It's all about limiting mistakes
Here’s an interesting piece in the press talking about some of the approaches used by hedge funds to increase performance:
“When you look at finance, we are besotted with analyzing the outcome,” said Simon Savage, who manages funds for the GLG Partners division of Man Group, one of the world’s biggest hedge funds. In sports like baseball, discovering the process that led to an outcome is as important as the outcome, Mr. Savage said, so it seems logical to apply this thinking to investing.
- Seven years ago GLG began to collect data to analyze its traders’ “hit rate”
- This provided crucial feedback for traders, but it missed the crucial question of how GLG could help its traders avert mistakes in the future
- Man Group uses software to help measure traders’ performance so they can look back on where they need work. Then, with a coach, they try to determine why they make certain mistakes
- Hedge funds that have tried analysis and coaching say they help limit the tendency for managers to make predictable mistakes, but it does not eliminate those mistakes
The article also highlights the work of Denise Shull, a coach who wrote “Market Mind Games: A Radical Psychology of Investing, Trading and Risk”. Shull studied neuroscience at the University of Chicago and later became a trader at the Chicago Mercantile Exchange; she now coaches clients to discover the unconscious characteristics that influence the decisions they make.
Its an interesting article, here at the New York Times: For Better Performance, Hedge Funds Seek the Inner Trader
(ps. I should admit a bias … I bought Shull’s book when it was first released. I recommend it).
