A great deal of blood, ink and sweat, as well as cash, has been spilt trying to identify that mystical group of people: the brilliant, consistent, alpha-generating stock-pickers.
All sorts of odd ideas have been generated as to their special characteristics and unusual markers of success.
The latest is that their choice of recreational activities can help to identify them. As a result, there have been reports, based on real evidence, which suggest that golf-playing and fast car ownership is a powerful, but unobtrusive, measure of an investment manager’s skill and talent. Curious explanations have been offered for why that is the case.
One idea came from three academics* at a business school in central Florida. They found, as expected, that hedge fund managers who do well in competitive, large cash-prize poker tournaments have significantly better fund performance. They had higher average returns compared to a control group (4.2 per cent vs 2.8 per cent).
Poker star
There were also other findings. For example, after a manager won a publicly announced poker tournament, net flows to their fund increased significantly.
However, fund alpha decreased significantly, suggesting decreasing returns to scale erode the informativeness of the poker win signal. They concluded that hedge fund investors would be better off investing in an otherwise similar manager without poker tournament success.
Of course, there were caveats and concerns with confounding and uncontrolled factors in the study. Bloomberg picked this up and concluded that the major takeaway is that we need better research and more information on the characteristics of top decision-makers, particularly the illusive decision/rainmakers in the financial industries.
But what do we know about the psychology of leisure pursuits and recreational preferences? If we knew exactly and truthfully how people choose to spend their leisure time, what insight would we get into the abilities, needs, talents and preferences of that individual?
What would you conclude if your stock-picker was a bridge champion or a sky-diver? A serious art collector or an amateur actor? A gardener or a keen pilot? A writer of detective novels or a fanatical weight-lifter? And what if they admitted that the demands of the job leave them no time or energy for any serious leisure activity?
Hobbies tell a story about the person
Some hobbies require a lot of money, others very particular talents. But maybe because they are freely chosen and often pursued with so much intensity and passion they are really the royal road to uncovering the true person. Find out what people do outside work and you get a real handle on them.
Academia has had something to say on this issue, as one may expect.
More than 40 years ago people noticed different relationships between a person’s work and their leisure pursuits. For some people, their leisure was diametrically opposed to their work.
But for others the two were almost identical in form and function. Some kept their two worlds neatly compartmentalised.
This led to the development of three models of the relationship between the two.
Some people’s preferred leisure activities were almost identical to their work activity: cooks spent all their time in the kitchen at home, mechanics tinkered with their cars all weekend, pilots flew small planes for pleasure.
Others did the precise opposite: security guards became parachutists, physical education teachers became weekend couch potatoes.
It seems as if one never got enough of the activity, while the other would not just want to stop it but actually do the opposite.
Three quite different ways of being
1. Spillover: This refers to the easy transfer of attitudes, feelings and behaviours from one domain (the workplace) to the other (the home, the playing field). It is not difficult to see how this may work.
Success at work has its financial rewards and job satisfaction, which can buy a better quality material lifestyle, which can increase personal satisfaction.
The idea is that people choose their work and leisure in ways that are contingent with their skills, personality and attitudes. People who are neat at home are neat at work, people who like to control at home like to control at work.
We choose, change and modify both our jobs and our spare time in line with our preferences and predictions. In a sense, we create both in terms of our needs, hopes and wants.
The spillover hypothesis suggests that work does not fully satisfy our needs so we continue them in our leisure. We choose jobs that demand we take risks and we have hobbies that are clearly about risks, which may be physical or financial.
Or, it maybe we choose highly intellectually analytical jobs and play games like bridge and chess, which are much the same. Somehow the work does not fully satisfy the need.
2. Compensation: This represents efforts to offset dissatisfaction and frustration in one domain by seeking satisfaction in the other. It is usually achieved by decreasing commitment and involvement in one domain while increasing it in the other.
Where your treasure is, there your heart is also, often where you genuinely choose to spend more time.
Compensation leads to psychological absorption and diverted attention. We all know the workaholic who finds it better being at work than at home.
For the person seeming reluctant to go home it may be quite simply that at work they are admired and supported, given private space and time and the company of peers.
At home on the other hand they have much less personal time, feel they need to be the supporter not the supported and miss the company of adults.
Equally the leisure activity may be a warm, caring, comfortable environment, while the workplace is cold, competitive, and stressful. Often, but by no means exclusively, men compensate at work and women at home.
The compensator might choose hobbies that give recognition and prizes that they cannot or do not receive at work. Or they may choose something like jogging, which is solitary and physical to compensate for their highly cerebral work in a busy social office. In this sense, the work does not fulfil certain needs enough.
3. Segmentation: This refers to the separation of work and leisure such that experience in the two domains do not have an influence on one another. This may be seen as a natural diversion or a futile attempt to erect an unnatural boundary.
Segmentation occurs when people are totally focused on the place/domain they are currently in. Equally, people may adopt different personas and coping styles in different places.
So people may have problem-focused strategies at work but emotional coping strategies while at leisure. They are different people in each environment, not necessarily opposites, just different.
Just as the actor in repertory can, and has to be, quite different characters week after week, so the segmenter is a compartmentaliser. They rarely worry about balance as they see the two things as unrelated to one another.
Interestingly, years ago I examined the recreational confessions of people in Who’s Who by looking at one entry every tenth page. The clear answer to emerge was gardening was the most commonly recorded hobby.
I took it as (sort of) evidence for the compensation theory for these high-profile people. Gardening is usually solitary, physical and creative all of which they had little of in their packed social and cognitive world.
Gardeners literally see the fruits of their labour in a task over which they have quite a lot of control. Often quite unlike the office.
What does all this mean?
So, what to conclude? Leisure pursuits can give a clue to an individual’s deeper needs and talents. You need certain abilities to play competitive, cognitive (chess/bridge) or physical (tennis/golf) activities.
You may also need a degree of conscientious practice to attain and maintain a level of performance. You may need quite a lot of money for the equipment.
But just like the financial world, luck may play a big part, not in how dedicated a person is, but how successful he or she is at their chosen activity.
Just as in all aspects of the person, leisure activities give clues when they are pursued with great dedication and passion, or associated with outstanding success.
* Yan Lu, Sandra Mortal, Sugata Ray (2020) "Hedge Fund Hold 'em" Journal of Financial Markets
Adrian Furnham is a professor at the Norwegian Business School – his main hobby is work
