Persuasion versus Trading

Two distinct skill sets or abilities get confused in money management (and probably in other areas as well). One is the skill to persuade people that your investment or trading ideas are worth putting their money into. Those with this skill are a fraction of the overall population but they are not that rare.

The other is the ability to make money in the market. Those with this ability are a vanishingly tiny portion of the population at large.

So the overlap between these two groups has to be very small. Since the first skill set is more common than the second ability, a manager is more likely to have the skills to persuade but not the ability to beat the market.

By definition, the persuasive are more likely to get capital—they’re good at convincing would-be investors. In other words, managers who talk the talk succeed in getting clients. But typically they can’t walk the walk.

More on this in Chapter 5, Illusions of Safety, in Ponzi Regulation:

“In fact (he) did have an exceptional skill, but it was not for making money trading stocks; it was for fashioning his own version of reality and convincing everyone that this was true. In trading, his wild optimism worked badly against him. Trading is a very different kind of game from selling an idea. To succeed in trading securities, you need to grasp market reality better than other people do. Successful long-term money managers are realistic in assessing the market and pragmatic in their approach.”

Ponzi Regulation

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