Why saying something and nothing could help you achieve your financial goals

19th December 2024 11:39

As we stare down the barrel of the leanest month of the year, our behavioural science lead Alex McCluckie observes a real gem of a psychological principle (which was adopted by the founders of an investment fund which boasted one of the greatest runs of all time!) which could help all of us get our financial ducks in a row...

Article by Alex McCluckie, Research Director and Behavioural Science Lead.

Over its thirteen year lifespan, the Nomad Investment Partnership achieved a whopping 921.1 percent return for its investors [1]. Prior to its winding up in 2014, at the helm were two of the most intriguing characters anyone with even a fleeting interest in behavioural science could hope to come across; Nick Sleep and Qais Zakaria.

Oozing psychological insights, the Partnership’s investor letters offer as close to a page-turner of a read as the investment world is ever likely to muster.

Biases blighting money managers

With too many nuggets of investing wisdom to summarise here, I’m going to hone in on one specific pitfall they learnt to avoid throughout their time managing money; telling others what they were doing!

At various points throughout the letters, Sleep notes the psychological problems that come with disclosing investment ideas, one of which he summarised as:

“The issue is: in publicly disclosing his stock picking commitments, does the investment manager subtly and no doubt subconsciously rob himself of his objectivity and the option to change his mind? To deny this takes place seems foolhardy.”

What Sleep is talking about here is the power of commitment and particularly commitment brought about by peer influence. Clearly in the money management world being influenced by the views of others, when contrarian investing is where outsized returns are made, can be a real negative.

In fact, whilst Nomad didn’t go this far, it is interesting that Sleep also points out how two of the most successful investment funds of all time didn’t even reveal what they were invested in to their own investors! [2]

But what use is this if I’m an average Joe?!

The exciting thing about what you’ve read so far is that these insights can be harnessed by all of us. If simply letting others know about our commitments can increase the likelihood that we stick with them, then it stands to reason that making statements to our friends and family like "Ask me how my saving is going a few months from now" could have a significant effect.

The reasons why are the same (we are limiting our future choices), but the domain in which the impact is occurring is different and can therefore lead to a positive impact (on our savings rate), rather than a negative one (on independence of thought) as experienced by Sleep and Zakaria.

Create culpability for ourselves

With up to a third (34%) of UK adults having either no savings, or less than £1,000 in a savings account [3], if it’s possible to turn the idea of saving into a routine practice, bolstered by some commitment, it could well be worth thinking (or speaking!) about.

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[1] Versus 116.9 percent for the MSCI World Index

[2] These being the Buffett Partnership and Walter Schloss Associates

[3] Research conducted by Opinium 24-28 May 2024 and taken from the UK Savings Week website. 

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Interesting reads

The Nomad Investment Partnership’s Partnership letters

Green, W. (2021). Richer, Wiser, Happier.

Rogers, T., Milkman, K., and Volpp, K. (2014). Commitment Devices. Using Initiatives to Change Behaviour

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