Behavioural Investing Insights & Research

Strong returns are traditionally seen as evidence of ability; disappointing results as proof of flawed reasoning.

But can performances be linked to the decisions that produced them –  and what can these outcomes tell us about the approaches of institutional managers?

The key findings include: 

• Skill versus luck is the wrong question:  ask instead whether performance can be meaningfully linked to the decisions that produced it

• Decisions leave evidence behind:  different types of decisions leave distinct fingerprints in outcomes and help explain how returns were generated

• Different decisions achieve different objectives:  scale-up decisions had the strongest hit-rate profile; scale-down the best win/loss profile

• Combine with human experience: behavioural evidence is most powerful when combined with the manager's explanation of their process and intent.

Investors often blame bad sell decisions for bouts of poor performance – but what if they’re only the visible symptoms of deeper-rooted issues?

In this article, we explore whether problems identified at the point of exit can actually be traced back to much earlier in the process.

The key findings include: 

1. Don’t view sell decisions in isolation:  poor performances  may be due to upstream issues rather than a flawed exit process. 

2.   Poor starts leave a trace: positions in the weakest early-performance quartiles are more likely to exit at a loss. 

3. Lifecycle struggles matter:  repeated interventions suggest a position is no longer behaving as initially expected.

4. Sell decisions provide evidence: they help reveal how the process is functioning across the investment cycle.

Portfolio analysis often focuses on the performance of positions - but less attention is paid to how they were chosen in the first place.

In this article, we examine how idea generation influences portfolio construction, manager behaviour, and drawdowns.

The key findings include: 

1. Idea volume carries limited signal:  portfolios generating frequent new ideas don’t exhibit materially higher hit ratios. 

2.   Idea clustering is associated with fragility:  many new positions introduced over short periods can lead to deeper drawdowns.

3. Robustness is structural, not volumetric:  this is less about the number of ideas introduced and more about how they enter the portfolio.

 4. Regime shifts reveal structure: changes in market behaviour will stress portfolios and reveal how they are built.

Investment skill is usually only scrutinised after disappointing results. Periods of underperformance often trigger a full-scale examination of the process.

But this is too late. You can’t accurately assess a manager’s abilities after everything has gone wrong and they’ve been compelled to act.

In our special report, we reveal why they should be judged on how they acted when the outcomes still looked acceptable. 

The key findings include: 

1. Judgement comes too late:  the timing of a fund manager’s 

decision-making is no longer visible after performance failure.

2.   Failure is rarely sudden:  outcomes can hold while efficiency erodes as  deterioration typically unfolds gradually.

3. Timing reveals skill fitness:   successful managers are willing to adjust behaviour adjusts when changes are optional rather than compulsory.

4. Weak signals test judgement:  they don’t compel action but reveal whether behaviour moves under uncertainty.

There comes a time for every portfolio when conviction meets reality; when beliefs are tested by real-life stock market performance.

So, how does a manager respond when a favoured stock falls 20% in value? Do they cut it immediately, wait for a turnaround, or double down and increase exposure?

In our special report, we analyse the response to valuation declines – and whether it’s possible to avoid holding losers too long or letting them go too soon.

The key findings include: 

1. Declines are normal:  One in three positions experiences a 20% fall, but skilled managers can interpret that feedback.

2.   Losses slow decisions:  Once investors are in the red, reaction time slows. Positions kept after losses take longer to close out.

3. Time can improve outcomes:  The probability of a falling stock recovering over time will rise steadily.

4. Conviction is crucial:  High-conviction decisions will outperform. 

Managers who size and hold deliberately will demonstrate skill.

Mistakes are an unavoidable part of investing. Even the best managers make mistakes due to changing circumstances and incomplete information.

But how about when the culprit is a false flag? These are decisions that feel totally justified at the time but turn out to be wrong.

In our special report, we look at how behavioural misjudgements make fund managers vulnerable to misleading signals.

In this report, we cover:

·   False flags and how to identify them

·    Behavioural patterns that influence decisions 

·    What constitutes good decision-making

·    How investors perform under extreme pressure.

Warren Buffett’s decision to retire as chief executive of Berkshire Hathaway after 60 years has reopened the debate into the virtues of long-term investing.

The buy-and-hold approach has traditionally been regarded as the gold standard in active management and a way to cope with stock market volatility.

But we think this is too simplistic. Our research reveals turnover isn’t always an accurate indicator of performance as every strategy has its strengths.

In this article, we analyse the two approaches, examine the impact of behavioural biases and reveal the qualities needed for effective decision-making.

The key findings include: 

1. Buy-and-hold isn’t always right:  The quality of investment decisions is more important than how long a position is held

2.   Turnover is not a reliable indicator: Low turnover strategies aren’t always smart, while high turnover approaches aren’t necessarily reckless 

3. Alpha has a life cycle: The best managers excel at spotting opportunities, locking in gains and knowing when to exit

4. Each style has its strengths: Short-term investors are more discriminating in initiating positions, while long-term investors rely on thesis maturation

5. Short-term strategies deserve credit: When executed with clarity and discipline, they can demonstrate skill on a par with long-term approaches

6. Heading for the exit: Short-term managers act three times faster and preserve gains. Delayed exits can significantly erode alpha for long-term investors.

Choosing the right investments for a portfolio is obviously crucial – but knowing when to exit a position is just as important.

We analysed thousands of ‘sell’ decisions and found delays in pulling the trigger were seriously damaging fund manager performance.

In this article, we explore the importance of exit strategies, the approaches of different investor types, and how sell decisions are influenced by behavioural bias.

The key findings include: 

1.   Sell to cut losses: Although exiting can lock in gains, most sell decisions are made to contain losses—highlighting their primary function as risk control.

2.    Delayed departure: Many fund managers wait too long between recognising a position is no longer working and selling. This can lead to escalating losses.

 3.   Mistimed profits: Even when exiting winners, managers sometimes give back more than 50% of peak gains before selling. This suggests consistent challenges in exit timing. 

4.   Biases shape behaviours: Overconfidence, the disposition effect, and anchoring are among the biases that can affect returns. 

 5.   De-risking influence: Positions preceded by a scale-down call are exited three times faster, suggesting staged exits can prepare managers to act more decisively. 

6.   Structure improves outcomes: Managers with clear exit strategies are better equipped to act consistently and optimise outcomes.