An Interview With Paul Craven

1 January 2012

You worked the financial industry for a long time. When it came to the successful fund managers, how much of their success was down to luck and how much down to the skill of the individual?

I came across many skilful fund managers at Schroders, PIMCO and Goldman Sachs Asset Management, and indeed in the industry - what characterised their success was a robust investment process that led to their quality of ideas and consistently good longer-term returns. The industry, however, often confuses skill with short term results, something that may be more down to luck, good or bad. Some of the best investors I knew recognised the wisdom of Charles Ellis' "Loser's Game" and Warren Buffett's 'Circle of Competence' concepts: it is far better in the long run to 'avoid losing', which means staying in the game, watching your defences and sticking to what you know you are good at - as opposed to trying to shoot the lights out in any one year.

If we have a deeper understanding of behavioural economics, does this mean that we are less likely to experience bubbles in the future?

The markets each are an aggregate of so many participants and their emotions (not least fear and greed) that I sincerely doubt we will ever see the end to those hardwired human traits that can lead to bubbles, such as the bandwagon effect. Human nature is essentially pro-cyclical, meaning that "inflation feeds upon inflation and debt deflation feeds upon debt deflation" (Minsky); at least those with an awareness of behavioural economics should have a better chance of understanding the biases behind bubbles.

Where do you see the world economically in 2020?

As Mark Twain once said, "History doesn't repeat itself, but it does rhyme" - so I expect the usual ebbs and flows in markets, coupled with the odd economic boom and bust. More broadly, favourable demographics in the East should lead to an expansion of the global middle class, with associated benefits for trade, production and consumption. From a birds eye perspective, however, I subscribe to the concept of progress in health and wealth around the world - look up Hans Rosling's Gapminder website - - and technology and science should continue to bestow numerous benefits on humankind. Let's just hope that technology is used for good rather than evil.

How do you like to spend your weekends?

My business interest in the psychology of markets is reflected in a personal interest in the psychology of magic. I spend a lot of time practicing and performing magic - my favourite genre is what's called mentalism, the magic of the mind. I also do a lot of close-up, involving coins and cards. Unfortunately I have rarely created any magic with another hobby of mine, golf. I also play cricket for a celebrity charity team, the Bunburys, formed by Eric Clapton and David English, though my selection is based more upon my magical than my batting or bowling skills. My favourite pastime is any activity involving my three sons, but now they are old enough to find better distractions outside home.

I have to ask a question about you being a member of the Magic Circle. Who is or was your favourite magician and what is your favourite trick?

Derren Brown is the first magician who springs to mind, and his live theatre shows are sensational. There are many other great magicians and mentalists whom I admire, although I certainly would find it hard to name a favourite trick either by them or by me. I'd gladly show you the trick that helped me qualify for the Magic Circle if ever you want to see it...

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