Know When To Be Irrational!

I was recently in an exceptional presentation hosted by BMO Prime Brokerage Services. Good people. The panelists included Richard Pilosof from RPIA and Blair Levinsky from Waratah, both $1 billion+ asset managers in Canada.

Blair was commenting on how a given foundation could make a few alterations to their portfolio and achieve the same returns with lower risk.  He kept repeating it, same returns…. lower risk, same returns…. lower risk.  His hand gestures furthered the point. Should the foundation make the change? You would think so.

The interesting thing, I would gamble a guess that 75% or more of all institutions, and probably 95% of the HNW people have obvious and unsupportable weaknesses in the construction of their portfolios (and yes, I made up the 75% and 95%. I am generalizing).  People will say that my number for institutions is high, however, if you hang out with Salem Abraham from Abraham Trading for a few hours, you will probably think 75% is low.

It could be the weighting of alternatives in their portfolio, the lack of diversification, over-weighting in real estate, under-weighting of CTAs, it doesn’t much matter; my point, pretty much everyone out there is doing something that is entirely irrational. Yet, as sure as the sun rises, we wake up everyday and try to combat this irrational behavior with a logical approach.

If allocators and investors aren’t going to display rational behavior in how they make decisions, why do we think an entirely rational approach to marketing is the way to go? If people are making decisions because they don’t want to lose their jobs, should you not target your marketing around that? You will always have more success as a marketer if you address the real reasons why people make decisions.

My point, marketing is about engaging an audience. To be successful you need to study the real reasons why people make decisions.

The emotional and subjective reasons. This is what drives engagement. Rational arguments are typically uninteresting.  Yes, you might have the most rational reason in the world why someone should invest, however, it doesn’t do you much good if you are talking to an empty room.

Rational arguments close the deal. The irrational and emotional triggers open the door. The sooner asset managers learn this, and subsequently master the transition from irrational to rational, the more successful they will be.

By Kyle Dunn