.

They key takeaway for me was this: to be an investor is to admit the inability to predict precisely what will happen next, rendering diversification all the more important. To that end, I found it reassuring that Joe admitted the limits of his own abilities. I wondered if fund managers and individual investors do that enough. There is nothing wrong with conviction, but the balance between it and hubris is surprisingly difficult to manage.

In The Rubble

I am sure some psychiatric experts would tell us that people in positions of responsibility may occasionally find it harder to maintain a sense of self-awareness. And even legitimate decision makers must balance the urgency that no doubt fills their lives (we know urgency is a central factor in poor decision making). Few chief executives have that much time to decide what should come next. No wonder certain of them talk on social media about the importance of thinking time during the day. Get several big decisions right a day and they have earned their pay (or so they say).

A final reflection. I cannot tell you what will happen with FTX or Wirecard, but it does strike me that, in the rubble, it’s all behavioural, and it’s all human. Perhaps that’s in some way reassuring. Perhaps it is equally unsettling. I know one thing though: my inability to decide the answer to that would probably make me a terrible CEO.

Honest Opinions. Independent Analysis. Clear Thinking.

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Ollie Smith

Ollie Smith  is editor of Morningstar UK

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