At the Money: Optimizing Personal Health in Finance

Summary

Masters in Business: Episode Summary Episode: At the Money: Optimizing Personal Health in Finance
Release Date: December 11, 2024
Host: Barry Ritholtz, Bloomberg Radio
Guest: Phil Perlman, Executive Editor at Stocktwits (formerly Chief Behavioral Officer at the Bank of the Ozarks), Founder of the Pearl Institute

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Introduction to Fitness Alpha

Timestamp [00:54]
Barry Ritholtz opens the episode by highlighting the relentless pursuit of competitive edges on Wall Street. He introduces the concept of leveraging personal health as a potential untapped source of alpha, the measure of investment performance relative to a benchmark. To delve deeper into this innovative idea, Barry welcomes Phil Perlman, who brings expertise from both financial markets and personal health optimization.

Defining Fitness Alpha

Timestamp [01:53]
Phil Perlman introduces Fitness Alpha as a model of performance that originates from personal health. He explains:

“Fitness alpha is a model of performance. ... it’s basically the outperformance we derive from our health. The healthier we get, the better we perform across multiple areas of functioning.”
— Phil Perlman [01:53]

Alpha, in investment terms, represents the excess return of an investment relative to the return of a benchmark index. Perlman suggests that personal health can significantly influence this performance metric.

Health as a Competitive Advantage in Finance

Timestamp [02:57]
Barry probes further into how personal health translates into financial performance. Phil elaborates on various functional areas where health impacts market performance:

“...health the better, the more healthy we get, the better we perform across multiple areas of function, including stress tolerance.”
— Phil Perlman [03:06]

He highlights stress tolerance and emotional regulation as critical factors, especially during volatile market periods. The ability to remain rational and avoid emotional decision-making ("going on tilt") can lead to more stable and profitable investment strategies.

Implementing Fitness Alpha: Key Health Areas

Timestamp [07:07]
Phil outlines four fundamental elements of health that contribute to Fitness Alpha:

1. Nutrition:

   • Focus on consuming real foods with minimal ingredients.
   • Avoid ultra-processed foods and excessive added sugars.

2. Body Movement (Exercise):

   • Incorporate both cardiovascular (aerobic) and resistance (anaerobic) training.
   • Simple activities like walking can be effective starting points.

3. Sleep and Rest:

   • Prioritize adequate sleep to allow the body to heal and recuperate.
   • Taking days off when injured or overly fatigued is crucial.

4. Social and Family Relationships (Love):

   • Cultivate strong relationships to enhance emotional support and resilience.

“There are four elements of health that we can focus on: nutrition, body movement, sleep and rest, and social and family relationships.”
— Phil Perlman [07:07]

Phil emphasizes incremental improvements, advocating for gradual enhancements rather than drastic changes. This approach ensures sustainability and prevents burnout.

Practical Steps to Generate Fitness Alpha

Timestamp [09:09]
Phil advises listeners to adopt small, manageable changes tailored to their individual circumstances:

• For Inactive Individuals:
  Start by incorporating more physical movement, such as daily walks.

• For Food Enthusiasts:
  Enhance nutrition by focusing on whole foods and reducing processed items.

• Addressing Substance Abuse:
  Managing alcohol and substance use can significantly improve cognitive and physical performance.

“All you have to do is get incrementally better over time. You don’t have to try to blow the lights out... there’s a gateway to start.”
— Phil Perlman [09:09]

Impact on Financial Portfolios

Timestamp [11:17]
Phil connects improved personal health to better executive functioning and decision-making abilities. Enhanced decision-making leads to wiser investment choices, directly impacting portfolio performance.

“We are not always wise decision makers. ... when we are even incrementally improving our ability to make decisions, to make wise decisions, that's really where we experience alpha.”
— Phil Perlman [11:32]

He ties this to behavioral economics, noting that better health can mitigate common cognitive biases like loss aversion and anxiety related to investment losses.

Beyond Financial Gains: Holistic Benefits

Timestamp [12:38]
Phil highlights that the benefits of Fitness Alpha extend beyond financial performance:

“...extending your life and staying healthy for longer and improving your mood and improving your relationships and improving your quality of life.”
— Phil Perlman [12:38]

These holistic improvements contribute to overall life satisfaction and well-being, making Fitness Alpha valuable for everyone, not just financial professionals.

Personal Journey and Transformation

Timestamp [14:00]
Phil shares his personal transformation story, illustrating the profound impact of Fitness Alpha:

“I was an executive within the financial services space, and I was miserable. ... I started really getting healthy, getting my mind and body in shape, that I started really rediscovering who I was.”
— Phil Perlman [14:21]

He recounts overcoming unhealthy habits and how improving his physical and mental health led to enhanced professional performance and personal fulfillment.

Conclusion: The Universal Applicability of Fitness Alpha

Timestamp [16:08]
Barry Ritholtz wraps up the discussion by reiterating that Fitness Alpha offers a unique edge for financial professionals but is equally beneficial for individuals in all walks of life. Improved health leads to better sleep, nutrition, exercise, and social relationships, which collectively enhance both personal well-being and financial performance.

“Fitness Alpha sounds like it can apply to just about everybody.”
— Phil Perlman [13:36]

Key Takeaways

• Fitness Alpha is the performance edge gained through optimized personal health, directly influencing financial decision-making and portfolio performance.
• Core Health Areas: Nutrition, exercise, sleep, and social relationships are pivotal in generating Fitness Alpha.
• Incremental Improvements: Small, sustainable changes in health habits can lead to significant performance gains over time.
• Holistic Benefits: Beyond financial gains, Fitness Alpha enhances overall life quality, including mood, relationships, and longevity.
• Personal Transformation: Phil Perlman’s journey underscores the transformative power of prioritizing health for both personal and professional success.

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This episode of Masters in Business underscores the emerging recognition of personal health as a critical factor in financial performance. By adopting the principles of Fitness Alpha, individuals can achieve sustained excellence in both their professional and personal lives.

Transcript

[Hannah Frei]

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[Marin Sums]

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[Barry Ritholtz]

Everyone on Wall street is looking for an edge. We deploy quant models, hire analysts, run various simulation all to gain the slightest advantage that might be worth a few basis points over a year. But what if you were overlooking a giant source of alpha? I'm Barry Ritholtz, and on today's edition of at the Money, we're going to discuss how Wall street has been using personal health to gain a competitive advantage. To help us understand all of this and its implications for your portfolio, let's bring in Phil Perlman. Previously, he served as executive editor at Stocktwits and was chief Behavioral Officer at the bank of the Ozarks. Today he runs the Pearl Institute, focusing on personal health and the process of making effective change. So, Phil, let's just start with a basic question. What is fitness alpha?

[Phil Perlman]

Fitness alpha is a model of performance. And we can derive alpha in markets from so many different areas. And, you know, just as a very brief primer for those who might not know, alpha is this idea of how much we outperform. So if our benchmark is The S&P 500, we're a money manager and we make 25% in a year. When the market's up 20%, that's 5% of Alpha and so forth. If we're, if we're up 15%, that's 5% of negative alpha. If the market's up 20%. And so where do you get the alpha from? And you know, do you get it from information? Do you get it from having a certain model? There's different sources, and there's one source that is just a very simple source of alpha that nobody is talking about, nobody has ever talked about it. And it's basically the outperformance we derive from our health. The healthier we get, the better we perform across multiple areas of functioning.

[Barry Ritholtz]

So give us a few examples of some of those multiple functions that create an advantage in the financial marketplace.

[Phil Perlman]

Well, markets are a competitive endeavor, and we know from years of research that health the better, the more healthy we get, the better we perform across multiple areas of function, including stress tolerance. Right. So the markets are stressful. 2022. Anybody who's involved with markets for years think of 2022 for one moment and you know, it was a stressful time. And bear markets occur periodically, I don't know, every five or six years. And so when we have bear markets and we're able to tolerate stress more adaptively, our performance will improve. Not only stress tolerance, but emotional regulation and emotional control. How we're able to control our emotions, how we're able to cope with our emotions, do they affect us behaviorally? Do we go on tilt? Or do we remain rational during volatile periods?

[Barry Ritholtz]

This sounds like you're referring to Fitness Alpha. Helps you make better decisions, especially in times of volatility.

[Phil Perlman]

Absolutely. And there are so many different areas. For example, stamina and resilience. Right. I mean, money managers have pressure even during bull markets because everybody's sort of chasing returns and that is a stressor. So it's not just during periods of volatility in bear markets. You get it in bull markets alike. And our ability to bounce back. So just to go back to your other question, there's so many different areas, and that's why I'm harping on it. Resilience. We bounce back better the healthier that we get. We recuperate faster, we're able to stay focused longer, long days. We could put in long days after long days, our charisma, our self confidence and the way we are perceived by others.

[Barry Ritholtz]

You and I have spoken about this previously and you have mentioned that this has quietly become a thing on Wall Street. More trading desks, more funds are internally discussing Fitness Alpha. Explain a little bit about what's happening on the Street.

[Phil Perlman]

Well, you know, there was a moment, you know, and this goes back 30 some odd years, but there was a moment when Tiger woods won the Masters. He changed the game of golf forever. Because before Tiger woods, none of the golfers really thought about their physical health. And all of a sudden, here comes a young golfer who's in better shape than anybody else out there, and he's crushing the ball and he is able to manage his emotional world, his stress, and stay ice cold even with the greatest pressure on him. And after Tiger woods, now you go and you look at the Tour. Almost everybody is in incredible conditioning. And so you're starting to really see something similar to that happen on Wall street, especially at the highest tiers. And in the hedge fund industry, I've had numerous clients who've come to me with metabolic health problems, with alcohol and other substance problems, and they begin to get those under control, and then all of a sudden they have more energy, they bounce back quicker, their resilience improves, and they're performing better and feeling like it's a more sustainable thing than being day to day and hour to hour.

[Barry Ritholtz]

So let's talk about some of the areas of health that you focus on. You touched on drinking, you touched on metabolism, which I assume involves nutrition. What are the areas that you can derive fitness alpha from?

[Phil Perlman]

Well, here's the thing about that. I'd like to keep things really, really simple, okay? And if you go out there, there's a thousand books and there's 10,000 hours of podcasts focusing on health and wellbeing these days, and they get very, very granular. And there's a lot of debates and arguments and, you know, mitochondria and VO2 max, and there's a thousand buzzwords. I like to keep it very, very simple. And from my point of view, there are four elements of health that we can focus on. And if we can just get a little bit better, we don't have to get 1% better every day. We could just get 5% better a year. And if we do that year after year, and those four areas, those four elements of good health are nutrition, what we put into the only body that we are ever issued on this earth. Body movement, which is exercise, which includes cardiovascular, you know, aerobic exercise, and also anaerobic exercise or resistance training. It also includes sleep and rest and how we allow our bodies to heal over time, whether that's sleeping or whether that's taking a day off or two, if we're injured and social and family and love. And that's the fourth one. It's a very surprising one when I mentioned that, but huge alpha in relationship.

[Barry Ritholtz]

And love, Focus, sleep, nutrition, exercise, social. All right, so those are the four big areas. So within those four areas, someone listening to this, whether they're a trader or a fund manager or driving a truck or working in a retail store, what do they need to do to generate that performance boost to generate that fitness alpha in those four areas?

[Phil Perlman]

Well, all you have to do is get a little bit better at a time. All you have to do is get incrementally better over time. You don't have to try to blow the lights out, hey, I'm going to start exercising six times a day. I'm going to completely change my diet. I'm going to do all these things, you don't have to get super duper gung ho. And I would say that for each person there is a gateway drug in a good way. You know, not a gateway bad drug, but a gateway good drug. There's a place to start and it really, there's individual differences and it's dependent on the person. I'll give you a few examples. If you have somebody who really does not move their body and they're gaining weight over the years, begin to move your body. And that can be as simple as just walking. Walking is an incredible thing. You get outside, you get into the fresh air, maybe you turn notifications off on your phone and you just begin to get the blood flowing and the body movement for other people, hey, you might have people who love food, who are good cooks. Maybe their gateway drug is to say, hey, I'm going to really begin this by focusing on my nutrition. And you don't have to do anything fancy there. You could keep it stupid simple there too and just start eating real foods with very few ingredients and staying away from ultra processed foods and staying away from foods that have a lot of added sugar. The one other thing that I thought of when you asked me that question was this, that I find that substance abuse and alcohol abuse is very prominent in our culture and extremely prominent among professional market participants. And we know, especially as we age, that alcohol and other substances affect our performance and affect our brains very, very significantly. And so if you could get a handle on that, that would be another fantastic gateway.

[Barry Ritholtz]

So let's say we all start moving a little more, we start eating better, we cut the cigarettes and that glass of wine with dinner. How does that show up in our portfolios? What sort of advantages accrue to us?

[Phil Perlman]

Well, it begins with executive functioning and it begins with decision making. And this is a direct relationship to the ideas coming from behavioral economics and this idea that we are not always rational decision makers and the better. You know, I always use I always, whenever I hear the word rational, I I substitute the word wise. Right? So we are not always wise decision makers. And we know that the average human suffers from loss aversion and we know that there's anxiety related to losses especially. And so when we are even incrementally improving our ability to make decisions, to make wise decisions, that's really where we experience alpha, where we make better decisions that affect our portfolio, that improve our performance.

[Barry Ritholtz]

And are there any fringe benefits to this besides just improving our portfolios?

[Phil Perlman]

Well, that's actually a beautiful question because I'm Actually flipping the primary use case. You know, when people talk about getting healthier, they're not talking about improving your portfolio. They're talking about extending your life and staying healthy for longer and improving your mood and improving your relationships and improving your quality of life. And so really, the fringe benefits are just incredibly central and some would argue primary. I mean, let's say if you were not an investor or a market participant and I was talking to you about this, I would be making the same exact case related to, hey, well, wouldn't you like, you know, we're only here once. Wouldn't you like to stay healthier longer and so that you can enjoy life for a longer period of time?

[Barry Ritholtz]

So this sounds like this is not just for Wall street traders and fund managers. Fitness Alpha sounds like it can apply to just about everybody.

[Phil Perlman]

I built this model from my own experience, Barry. I was not a healthy person, and I was kind of faking it. Like I was performing well enough professionally that I was getting by and I was making some money, but I was not thriving. And I started to get myself healthy, and I started to experience this, wow, I have more energy. Wow.

[Barry Ritholtz]

I want to. I want to interrupt you because I want people to realize, back in the day, you were considerably heavier. You were a big drinker. You were not in any sort of shape other than round. Round is a shape. But you were, you know, you were struggling. Tell us a little bit about that aha moment and tell us what you accomplished.

[Phil Perlman]

You know, I'm like, hair club for men. Remember that commercial, the Hair Club for Men guy? I use the product myself. So I bought the company. You know, I mean, I got myself healthy, and I was kind of, you know, I was kind of faking it. I was an executive within the financial services space, and I was miserable. Traveling too much, drinking too much, not moving my body. When I was 12 years old, 15 years old, I was an athlete. But I had gotten so far away from who I was. You know, there's this idea in Buddhism of enlightenment. This one great author once said that enlightenment is nothing mysterious. It's really just rediscovering who you always were. And so I felt like as I started really getting healthy, getting my mind and body in shape, that I started really rediscovering who I was getting back to me. And lo and behold, I started performing better across all aspects of my life.

[Barry Ritholtz]

So to wrap up Fitness Alpha is how Wall street finds yet another edge to enhance their performance. But it's not just for Wall street professionals. We sleep better, we eat better, we move, we have better social relationships. Not only does that show up in our portfolios, but it also shows up in extended lifespans and healthier for longer as part of your alpha I'm Barry Ritholtz, and you're listening to Bloomberg's at the Money.

[John Stepek]

Badass. Not everybody likes talking about money. Some people find it awkward. Sometimes they even find it a little embarrassing. I do not. I like talking about money, whether it's the boardroom, the newsroom, the trading floor. I've spent the last 30 years talking about money, writing about money and talking about it and writing about it a little bit more. I'm Marin Sums at Webb, and every week senior reporter John Stepek and I answer your questions about personal finance, and we discuss the best strategies for making the most of your money. Listen in for the kind of insights and explanations everyone can use to help them make better saving and investment choices for themselves and their families.

[Marin Sums]

My question is whether you think maxing out my company Pension Match is enough for when it comes to saving for.

[Barry Ritholtz]

My pension, should I attempt to pay.

[John Stepek]

My child's university fees and living costs? My partner and I have excess savings, so should we overpay on our mortgage.

[Hannah Frei]

Or should we put the money into stocks?

[John Stepek]

From Bloomberg podcasts, tune into Marin Talks Money. Follow Marin Talks Money on Apple Podcasts, Spotify, or wherever you listen.