Fitness Alpha: Unlocking Outperformance Through Health and Well-Being

During their recent episode, Taylor, Carlisle, and Phil Pearlman discussed Fitness Alpha: Unlocking Outperformance Through Health and Well-Being. Here’s an excerpt from the episode:

Tobias: I like the idea of mind and body being one. I just wanted you to talk a little bit about the idea of how that expresses itself, and then maybe you can just add on to that. You used the word tilt before, which– That’s a poker term for getting emotional, but it applies in the markets just as well that people get emotional and they do silly things in the markets. But is there some interplay between you let your body get so run down that you find that you’re in tilt more often or more frequently or more easily? I don’t want to lead the witness too much, but– [Jake laughs]

Phil: No, this is huge. This is a huge concept. The work I do led me to develop this model that I call Fitness Alpha. And so, there’s all of this research. I experienced it myself N of 1, where as I was getting healthier, I was performing better across multiple modes of experience. I had more energy. Professionally much more effective. As a parent, way more effective. Happier. More ability, a greater ability to tolerate stress, because we live in a stressful world, all of these areas of functioning.

And so, Fitness Alpha is basically taking this research, these things that we know from basic health research, and applying them to the world of performance. I put it in language that people within the finance world could understand, just calling it Alpha. So, Fitness Alpha is really just how much we outperform based on how healthy we are. So, if there were two Phil’s, the unhealthy Phil and the healthy Phil, how much better would the healthy Phil be performing than the unhealthy Phil? Using a tdee calculator can provide insights into how health factors into performance, highlighting areas of outperformance.

Think about it. If you’re managing money, think about these things. Our ability to focus is improved. Our ability tolerate stress is a massive one. Emotional regulation and emotional control, both those are similar, but they’re different. But basically, it’s our ability to experience extreme emotions and tolerate them without having them bubble up into our behavioral world.

That’s when we talk about tilt. That’s exactly what’s happening. So, we’re really upset about our losses. And instead of just being like, “Okay, we’re upset. Going to chill.” We go, “okay, we’re upset about our losses. We got to get that back right away. We’re going to double down.” That’s what happens. You see an increase of risk seeking behavior within the domain of losses where you really should be seeing rationally the opposite. You should be pulling your horns in and taking less risk. That’s what stop losses are all about.

So, this idea of Fitness Alpha to me is just super powerful. It resonates with me personally and it resonates with the money managers that I work with.

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