February 1, 2017 by Dymphna 3 Comments

Is having no money a plus?

Who do you think does better? Students who come in with money, or students who come in with nothing?

I get a lot of credit for my property investment system, but the most effusive praise is for the way I help people starting out with nothing (or less than nothing!) turn their lives around.

And it’s true. The system is good at that.

But I also get a bit of a giggle because I know that students who come to me with nothing financially, are also often bringing a tonne of intangible assets – things like fire, motivation and drive.

And in many ways, they’re the easiest students to work with.

And so I’m not sure how much credit I should be actually taking for their success. (But I take it anyway. Thanks very much. Very kind of you to say. Oh, roses? You shouldn’t have.)

That’s why I got a bit of a giggle out of this article the other day. Basically, some researchers have investigated the family backgrounds of hundreds of fund managers in the US.

What did they find?

Like it or not, family backgrounds matter a lot. It turns out the best fund managers, more often than not, come from poorer families…

… Research by Dr Oleg Chuprinin,​ from the University of NSW, and Denis Sosyura,​ from the University of Michigan, shows that investment managers who grew up in poor families made two percentage points higher returns each year, on average, than their counterparts from the wealthier families. That can add up to a lot of money over time.

“If somebody from a poor background was able to break through, that person was really good,” Chuprinin told me. “It’s kind of a filtering mechanism.”

No matter which yardstick Chuprinin and Sosyura looked at, the managers from disadvantaged origins beat their counterparts from wealthy backgrounds. And it’s likely to be a similar story in a host of other occupations.

But the researchers identified something else revealing about upbringing and performance.

Investment managers from very privileged backgrounds often lost money consistently but still kept their jobs – and even got promoted.

“If you look at the wealthiest managers you can clearly see that they don’t perform well, and actually they destroyed value for the most part,” said Chuprinin.

“But they also tended to have very stable careers, which meant that as they destroy value they were not getting fired. The career outcomes of these managers who are wealthy are not actually dependent on their performance.”

The researchers could not explain this.

“It’s a big question how useful this group were to their employers,” said Chuprinin.

In contrast, the investment managers from poor families had to keep jumping hurdles once they had defied the odds and been hired. They were only promoted after consistently outperforming.

Those from humble origins were also more active in their jobs and more likely to deviate from the market norm. Managers that grew up in wealthy households, however, tended to be more conformist and follow benchmark indexes.

The returns made by managers from poor families were tightly bunched, a sign they had passed through rigorous quality filters. It was a different story for those from wealthy, well-connected families. That cohort had a much higher dispersion of investment returns – some did very well, while others performed poorly. That’s a tell-tale sign they were subject to a weaker filter mechanism. It also implies some managers from wealthy backgrounds didn’t really deserve to be there.

Oh fund managers. I’ll look after my own money thanks.

But by and large, this has been my experience with my students. People coming from less-advantaged backgrounds can be more driven and motivated. If you’re next meal is riding on a deal, you become very focused.

They’re also more willing to take risks and try out new strategies. They’ve got nothing to lose.

So combine that drive and desire with a solid system and a good education, and you’ve got a recipe for success right there.

Now I have to admit there’s a chance I’m getting a biased perspective here. People with stable and solid net worth aren’t calling me up at 2 a.m in the morning because they’ve just landed their first no-money down deal.

So maybe I only get to see the most powerful and transformative examples of success.

But I feel it with the students I work with. I can see when someone has got that fire in the belly. And I don’t know if it’s something in the stars or something in the way their cellular body gets rearranged, but that fire seems to create its own success.

Driven and fearless is a potent combo.

So if you’ve got that, you’re most of the way there.

I can help you with the rest.

Has that been your experience? Does drive make the difference?