Are Boring, Predictable and Ostensibly “Safe” People More Likely to be Promoted?

It’s an interesting question. In his excellent book, A Short History of Financial Euphoria, economist John Kenneth Galbraith writes:

Finally and more specifically, we compulsively associate unusual intelligence with the leadership of the great financial institutions – the large banking, investment banking, insurance and brokerage houses. The larger the capital assets and income flow controlled, the deeper the presumed financial, economic and social perception.

In practice, the individual or individuals at the top of these institutions are often there because, as happens regularly in great organizations, theirs was mentally the most predictable and, in consequence, bureaucratically the least inimical of the contending talent. He, she or they are then endowed with the authority that encourages acquiescence from their subordinates and applause from their acolytes and that excludes adverse opinion or criticism. They are thus admirably protected in what may be a serious commitment to error.

What do you, my readers think? Is it true that boring, predictable and safe wins?

If it is true, then how do we reconcile this with the observation of John Maynard Keynes that the best long-term investors usually appear to be “eccentric, unconventional and rash in the eyes of average opinion“?

I think these are interesting questions. I look forward to reading your comments (if you dare)!

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4 comments

  1. To beat the average (stock or investor) by definition you have to be doing something different to the average. The average will see this as “eccentric, unconventional and rash” as it doesn’t agree with what they are doing. Just because the average investor sees it this way doesn’t necessarily make it any riskier than following the average.

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  2. Thanks Greg.

    You raise a good point – whose to say that the “average opinion” is correct in the first place?

    After all, if you want the average, why not invest passively as the market cap index is, by definition, the average of every investor’s opinion?

    But is it possible to have the best of both? Can you agree enough with average opinion to be hired and promoted and yet different enough to beat the market?

    Or are the two mutually exclusive?

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  3. Although several rungs below the supposed intelligence level it would take to a financial investment I can not help but point out that usually the ones that make the headlines are the outliers, not the average Joe.
    Case in point, at a local textile factory they had a forklift driver who was constantly running in to finished goods and causing some financial woes to the company. How was this rectified? Why they promoted him to foreman so he would not have to use the forklift.
    So while the outliers get the headlines it is usually the hard working average Joe who keeps the ship on an even keel and they should not be overlooked or slighted in any way because without them the ship just might sink

    RICARDO

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    • Thanks Ricardo, that’s an interesting example of how being less than average can get you promoted!

      We need to be clear about two things. Firstly, we aren’t talking about intelligence. You don’t need above average intelligence to be a good investor. We are also not talking about academic qualifications.

      Secondly, nobody is rubbishing the contribution of hard working average Joes.

      So what are we talking about? Character. By average, we mean those that are content to follow the herd without asking questions that may at times be uncomfortable.

      Investing is full of “recieved wisdom”, ideas that many people accept and believe, but can’t prove. For example, academic research shows there’s no direct connection between GDP growth and equity market returns. Yet many people still invest as if there is.

      Is it these people, people with average opinions and not average abilities (some of them are very intelligent and well educated) that get ahead?

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