Why Your Manager Is Putting Investor Capital At Serious Risk With A Sub-Par Pantry

Author:
Publish date:

We all know of and, in some cases, have personally experienced, the dangers of the drunk trader, the strung-out trader, and the trader whose estrogen levels are running perilously low. But there is a vastly more dangerous condition under which billions could be lost, though for some reason it apparently merits little attention in the press.

I'm talking, of course, about the hungry trader. Most outsiders and investing neophytes assume in-depth research and a top-notch ability to get information first is the key to the tri-state area's most successful hedge funds but, really, high-fructose corn syrup and salt are the engine that drives these firms' returns and the reason keeping their pantries fully loaded is priority numero uno. And now we've got science backing us up.

A recent study from the British Psychological Society that found people are more prone to take financial chances when their bellies are growling than when they've been well-fed. "[O]ur animal instinct to maintain a balanced metabolic state influences our decision-making in other contexts, including finance," the BPS said in discussing the results of a study in which 19 men faced the same gambling choice a week apart. The participants were asked to select between pairs of choices, including one that had both a higher risk and higher chance of return. They made the decisions after a 14-hour fast; immediately after eating a 2,000-calorie meal; or one hour after a 2,000-calorie same meal. The study found risk aversion to be at its highest immediately after consuming the big meal, though the results varied depending on hormonal changes and body types.

Nicholas Colas, chief strategist at BNY ConvergEx Group in New York, said such behavioral economics do help to explain behavior in the financial markets. "When I worked at a large (Connecticut)-based hedge fund a few years ago, I always wondered why the company kitchen was so well stocked with chips, sodas and other snacks. At my next trading gig, the company founder insisted on having lunch, as a group, every day at exactly noon," Colas wrote Monday in an analysis. "Whether they knew it or not, both fund managers knew that staying well fed is actually a risk management tool, at least if the BPS study is any guide. Hungry traders are, well, riskier traders."

It's not enough, of course, to just have snacks on hand. Not going to name names but one well-known hedge fund experienced unprecedented failure, relative to its historical returns, around the same time it introduced items like "Soy Chips" to the mix, which have the opposite effect of offering the eater clear-headedness but rather inspire suicidal thoughts through every bite. So it's gotta be the good stuff and if you want to be the guy who makes sure this is a priority, the next time you find yourself with only an array of shitty options in the pantry or caf, you grab the most offensive, walk yourself over to the Big Kahuna's desk, chew it up and spit it out (ideally in his hand but face works, too) and ask, "You call this a snack?" He'll get the picture.

Related