Baupost’s Seth Klarman Suggests That The U.S. Could Be Uninvestable One Day
In his 2021 year-end letter, Baupost's Seth Klarman looked at the year in review and how COVID-19 swept through every part of our lives. He blamed much of the ills of the pandemic on those who choose not to get vaccinated while also expressing a dislike for the social division COVID-19 has caused. Q4 2021 Read More
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I know many excellent investment advisors who run advisory firms. Unfortunately, the expertise that made them successful financial planners does not translate into the ability to effectively manage and motivate others.
Telling someone how to become a better manager is easy. But motivating the advisors at your firm is surprisingly difficult. Doing so effectively is a simple way to increase your AUM.
The Pygmalion effect
A seminal article by J. Sterling Livingston in the Harvard Business Review introduced what has become known in management as the “Pygmalion effect.” Simply stated, if you believe some advisors in your firm are superior to others, those advisors are likely to outperform, even if all the advisors in the firm have similar talent.
Livingston summarized the evidence supporting the Pygmalion effect as follows:
Subordinates, for the most part, do what they believe they are expected to do.
Your expectations of your subordinates and the way you treat them has a profound effect on their performance and career progress.
Superior managers have the ability to create high-performance expectations that are subsequently met.
Most managers don’t have this ability.
The power of the Pygmalion effect
A 1961 study, which took place at a district office of the Metropolitan Life Insurance Co., illustrated the power of the Pygmalion effect. The district manager assigned his best six agents to work with his best assistant manager. He assigned average producers to work with an average assistant manager and his poorest producers to work with the least-able manager. He challenged the superior group to deliver two-thirds of the premium volume achieved by the entire agency during the previous year.
The superior group of agents surpassed this lofty goal by a wide margin. The performance of the producers in the lowest unit, where expectations were commensurately low, declined and attrition increased.
The results of this experiment validated prior studies demonstrating that a teacher’s expectations of a student’s ability became self-fulfilling. Other studies have shown that physicians’ and psychiatrists’ expectations for a course of recovery have a meaningful influence on a patient’s actual recovery.