1st March 2012: Trading Insights For Academics

Chicago Board of Trade, 1971


In August 2011, I started trading a small market portfolio. I had read the trading literature and researched case studies on the hedge fund Long-Term Capital Management (PDF) and the April 2000 dotcom crash (PDF). Gradually, I began looking at academia in a new way beyond my experience as an administrator and researcher. Below are three tentative insights that trading can give to academics:


1. Every trader seeks an ‘edge’ to arbitrage. Every successful academic I know has cultivated an ‘edge’ over their careers that they become known for. They may have taught in a specific area and then had their careers take off when they got project management accreditation. They may develop expertise and then chair the relevant international association. I know different professors who specialise in research, competitive grants, and gaining industry partners for institutional consortia: they create alpha (active returns above the market benchmarks). I know early career and mid-career academics who have their own qualities, such as a well-formed research plan or a stream of journal publications. They transcend the notion of ‘performance relative to opportunity’ through conceptualising and then creating preferred futures instead of letting circumstances dictate their lives. They have all found a competitive niche that amplifies their talents. They refuse to buy-in to the institutional narrative around budget and resource allocative mechanisms. Other academics have made career limiting moves: being on too many committees; not keeping up with developments in their field; not reading the current research; or getting caught in administrative systems. Being aware of your ‘edge’ — what makes you different or unique — is vital.


2. In a negotiation/trade/transaction there are (at least) two sides. This is vital to remember in dealing with the Human Resources department and in negotiating contracts, counter-offers and incentives. The successful academics above who create arbitrage can frame these opportunities to reflect an institution’s enlightened self-interest. This requires an understanding of Machiavellian power politics, the ‘two cultures’ of administration and academics, patronage systems between professors and other academics, the shadow side of universities, and the way that incentive systems actually work. Academics who keep this in mind — who can see the same situation from multiple viewpoints — are more likely to get the outcomes that they want; to extract or create value in a situation; and to avoid career limiting moves and decision traps. Frameworks and tools such as decision trees, game theory, real options theory, and some knowledge of corporate finance and strategy can help. One of the biggest psychological shocks for young academics is the moment they realise that the institution does not always have their best or optimal interest at heart (as the academic would define it) and must be carefully bargained with.


3. Most traders lose; the casino/high frequency traders/proprietary traders/hedge funds/Goldman Sachs win. Academia is increasingly a ‘winner-takes-all’ game in which a few do very well and a lot of others work very hard for not the same rewards. As a research administrator, I hear the horror stories from academics about the demands placed on them and the broken processes and systems that they have to work with. Many academics are unsuccessful with Australian Research Council and other Category 1 grants: the ARC has a 17-20% success rate. Many academics are unable to conceptualise a research design that will get them into a top journal in their field or discipline. Performance-based metrics — designed with input from external consultants and a range of administrative staff — are increasingly the norm (as they have been for a decade in other industries and workplaces). These changes create dilemmas for senior management and games that get played throughout the institution. Examples I have recently seen include publishing fake conference papers; publishing in obscure journals like the Transylvanian Review of Administrative Sciences; and even running vanity presses to self-publish colleagues’ research. However, in the long-term these games are unsuccessful and do not convince university promotions committees: international standards have strengthened in the past 5-10 years. Knowing when and how to lose is a skill. Study carefully the strategies that successful academics use.


Keeping these insights in mind will help academics to create ‘for better’ outcomes.


Photo: patarnow/Flickr.