Be a Psychopath to be a Better Investor?

crazy Just imagine you and your friend are looking at the stock market and it is falling like a brick. A grin grows on your friend’s face even as your stock positions are almost halved. You ask your friend why is he so elated and he says, “I’m excited that I can buy shares in the companies that I already own at a much cheaper price than before!” You conclude that your friend has gone bonkers and should get himself checked by a psychologist.

Welcome to the world of “functional psychopathy” – where people have psychopathic tendencies but don’t commit crimes. These people climb the success ladder due to lack of emotional engagement, their ruthlessness, focus and tenacity. Examples of such people include Bill Clinton, Steve Jobs and James Bond. This is a concept mentioned in a book called The Wisdom of Psychopaths, What Saints, Spies and Serial Killers Can Teach Us About Success by British research psychologist Kevin Dutton.

Study by Stanford

There was a study done by researchers at Stanford Graduate School of Business where the participants were given $20 to play a gambling game. At the beginning of every round, they had to decide whether to risk a $1 dollar stake for a $2.50 return if they won on a toss of the coin. While any player could decline to take part in a round, the logical approach was to participate at each stage as the reward of $2.50 more than made up for the risk of $1.

At the end of the study, it showed that players who had brain-damage finished on average, $3 richer than the others as they had “invested” in 84% of the rounds, compared with 58% by the rest, who let fear govern their decisions. This study revealed that many successful investors are “functional psychopaths” as they lack or can suppress emotions. So, your friend is a functional psychopath who should be able to do well in the stock market as he is greedy while others are fearful. No wonder Warren Buffett has been able to compound his money at a clip of 19.7% per annum from 1965 till 2012.

Be afraid, be very afraid, not

In the stock market, people who are unafraid when the stock market collapses and purchase fundamentally strong companies on the cheap, thrive well in the long-term. The Straits Times Index (SGX: ^STI) has come down around 12.5% since the peak in May 2013. Many bargains would have been thrown up during these short four months. Stocks such as Jardine Cycle & Carriage (SGX: C07) and Capitaland Limited (SGX: C31) have taken a beating due to the slowdown in Indonesia and imminent withdrawal of monetary stimulus by US Federal Reserve respectively. Banks have also come down considerably since their peak. You could look into such companies if you like their business fundamentals and if you believe that their business will not fold up in next few years.

Foolish Takeaway

If our perspective is for the long-term of five years or more, any drops in the STI, be it a small one or drastic plunge, is an opportunity to pick up stocks that you always wanted to own on the cheap. Singaporeans love a sale but when the stock market goes on a Great Singapore Sale, they shun it in droves. Being a functional psychopath, like your imaginary friend, helps us to thrive well in the stock market.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.