Beauty and the beast: investing in the age of the narcissist

NEWS that two more big investment banks have rediscovered the weekend by “banning” junior bankers from the office on Saturdays is another strike against the long hours culture. But no prizes for guessing where many of these displaced mini Masters of the Universe will be spending their time instead.

Want to get ahead in finance? Hit the gym, is the advice of a new academic study exploring the attitudes of male traders in a (sadly unnamed) London hedge fund towards their bodies, ageing and fitness.

It turns out that the quest for the body beautiful is all pre-occupying in Mayfair’s factories of wealth. “All the piss is about how you look,” one trader told the researchers from the British Sociological Association – hardly surprising given that so many of his colleagues assumed a link between affluence and physical activity (or at least its aesthetic by-products). Many traders admitted to dyeing their hair or “going on an intense boot camp holiday in order to ‘fix’ parts of their body”. But since it’s reputational death to admit you’ve had “work” done, this was invariably done on the quiet.

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The link between good looks and financial rewards has been established for ages, with countless studies showing that better-looking (and taller) executives tend to get paid more: But lately the significance of this “beauty premium” has widened. In a paper published this month, economists at the University of Wisconsin also found a positive correlation between a company’s stock performance and their chief executives “facial geometry”.

The study, Beauty is Wealth: CEO Appearance and Shareholder Value, used a “facial attractiveness index” to value the appearance of 677 chief executives from the S&P 500. It found that shares jumped when a good-looker was appointed; and then jumped again when they made subsequent TV appearances. Disconcertingly for the less decorative of us, the study also found that Beautiful People tend to perform better in negotiations, and are more likely to land good deals.

The CEO specifically singled out in that study was Yahoo’s Marissa Mayer: an 8.45 out ten performer on the looks index, who has presided over a 150 per cent rise in Yahoo stock. Totty-followers in Britain might also cite some recent (entirely unscientific) examples. One of the biggest risers on the FTSE last year was BT, whose big-betting, Sky-baiting new CEO, Gavin Patterson, boasts the chiselled-jawed good looks of a retired footballer. Another big riser was the online grocer Ocado, where the arrival of old Smoothie Chops, Sir Stuart Rose, as chairman coincided with a transformational turn in the company’s outlook. One might also cite Thomas Cook’s remarkable share price turnaround performance under its not uncomely new CEO Harriet Green.

Of course, there’s no reason why shrewd management talent can’t coincide with an aesthetically-pleasing exterior. But all this focus on pulchritude is getting some corporate psychologists worried – the implication being that people overly concerned with outward appearances are also more likely to show other more alarming behaviours, such as an inflated sense of self-importance, vanity, grandiosity and omnipotence; all traits of narcissism.

The Narcissistic CEO is hardly a new concept – and, despite the negative connotations of the tag, not necessarily a bad thing for investors. On the contrary, there are countless examples of supposedly narcissistic bosses who’ve achieved great step changes – Steve Jobs being the poster boy in that department.

But the main point is that these players exist to take large bets, says Don Hambrick of Penn State University Business School, who has spent the past decade analysing the impact of narcissistic leaders on their companies. They make more acquisitions, pay a bigger premium for them, and spend more on both advertising and R&D. And the more they are feted in the media, the bigger the strategic bets they make. When these pay off, the results can be spectacular; but they can just as easily spell disaster. Either way, if a narcissist assumes control of the safe “ugly” nuts-and-bolts company you’re invested in, you’ll be in for a very different kind of ride than the one you were anticipating.

Business leaders are becoming younger (or at least want to seem younger); they’re moving between posts a lot more quickly; and we’re becoming much more interested in what they look like. It all adds up to a pretty self-engrossed business culture. That’s not great news for the cause of measured long-term investing. But, with everything to play for in a bull market, this is arguably the dare-devil narcissist boss’s time to shine.

As Warren Buffett put it: “it’s only when the tide goes out, that you get to see who’s been swimming naked”. In the meantime, you might profitably investigate sectors that cater to the vainglorious. To take a few examples, physical fitness and the measuring of it, designer clothing, cosmetic procedures and the booming executive coaching industry. With the latter, I reckon you stand to win either way. Come the bonfire, there are going to be an awful lot of bruised egos to soothe.