Today’s Chart of the Day comes from an academic paper by Chengyu Bai with the Shanghai Jiao Tong University. It shows that funds with “attractive” managers underperform funds with “unattractive” managers by over 2% per year.The research also shows that more money went to managers who were attractive when photos were accessible to investors. The researchers used artificial intelligence to quantify facial attractiveness and explained the underperformance is likely due to inadequate abilities, lack of effort, and overconfidence.
As a money manager, one of our services is to recognize and overcome this and about 15 other biases that harm decision making. As one of my colleagues once said, “We try to be bias against the biases.”