Why the best investors are 'functional psychopaths'

Economist Joe Roseman reveals the psychological profile of a successful investor.

About a decade ago, the husband of one of my wife’s friends called me one evening. He had heard from his wife that I was “in financial markets” and that I worked at one of the big hedge funds.

I had never spoken to the guy before, but he was clearly on a mission. He told me that he had inherited some money and he wanted to invest it. He went on to tell me that he had another friend “in the markets” who had a fantastic penthouse, drove a flashy car and was loaded.

His friend, I was told, knew “the secret”. He explained that I also knew “the secret” and he wanted to know it too. He assured me that he knew it was a closely guarded secret, but nonetheless, based on the fact that his wife was my wife’s friend, he felt I could stretch the normal rules and let an outsider in on “the secret”. At this point, I was a little confused.

I asked him exactly what he meant. So he spelt it out for me. “The secret”, he explained, is how to turn small amounts of money into a fortune by investing in the right shares. “Oh, that secret”, I replied.

I asked him how much he had to invest, what time horizon he was thinking of, what size of fortune he had in mind and how much risk he was willing to take. Well, it turned out that he had £2000 to invest, and he wanted to see it grow into £8000 within 3 months and was not really happy to be exposed to anything too risky. He certainly wouldn’t consider anything that might lose him the £2000.

I gave him the best advice I could, and that was it was impossible to replicate his preferred outcome without taking enormous risks. I suggested going to a casino, placing the money on red and doubling up if he won.

At least that way he would have a 25% probability of achieving his outcome in just one evening. But that was about as good as I could offer. He ended the conversation by stating that he realised that I, just like his friend, was not prepared to disclose “the secret”. He was not happy. Actually, neither was I.