Case Study – Low Confidence Trader

As a final example of how Claradan is not only able to transfer its behavioural knowledge to our clients but also how we use that knowledge in our interactions and presentation of our work.

Claradan was requested by a team leader to work with a previously successful trader who has been experiencing an extended period of poor performance. The candidate was extremely reluctant to meet and was extremely hostile at the initial consultation which was one-on-one. It was clear that the trader was feeling under pressure and in fear of losing his portfolio and subsequently admitted that he felt ‘it was the final humiliation and he’d rather just go quietly’.

Our objective was to win trust from the outset and we did this by altering the perspective and preconceived opinion of why the team leader had brought us in by;

• Emphasising we were not in the business trying to clone the perfect trader!
• Our objective was to help identify and reduce the impact of performance inhibitors
•  Help him understand that many of the natural cognitive processes that help in everyday life can be problematic in a trading environment
• Explain the impact of positive and negative feedback loops on decision making

Result

Our ability to quickly gain trust with the trader enabled us to deploy some very simple techniques to help regain confidence and improve performance. A particular problem was the affect a series of losing trades had on an already low morale trader – we were able to explain the decision patterns he demonstrated in these scenarios – running winning trades too long in attempt to recoup collective losses in one profit – and design a simple solution of isolating each trade as a single event. This helped eradicate the accumulation of losses in his mind and manage each trade in accordance with his strategy.

Portfolio Selection

Claradan was requested by a Fund Management firm to review its processes around portfolio selection and in particular, investment committee contributions and effectiveness.

A team of 5 fund managers, led by the CIO, met on a weekly basis to discuss key portfolio holdings, poor performing stocks and when appropriate, potential new acquisitions.

The CIO harboured the following concerns about this process:

• There was a lack of engagement from portfolio managers when stocks under discussion were not part of their own fund (Managers were only rewarded on the performance of their own Portfolio)
•  Individuals were overly influenced by the opinion of senior managers
• A lack of confidence from some managers to express a contrarian view when a majority consensus already existed.

Claradan’s Approach

• Educate portfolio managers on the affects of their individual behavioural characteristics on group decision making tasks and group behavioural biases such as Communal Reinforcement, Group Think etc,
• Introduced anonymous voting on portfolio selection to avoid group think – reducing the influence of colleague’s decisions.
• Use of future perspective to allow individuals to voice concerns without feeling vulnerable – individual mangers were asked by the CIO to imagine they were 3 months into the future – the stock had moved lower – what had gone wrong?

Result

 A greater appreciation of individual and group behavioural biases meant managers valued the input and balance opposing opinions brought. The anonymous voting system allowed managers to vote without the influence of their peers and took greater responsibility and ownership of their contribution. The CIO registered satisfaction with the increased honesty, debate and ownership in meetings and confidence that outcomes had been more robustly assessed than in the past.