Dr Greg B. Davies, Head of Behavioural and Quantitative Finance at Barclays Wealth & Investment Management, recently made a visit to the Island to address the Isle of Man Association of Corporate Service Providers (ACSP).
Based at Barclays Head Office in Canary Wharf, London, Dr Davies leads a global team of behavioural and quantitative finance specialists and is responsible for the design and global implementation of Barclays Investment Philosophy. Barclays has been at the forefront of introducing behavioural finance into mainstream operations. In 2006 it was the first bank to introduce a dedicated team to the subject, which now forms an integral part of the service offered to clients.
‘Behavioural finance uses our knowledge of psychology to improve our understanding of how individual investors make financial decisions and how these decisions cause markets to behave in aggregate,’ Greg commented. ‘Even though behavioural finance is a lot more popular than it was a decade ago, it is still considered a niche area within the financial services world.’
Addressing attendees at the lunchtime ACSP seminar, Dr Davies shared with the audience some of the findings of his team’s work in this field. ‘Modern portfolio theory is based on ‘the economic investor’, a rational being who wants the maximum return for a given level of risk. However, the ‘economic investor’ is also presumed to be a dispassionate individual who is unaffected by emotions such as anxiety, regret, hope and fear. Our research has shown that the ‘economic investor’ doesn’t exist. Everyone sees the world from a perspective that’s uniquely theirs and investing is no different. We all have individual goals, requirements, desires, hopes and fears for our wealth. We all have different habits and different people we trust for advice. But we all exhibit very similar psychological biases in our financial decision making, which can lead to poor choices and subsequent investment performance.
‘In simple terms we don’t think it is possible to separate an investor’s personality from their investment decisions, they are two sides of the same coin. It is our goal to ensure that we understand our clients own individual wants and needs to help to steer them through the common psychological decision making pitfalls that we can all fall victim to.
‘Academic research into the psychology of finance has dramatically increased our ability to understand individual financial behaviour in recent years, but this knowledge has until now been a largely untapped resource in commercial applications. At Barclays we are committed to using this resource in our continued efforts to understand our clients as individuals when delivering their optimal financial solutions.’
Chairman of the Isle of Man ASCP, Mark Denton said: ‘It was a real pleasure to be able to welcome Dr Davies to the Island to speak at one of our very popular lunchtime seminars. His insight and knowledge of his field certainly provided food for thought for our members, especially those that may not have been familiar with the topic of behavioural finance. It was fantastic for us to find out more about the subject and how we can apply the principles in our everyday lives.’
