Nathan Gelber: Profiling Personalities in Investing | SALT Talks #79 | Summary and Q&A

TL;DR

Nathan Gilbert, founder and CIO of Stanford Associates, discusses the incorporation of behavioral psychology into investment consulting, highlighting its role in improving decision-making and manager selection.

Key Insights

• 🥺 Stanford Associates has successfully incorporated behavioral psychology into investment consulting, leading to an improved success rate in manager selection.
• 🤩 Transparency is a key factor in assessing managers, and the firm rejects those who lack complete information or fail to meet their criteria.
• ✋ The firm has biases towards capital preservation, long-term investment, and high ethical standards.
• 🚨 They emphasize the importance of understanding managers' approaches to governance in emerging markets.

Transcript

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Questions & Answers

Q: How does Stanford Associates incorporate behavioral psychology into their investment process?

Stanford Associates employs behavioral psychologists to profile investment professionals and assess their decision-making process. Psychologists participate in engagements with external managers, providing insights that the untrained eye may not observe. They raise concerns and play a crucial role in the firm's appraisal and assessment process.

Q: Can you provide an example of a manager that Stanford Associates rejected due to incomplete information?

Stanford Associates rejected Bernie Madoff's attempts to attract capital from their clients, as he failed to meet their disclosure and transparency requirements. Transparency is essential for the firm's analysis and assessment of managers, and they prioritize working with those who demonstrate it.

Q: How does Stanford Associates view the dominance of growth stocks versus value stocks?

The firm has biases towards capital preservation and a long-term, client-first mindset. While they favor value-type managers for their focus on capital preservation, they acknowledge that growth managers can also exhibit this mindset. However, they are cautious of the volatility associated with growth-oriented strategies.

Q: What is Stanford Associates' view on emerging markets?

Stanford Associates has been engaged in emerging markets for over 35 years. They have seen favorable results but maintain caution regarding governance standards compared to Western markets. They emphasize understanding managers' approach to governance and ensure responsible and transparent deployment of client capital.

Summary & Key Takeaways

• Nathan Gilbert founded Stanford Associates in 1985 with the goal of improving the investment consulting model for UK pension schemes by incorporating behavioral psychology into the investment process.

• The firm employs behavioral psychologists to profile the personalities of investment professionals and understand their decision-making process, integrating this information into their investment strategies.

• Stanford Associates emphasizes transparency in their assessment of managers and rejects those who lack complete information or fail to meet their criteria.

• The firm has seen an improvement in their success rate since incorporating behavioral psychology, with a hit rate increasing from 52% to 82% over the last 20 years.