1/6/17

Recently read this interesting article which claims hedge-fund managers with flashy sports cars make for worse investors. The article cites an experiment done a group of researchers from NYU, University of Central Florida, the University of Florida, and Singapore Management University which surveyed 1,144 hedge fund managers, their returns and the cars that they drove.

From their survey, the researchers found that:

Advisors who drive flashy sports cars, since they're likely to be risk-prone, unscrupulous, or both. Conversely, those with a practical, low-thrills car are said to perform better.

Hedge fund managers with sports cars, researchers concluded, took on more investment risk because they have a psychological trait called "sensation seeking" in which they are willing to take on riskier tasks.

Personally, I think this article is bogus. Correlation does not imply causation, just because hedge fund managers with sports cars are more likely to have more volatile portfolio returns does not mean the car they drive is indicative of their risk appetite, it could simply just have to do with car preference.

I am wondering what you guys think of this article and whether or not you think that this is true.

Comments (14)

1/4/17

probably true.

more risk more return, more return more money to the manger, therefore they have more money to spend on a crazy car

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1/5/17

What a shit article

Best Response
1/5/17

The article is shit, the research looks legit.

I got forwarded this three or four times over the past month or so from other quants. (They know me.)

Thought about doing a post on this, but I'm not an OP kind of guy.

Back to my rusty honda (which will unfortunately have to get replaced by a used Lincoln in a year or two-- the bottom is LITERALLY rusting off at 17 years old).

1/5/17

so is the reverse true? are fund managers with rusty cars better investors?

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1/5/17

Kind of. The article says this:

An even more instructive finding comes from the data on the correlation between car type and violations reported to the Securities and Exchange Commission (SEC). According to disclosures that traders are required to file with the government, sports-car owners are 17.3 percent more likely to have committed an SEC violation than are other car owners. On the other extreme, minivan drivers are a full 44.6 percent likelier than the rest to have a clean record. To be glib, fraudsters like roadsters.

1/5/17

I mean isn't this just a corollary of the Berk & Green research on how fund flows impact performance. Larger AUM means more capital spread between more lower conviction ideas --> performance/alpha goes down. The guys driving the Lambos already have huge AUM, so it's just tougher for them to drive alpha.

1/6/17

Good trader needs discipline.
Crazy car is not discipline.

Read it with an Asian accent.

1/6/17

Did they look into managers who have someone else drive them to work?

1/6/17

I don't think there is a more appropriate image for this thread.

1/6/17

1144 pms and only 1774 cars? Theres your problem

1/7/17

What is the performance of HF managers who drive MB E63 AMG wagons? It's the best of all worlds - station wagon + AWD + 600 hp, and faster than a Porsche 911 in 0-60.

1/7/17

of course. I mean, look at Buffett./s

edit: I actually think there might be some truth to it, but of course the reality is a bit weirder, whereas the article speaks to something more typological...

1/7/17

Doesn't matter at all. Basic statistics tell you that you that the data about a sample or population does not tell you jack shit about an individual.

It can tell you trends for the population, but you will NEVER be able to tell with any sort of certainty whether an individual falls in line with the population trends based on the data alone.

"Whether you think you can, or you think you can't - you're right."

1/7/17
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