The art of investing is the art of gaining an edge. We’re all aware – well, we all should be aware – that the gaining of a half a percent here, a full percentage point there, makes all the difference to the long-term outcome of a portfolio. This is why ESG investing may well not be worth it. The extra 1% charged, over and above the normal 1% for a managed fund, eats more than the extra return. Anything which gains a 1 or 2% – consistently that is, we’re not talking about holding a particular position to gain the last 1% – margin over time and across investments is therefore something to be cherished. Not just something to be cherished in fact, something to be done, absolutely to be done.
Therefore we should make sure we hire an ugly fund manager. For they will make us more money. This news brought to you by science, real science: “In this paper, we study the relationship between stock fund managers’ facial attractiveness and fund outcomes. Utilizing the state-of-art deep learning technique to quantify facial attractiveness, we find that funds with facial unattractive managers outperform funds with attractive managers by over 2% per annum. We next show that good-looking managers attract significant higher fund flow especially if the funds are available on Fintech platforms where their photos are accessible to investors. Good-looking managers also have greater chance of promotion and tend to move to small firms. The potential explanations for their underperformance include inadequate ability, insufficient effort, overconfidence and inefficient site visits. “
No, really, this is science, hire the ugly
The bit that we here can add to this is the reason why this is true – the ruminations this paper makes aren’t right. Their calculations and proof are – ugly fund managers outperform handsome ones by fully 2%. That, in this context of returns on stock market managed funds is huge – a 2% outperformance is something to kill for. But the pretty guys and gals find it easier to raise funds and therefore they run larger funds – they attract investors that is. Pretty is more successful in the standard worldly measurements that is, ugly does batter at what we want, making us money.
Which is all a pretty surprising outcome to those who don’t pay attention to their own species. Any of us who do should grasp this immediately – even if we are to give thanks for the actual proof. It is, after all, always the beautiful woman who simply stands there, knowing absolutely that someone will bring her a drink and light her cigarette. The less than favoured by Aphrodite are those with the cunning plans to jump the queue at the cash bar. It’s even possible to take this possibly disgustingly further. It’s well known among those who study such things (no, no, scientifically study, not for sport) that chubbier teenage girls do weirder things in bed. Weirder to the possible detriment of their health even. Given the greater difficulty of attracting a guy they compensate by putting out more of what teenage guys are interested in.
Things that are out of favour are cheaper
Yes, that is pretty harsh but it’s an observable truth about our species. We also know this applies in investing – tobacco stock dividends are high because few want to buy the stocks for aesthetic reasons. Therefore the money return is higher by exactly how much people are against them aesthetically – or ethically perhaps. All of which we can translate into a general rule – the less attractive something is the lower its price. As we all know yields are the inverse of price therefore the higher the yield on something unattractive.
This is true of humans as well as things. Which is again possibly harsh but now that we know it’s true something we should use. The good looking find sales easy. There are two reasons for this – we out here react well to good looking people. We’re more likely to give them our money for example – everyone knows that good lookers go into sales. But finding that life is like that increases the self-confidence of the good lookers. Confidence is also something we buy – so the two effects redouble over time.
This is simply a constant of human nature – the ugly have to work harder
Those who’ve modelled for the back end of bus manufacturers find it much more difficult to sell. Therefore, as with the chubbier teens, they work harder at producing the thing really desired. In this case the fund performance that makes us money.
No, it isn’t that old idea that brains times beauty is a constant. It is though that prettier people have an easier time of it – something that matters when fund managing as someone having an easier time in managing our money isn’t the desired outcome in the slightest.
So, hire ugly fund managers. Yes, this is a cynical view of humanity. But when we’re investing the correct question to ask ourselves is always “Am I being cynical enough?”
