Viewers of the television show “Game of Thrones” are treated to epic battles, political intrigue, heroes, villains and characters you’re not sure whether to love or hate. The show also has dragons — fire-breathing dragons! Beyond the entertainment value of Game of Thrones, the show offers insights into leadership and investment decision-making. Disruptive technology, diversity and family succession planning are central to the struggle for supremacy in the fictional world of Westeros. Advisors will be familiar with the top five investment lessons from “Game of Thrones”:    

1. Beware of Disruptive Technology

Jaime Lannister (also known as the Kingslayer) led his large and well-armed army into battle against the army of Daenerys Targaryen (also known as the Mother of Dragons) in a recent episode of the show. Daenerys rode into battle on the ultimate in disruptive technology, a fire-breathing dragon! Jaime’s army suffered a disastrous defeat, and he survived to learn a life-changing lesson about the threat of disruptive technology.

Amazon and Apple may not have dragons, but the disruptive force from both companies is equivalent to that of a fire-breathing dragon. Amazon’s leadership in ecommerce changes how people shop, profoundly changing the competitive environment for brick-and-mortar retailers. Apple is a serial disrupter, challenging established business models in computing, communication, music, photography and advertising. Real-world Jaime Lannisters often ignore the threat from disruptive technology until it is too late. 

2. Complacency Is Often the Downfall of Successful Organizations 

“Maesters” on “Game of Thrones” are scholars who are trained at a university-like retreat called the Citadel. Although maesters are thought to be the wisest men in Westeros, their complacency may be a fatal flaw. In the current season, the maesters are repeatedly confronted with evidence of an imminent threat to humanity. Rather than take the threat seriously, the maesters laugh off the threat and initiate halfhearted efforts to gather more information.

Examples of complacency are easy to find. Many retail organizations shrugged off ecommerce threats, taxicab companies ignored the inroads made by ride-sharing companies such as Uber, and investment managers that charged high fees or sales loads were slow to react to the increased popularity of index and smart beta ETFs. Today, there are many company leaders who are complacent about the competitive environment, and risk being ambushed by disruptive competitors. 

3. Markets Adapt to New Tactics

Jaime Lannister lost a key battle in the first season of “Thrones, tactically outsmarted by by the leader of the opposing army. Jaime learned a lesson from the season one defeat, and with a change in strategy won a key battle in the current season.

Investment markets are remarkably adaptable, and sustaining a competitive edge is increasingly difficult. Success breeds imitation in the investment industry, and a herd of imitators can erode or erase the benefits of successful investment strategies.

Quantitative investment strategies gained popularity in the early part of the 2000s, but many “quants” ended up as part of a herd that invested in the same stocks. The quant boom ended badly with the “quant quake” of 2007, as the herd headed for the exits at the same time.

Popular trades have a way of becoming too popular, as investors burned by the technology bubble, the BRIC craze, and currency “carry” trades have discovered. Reversals of fortune can be particularly painful for investors who are among the last into a crowded trade! Following the herd can be a bad idea, and investors should do their homework before joining a crowded trade.

4. Hereditary Dynasties Are Hard to Maintain

Dynastic transitions have been problematic for many of the leading families on “Thrones.” Most dramatically, King Joffrey Baratheon became perhaps the most-hated teenager on American television after taking the throne from his late father. 

Fortunately, most family-owned businesses don’t pass the reigns to homicidal and sadistic heirs such as King Joffrey. However, some high-profile family transitions have been epic disasters. Descendants may not live up to the standards set by founding CEOs, or family conflict makes a successful transition harder to achieve. Ford, Viacom, Cablevision and Dow Jones are among the companies that have struggled with generational transitions. 

The generational challenges at News Corp. and Fox will be interesting as 86-year-old Rupert Murdoch transitions leadership to his family members. Also interesting is the transition of the Trump Organization from President Donald Trump to his sons, Donald and Eric. 

5. Diverse Workforces May Be More Effective

“Game of Thrones” sends a clear message about the virtues of a diverse workforce. Daenerys Targaryen has assembled the ultimate in diverse workforces, with an army that includes former slaves (the Unsullied), a tribe of nomadic horse-mounted warriors (the Dothraki), fire-breathing dragons and a dwarf. Another fan favorite, Jon Snow, has built an unlikely alliance that includes wildlings, clans who don’t conform to the hereditary hierarchy that governs society in “Game of Thrones.” Jon is also a champion of gender diversity, including women in his leadership team and his army. 

There is mounting evidence that companies with diverse workforces are better financial and stock market performers than companies that aren’t diverse. Gender diversity on boards appears to be associated with superior stock market performance, as multiple studies have demonstrated that companies with one or more female board members outperform those with no female board members. The results appear even more significant when considering companies in which 25% or more of the board members are women. 

Closing Thoughts

“Game of Thrones” provides an entertaining source of wisdom for investors. Disruption is rampant in many industries, and for many companies the threat from Amazon, Apple, Facebook and Google is as existential as the threat from a fire-breathing dragon. Challenges maintaining hereditary dynasties and controversy over diversity seem to be ripped from today’s headlines; consequently the lessons from the show may offer real-world insight to investors.