Category: asset mangement

[Books] Wiser (part 2) – getting past groupthink to better outcomes

Authors Cass Sunstein and Reid Hastie have put together an excellent and readable taxonomy of the “bugs” that can afflict group decision making and cause groups to blunder in their book Wiser.

In the first part of this blog I discussed their dissection of the causes of group decision making failure.

How can we make groups function better?

The book carries a number of actionable insights into how to improve group decision making for the better:

Inquisitive and self-silencing leaders

Men out-talk women two to one in jury deliberations, the same happens in companies. Leaders and other high-status member of groups will exert a lot of influence, they can do the group a favour by remaining silent and indicating a willingness to hear all of the uniquely held information. That helps overcome one of the main issues identified with groupthink – self silencing which leads to a failure to share critical information.

Priming critical thinking

Rather than prizing consensus, give social reward to new and competing information.

The role of roles

Information aggregation becomes more likely with roles, as each member knows that the others have something to contribute, a division of labour in examining a problem will make hidden profiles less likely.

Shift perspectives:

“If a new CEO came in, what would they do?”

Does devil’s advocacy work?

It has become commonly thought that devil’s advocacy or can help get past groupthink influences. The authors are torn on this point. Devil’s advocacy as an idea is trying to formalize the commitment to expressing differing viewpoints (which is a good thing). Those assuming the devil’s advocate role are able to avoid the social pressure to agree. However the authors believe evidence is split on this – there is a difference between authentic dissent and a formal requirement for an assigned devil’s advocacy, who may be arbitrarily assigned and simply “acting out a role”. For this to work the devil’s advocate has to actually mean what they are saying.

An upgrade to devil’s advocacy, which has a greater chance of working is to get an entire team to work on a contrarian viewpoint, with the aim of defeating the primary team’s plan to execute a mission. so called, “red-teaming”.

The Delphi Method

This is a formal approach to aggregating individual views. It proceeds in a number of rounds. First round votes (or estimates) are taken, in complete anonymity. The second round estimates must all fall within the 25th – 75th percentile of the first round estimates. This process is repeated until the group converges on a single estimate. It’s an averaging process, but one that allows for a single stubborn (or convicted) group member to influence the final outcome a lot more than a simple average.

Separate Identification and selection.

The qualities that make a good identification process, particularly diverse and divergent thinking, are very different to a selection process which needs to favour convergent thinking. All too often these steps can be compressed together, making it difficult to juggle the requirements for both divergent and convergent thinking.

Harnessing experts

I found this section particularly interesting and relevant!

A few tips on how best to use experts:

 

  • Obtaining a statistical answer from a few of them, rather than relying on just one
  • Limit experts to domain areas where there is evidence that expertise gives an edge (eg how to combine asset classes to give a diversified portfolio as opposed to whether the stockmarket, or interest rates,  will go up or down tomorrow or next month)
  • Look for track records from experts (weight individual expert views by the track record)

 

Specifically for investment advice this points toward asking the questions

“What other strategies were considered, but ultimately didn’t quite make it into this advice?”

“Is this advice the work of one, or many, experts?

was this advice produced in an environment of challenge among experts, how were the different expert inputs incorporated and weighted (process)?

I for one will certainly be taking away a few of these insights and trying to apply them more consistently.

What do you think is the most helpful?

Five unexpected learnings from Ray Dalio’s Principles

Sure, Ray Dalio is well known for his approach to “radical transparency” and the uncompromising way he has implemented that (as well as the extraordinary investment success of his firm, Bridgewater), but his recent book Principles held learnings for me in a number of unexpected areas including: mistakes and failure , the art of disagreement and what might be described as “soft skills”.

Underneath what might seem on the surface – to some-  a set of stark, tough, emotionless dictats I found something a little different – there is a deeper truth – Dalio is asking people to have a sense of introspection and humility, to sincerely believe that they might be wrong and open themselves to other viewpoints and critiques, and to reflect hard on their mistakes as this is where the best learnings are to be found.

And the reason for writing and sharing the principles? It all started with a meeting between Dalio and some of his key partners in the early 1990’s where they presented him with a candid – and stark – picture of the negative effects that his focus and determination had on others in the organisation – that they felt belittled, unnecessary, incompetent and overwhemled. In addressing this, Dalio decided it was important to set out the principles he was operating by, in a way to try and get in sync with his employees so that they could see where he was coming from more easily. Which could mean they would be more understanding of his approach, and less likely to be affected in negative ways.

The big question reading Principles is of course what valuable read-across can one take into other organisations. I would argue plenty, but even for those that disagree surely setting out principles and spending time getting in sync on them is universally a good thing for meaningful work and meaningful relationships.

Here are my top 5 least-expected takeaways from Principles:

 

  • Making mistakes & learning from failure. At the heart of the book is Dalio’s own story and evolution. He shares a story from the early days of Bridgewater –  he took too much risk betting on the bond market in the early 1980’s that the firm imploded and he lost almost everything he had built (he had to let go all the people working for him at the time). In reflecting on that he developed some clear thinking about how to respond to failure, and he is convinced that we can learn a lot more from our failures than our successes (self evident perhaps, but worth lingering on as it can be all too easily overlooked or forgotten). Treat the pain of failure -and yes, you need to feel pain- as a trigger. A trigger to reflect deeply, reflect objectively from a higher level. Reflect both on the proximate cause of the “case-at-hand” but also at the “machine design” level (that is, the organisational, workflow or systems design construct that generated the mistake). To evolve successfully one must first correctly perceive and diagnose the problem (objectively), identify a better design, and push through on implementation. Experience creates an internalized learning that book learning can’t replace, so in that sense mistakes and failure should be treated as valuable opportunities to create powerful learnings.

 

  • The art of thoughtful disagreement. Open-mindedness is clearly pretty key to Dalio’s worldview and is behind, in his view, the extraordinary success that Bridgewater has had over the years. He talks at length about the principles behind ensuring that disagreement is fostered, and this I think is the key bit – is handled and resolved in efficient and amicable ways that move everyone forward. There are a handful of principles that get at this – including sincerely believing that you might be wrong, treating a disagreement as an “open exploration of what is true”, rather than an “I win you lose” clash of ideas (which happens all too easily, in my experience), doing everything you can to understand how others come by their opinions, and focus on being “open minded and assertive” (the idea being, it’s easy to be assertive when you are pushing a point of view, but more helpful to be assertive but neutral, to explore what’s true). At the end of the day what matters is moving forward, and his ideas around a “believability weighted” meritocracy are compelling. Dalio’s view is that two of the biggest barriers to progress are our individual egos (and the dogged attachment to our own ideas that generates) and our un-awareness of our own blindspots. This insight is well worth reflecting on and I for one know I could strive to do better on both of these fronts (both un-attaching myself from my views and ego, and working harder to understand blindspots).

 

  • Invest as much time as possible “getting in sync”. In an unexpected nod to what might be described as “softer skills” Dalio talks at length of the need to invest in getting in sync with others (colleagues, peers etc) mainly to compare your principles against those of others and check where there is disalignment. Being clear on principles is, key to moving efficiently from disagreement to decision, hence “getting in sync” on one another’s principles and knowing what you have in common sets up the systems for resolving future conflict and disagreement. In the long run it increases efficiency, but you need to prioritise because of time constraints. Priority should be important issues with the most believable and relevant parties. Again you could argue this is good sense rather than revelatory, but probably all too easily forgotten or missed out in the whirl of the day-to-day and the temptation to focus on the new, the urgent or the interesting. I have certainly resolved to to spend more time focusing on this.

 

  • Be clear & honest on personality and attribute dimensions. Understanding that people are wired very differently (for example: task vs goal oriented, an aptitude for concepts vs plans, an intuitive vs sensing approach and whether detail or big-picture focused. ) and that for an organisation to functionally optimally you need the right design of skill and capability comb’s in the right roles. Be honest about the suitability of individuals for roles by focusing on capability dimensions ( in practice probably too often overlooked in light of someone’s likability, social skills or similarity to the decision maker/interviewer). I would be grateful to see what the underlying personality dimensions are behind the tools that Dalio refers to (eg Baseball cards and Dot Collector). He mentioned these may be released soon in a “Principles app”, so i look forward to that.

 

  • In meetings, ensure levels are navigated effectively and synthesis is achieved. We’ve all been there – that meeting that gets dragged “into the weeds”, (that is to say a granular debate on points several levels below that of the real question at hand), possibly never to be recovered. “Reality exists at different levels and each of them gives you different but valuable perspectives”. Synthesis refers to the mental combining/processing of data points across levels in forming an overall picture (and coming to a decision). So the key to an effective meeting, is an exchange that can achieve synthesis by successfully navigating levels effectively, that is lower levels might be explored to degrees of various depth to gain insight along the way, but the main level is returned to, and progress made along that level. Another area of insight into “soft skills” that I was not expecting – but really resonated. This picture from the book sums it up well –


My favourite Dalio quotes:

 

 

 

Asset Managers & Twitter

I think it’s fair to say that the asset management industry wasn’t initially quick to adopt social media as a means of distributing content. It’s understandable when you consider the level of regulation around financial advice and the required compliance particularly in the larger firms. Add to that the fact that for the more institutionally-focused firms it was far from clear there was much to be gained by communicating to the mass-market through twitter.

However recently I think this has really changed. I see more and more asset managers active on twitter this year, and many putting out good quality content. From the big global firms such as Blackrock, PIMCO and Schroders, to the smaller boutiques like TwentyFour and Woodford.

If you like to follow the content that the asset managers are putting out then consider subscribing to this twitter list that I’ve put together to help filter the tweets.

If you run an official account at an asset manager I’ve left off this list then please tweet me!