Decision Nerds

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When seeking improvement in teams we generally face two choices:
1. Try something new and interesting, ideally something that can be compressed into an awayday session. It's easy - we will never be short of New Sexy Ideas (NSIs); things like psychological safety, radical candour, psychometric profiling. Choose your poison.
2. Stop doing the unproductive shit that everyone knows is causing damage. 
What do most people choose? In my experience, it's option 1. Why? Most NSIs are plausible and talk to real problems. And who doesn't want to feel like they are being innovative and positive – it can make the team feel good and show management we are on the ball. Probably the most important reason to pick an NSI is that it means we don't have to directly deal with the tough baked-in problems the team might be facing. 
My personal take is that you'll often get more from stopping the things that erode value than from adding something new on top. In this episode of Decision Nerds, we explore Charlie Munger's exhortation to 'Invert, always invert' with Andy Evans, an industry veteran who's written an excellent note on this issue. If you haven't come across inversion before, the idea is that instead of asking how to achieve success, you ask what causes failure and try to systematically avoid those pitfalls.
We focus on one of the most challenging issues in investment management – how to make a team work effectively – covering everything from terrible incentive structures to why we promote the wrong people. Discussing teams and their problems can easily turn into a whingeathon, so we also offer some simple, practical fixes to make team life more enjoyable and effective.
Feel free to listen to this as a team, with your own 'Jeez, do we do that?' bingo card.

Andy' note can be downloaded here.

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𝐍𝐞𝐯𝐞𝐫 𝐡𝐚𝐯𝐞 𝐈 𝐞𝐯𝐞𝐫…
...heard a client say, “I’m disappointed, you made that point too easy for everyone to understand”. Unsurprisingly, anyone who works in the field of investment or consulting will have heard many complaints the other way around. You may have been the culprit, or maybe had to present with THAT colleague who is incredibly smart, but who struggles to get their point across to less sophisticated audiences.

In this episode of Decision Nerds, Joe Wiggins and I unpick this problem, why it exists and why it’s sticky. We discuss:

𝐓𝐡𝐞 ‘𝐜𝐮𝐫𝐬𝐞 𝐨𝐟 𝐤𝐧𝐨𝐰𝐥𝐞𝐝𝐠𝐞’ – once we know something, we can struggle to remember what the world was like before we knew it. This can impact everything from how decks are structured to how we answer questions in a meeting.

𝐓𝐡𝐞 𝐝𝐮𝐚𝐥 𝐚𝐮𝐝𝐢𝐞𝐧𝐜𝐞 𝐩𝐫𝐨𝐛𝐥𝐞𝐦 – investors and consultants often have to present to audiences with different knowledge bases. The problem is when they are both in the room at the same time. We discuss hitting the lowest common denominator vs. making a decision on who is the most important constituent.

𝐓𝐡𝐞 𝐚𝐟𝐟𝐞𝐜𝐭 𝐡𝐞𝐮𝐫𝐢𝐬𝐭𝐢𝐜 – humans process cognitively and emotionally. When we understand something well, our cognitive faculties can judge the quality of an argument. But what do people pay attention to when they don’t understand? As much as anything it is our tone, which can leave people with different impressions than hoped for.

Out of the many behavioural problems that impact investors and their clients, this should be one of the easier ones to solve. It’s just communication skills, right? Sometimes, yes, but we also discuss:

𝐂𝐨𝐦𝐦𝐮𝐧𝐢𝐜𝐚𝐭𝐢𝐨𝐧 𝐯𝐬. 𝐞𝐠𝐨 – should we assume that people are always trying to communicate optimally? People may be using jargon, because they want to appear smart, or to bamboozle. If it’s this kind of driver, simply telling people to simplify their message won’t work.

𝐎𝐧𝐞 𝐭𝐫𝐚𝐜𝐤 𝐦𝐢𝐧𝐝𝐬 - 𝐭𝐢𝐦𝐞 𝐯𝐬. 𝐜𝐨𝐧𝐭𝐫𝐨𝐥 – very few people can easily go up and down the complexity curve/explain the same point in different ways, especially on the fly. Once people have ‘their story’ they can often get locked into it. This can either be a function of time (to create and learn a new story) or sometimes control – ‘this is my product, I’ll decide how it gets communicated’.

𝐄𝐦𝐩𝐞𝐫𝐨𝐫’𝐬 𝐧𝐞𝐰 𝐜𝐥𝐨𝐭𝐡𝐞𝐬 – for people to change, they need to know what the problem is. Powerful/influential people often don’t get to hear the unvarnished truth. If we want the best chance of change, we need to communicate the issue in a way that (i) reflects reality and (ii) gives the ‘offender’ a positive way forward that they can practically engage with.

You can also hear Joe’s learning moment when he (foolishly?) decided to dig into the ratings his presentation was given at an investment conference.

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Howard Marks – navigating the crisis - creed, preparation and control

What kind of mindset and organisational culture does it take to survive and to thrive in market turmoil?

Let’s be frank, there are a vanishingly small number of people who have navigated multiples crises successfully and have something interesting and reflective to say it about it.
One person who does is Howard Marks. Founder and Co-Chairman of Oaktree he is, for our (and Warren Buffet’s) money, one of the most thoughtful and experienced investors in the market today.
 
In the latest episode of Decision Nerds, we got to speak to him in the middle of recent market craziness. We had a fascinating chat - not about tariffs, Trump or trade wars, but the inner game; what individuals and firms need to succeed in this environment.

Joe's writing on investment decision-making is here.  
You can find Paul on LinkedIn here.

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The Disruptor in Chief’s blizzard of executive orders, tariffs and foreign policy positions and his propensity to change them is making life difficult for investors and clients.   
Things look and feel uncertain, perhaps more so than in living memory. 
In this bite size episode, we discuss the science and practicalities of dealing with uncertainty.

 

The Electric shock study refernced in the discussion.

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As the wordly philosophers of Coldplay suggest, getting what you want, but not what you need, might leave you in need of fixing. 
Leaps in investment platform technology give investors more information, more choice and the ability to act more quickly and easily. We want that, but is it what we need? As Joe points out, many of the positive developments in tech are double-edge swords. He thinks from a behavioural perspective, now is one of the worst times ever to be an investor.
𝗞𝗲𝘆 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀:
#𝟭 𝗟𝗮𝗰𝗸 𝗼𝗳 𝗳𝗿𝗶𝗰𝘁𝗶𝗼𝗻 – it takes me less than 10 seconds from launching my platform app on my phone to being able to deal. Is that a good thing? In one dimension yes, but the overarching story of behavioural finance is people doing irrational things that create bad outcomes. Slick and seamless tech combined with noise, FOMO and a constant barrage of stimulus has the potential to exacerbate these problems.
#𝟮 𝗔 𝗰𝗼𝗺𝗽𝗲𝘁𝗶𝘁𝗶𝘃𝗲 𝗱𝗼𝗼𝗺 𝗹𝗼𝗼𝗽 – tech providers exist in a highly competitive environment and 'faster, easier, more' are key facets of the battleground. No one wants to lead a pitch with, ‘and….this is how we reduce information available to clients and make it harder for them to trade’.
#𝟯 𝗥𝗲𝗳𝗿𝗮𝗺𝗶𝗻𝗴 𝘁𝗵𝗲 𝗴𝗮𝗺𝗲 – whilst it might be possible to get providers around a table to agree a common approach that helps investors manage their worst impulses, a market-based solution is likely more workable. This needs those who advise on these platforms to be changing the conversation and including behavioural design as part of any selection process. Imagine a world where providers compete on how they help clients beat their biases as much as how slick the tech itself is. 
𝗣𝗵𝗿𝗮𝘀𝗲 𝗼𝗳 𝘁𝗵𝗲 𝗱𝗮𝘆? 𝗜𝗻𝘁𝗲𝗹𝗹𝗶𝗴𝗲𝗻𝘁 𝗳𝗿𝗶𝗰𝘁𝗶𝗼𝗻
“Intelligent friction,” is a concept from the payments industry which focuses on interventions based the risk level of a transaction. It aims to balance a good user experience with effective security. Buy a coffee in a new country when you land there fine, buy a laptop, expect an intervention. There are some obvious investment analogies here. And of course this is only one tool in the arsenal, getting better at education and helping clients help themselves is also pivotal.
We don’t want to lose all the good things that tech brings, but to mangle Coldplay, we should perhaps be trying to help people want what they need.