Decision Nerds Paul Richards & Joe Wiggins
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- Business
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We talk about human behaviour and decision-making with an investment slant. And tell terrible jokes.ย Join us as we dive into the trenches with industry innovators, academics and mavericks.
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Underperformance - everyone's got a plan until they're hit in the face
๐๐ผ๐ ๐บ๐๐ฐ๐ต ๐๐ถ๐บ๐ฒ ๐ฑ๐ผ ๐๐ผ๐ ๐ด๐ถ๐๐ฒ ๐ฎ๐ป ๐๐ป๐ฑ๐ฒ๐ฟ๐ฝ๐ฒ๐ฟ๐ณ๐ผ๐ฟ๐บ๐ถ๐ป๐ด ๐ถ๐ป๐๐ฒ๐๐๐บ๐ฒ๐ป๐ ๐บ๐ฎ๐ป๐ฎ๐ด๐ฒ๐ฟ?
1. Hire a manager after a period of strong performance.
2. Watch in horror as you donโt experience that outcome, maybe the opposite.
3. Spend a huge amount of time and emotional labour deciding on whether your initial thesis was wrong, something has changed at the manager, or with market dynamics.
4. After sucking up a huge amount of governance time, decide to sack the manager.ย
5. Rinse and repeat with potentially similar outcomes.
Now that might not be you, but it is a story that plays out regularly.
Experiencing underperformance is one of the unavoidable realities of hiring an active manager. And itโs painful for everyone; clients, managers and advisers. And badly managed pain creates some predictably bad outcomes for all parties.
One important and manageable issue is time horizon mismatch. And this is what and I explore in the latest episode of Decision Nerds. We discuss
๐ช๐ต๐ ๐ถ๐ป๐๐ฒ๐๐๐บ๐ฒ๐ป๐ ๐ฒ๐ฑ๐ด๐ฒ ๐ถ๐ ๐ป๐ผ๐ ๐ฒ๐ป๐ผ๐๐ด๐ต โ managers need an appropriate amount of time to let their edge play out. It may be longer than you think.
๐ง๐ต๐ฒ ๐๐๐ ๐๐ผ๐ป ๐๐ป๐ฑ๐ฒ๐ โ a simple way of articulating time frames that would help everyone.
๐๐๐ฒ๐ฟ๐๐ผ๐ป๐ฒ ๐ต๐ฎ๐ ๐ฎ ๐ฝ๐น๐ฎ๐ป ๐๐ป๐๐ถ๐น ๐๐ต๐ฒ๐ ๐ฎ๐ฟ๐ฒ ๐ต๐ถ๐ ๐ถ๐ป ๐๐ต๐ฒ ๐ณ๐ฎ๐ฐ๐ฒ โ we posit that most peopleโs ability to predict how they will deal with the pressure of underperformance wonโt reflect reality when things get tough.
We talk about the distinct behavioural pressures facing clients, advisers and managers and what they might consider doing to make things easier. A couple of takeaways if you donโt have time to listen.
๐๐น๐ถ๐ฒ๐ป๐๐ - what is your real capacity for tolerating underperformance, how do you know this?
๐ ๐ฎ๐ป๐ฎ๐ด๐ฒ๐ฟ๐ - have a clear view of the timeframe your results should be judged over. Whilst this a tough problem, if you donโt have a view, one will be forced on you.
๐๐ฑ๐๐ถ๐๐ฒ๐ฟ๐ - is your role to be a behavioural bulwark and help clients through this period, or just keep them happy? They are not always the same thing.
More information on the Buxton Index is here: https://lnkd.in/eHXDfkfe -
The other F word
Thinking and talking about failure can be tough, especially when itโs us whoโs failing.ย But itโs important for us as individuals and investment teams to find a way to do this in an effective manner that allows us to both learn and evolve. In this episode of Decisions Nerdsโฆย
- Joe pits his inner Brian Blessed against an AI auto-editorย
- We examine Joeโs framework for thinking about errors around investment beliefs, processes and outcomes.
- We then think about this in the context of broader research that thinks about different typologies of errors; basic, complex and intelligent.ย
- We then discuss the practical steps that can make life easier.ย -
Christmas behaviour
We downed some eggnog and decided to record an impromptu Christmas special. We have a chat about how insights from behavioural science might help the festive holidays proceed more smoothly:
ย ๐ย Why Joe's team might think (in his own words) that heโs an โegotistical a*&holeโ.
๐งย A simple way to feel better about Christmas (but you might not like it).
๐ ย The nudges that retailers use to get us to buy.ย
๐ตย Gift cards or cash as a present โ to constrain or not to constrain?
๐คย Do New Yearโs resolutions get a bad rap and how can we can structure them to give a better chance of success?
๐ฟ Our favourite Christmas movie as a metaphor for decision-making and a gift that helps people understand their value to the world.
Wherever you are, however you celebrate (or donโt), we hope that you have get some high-quality time with family and friends over the festive period.ย
ย Weโll see you on the other side. -
Principled? Does power corrupt and absolute power corrupt absolutely?
Following the publication of a new book, 'The Fund', Ray Dalio and Bridgewater have been getting attention for all the wrong reasons. The book alleges a toxic culture where the reality of day-to-day life doesnโt match that described in Dalioโs book, โPrinciplesโ.ย
In this episode of Decision Nerds, we dive into the sludge and extract some key points that are relevant for organisations and teams. Key takeaways:
#๐ญ ๐๐ผ๐ปโ๐ ๐ฎ๐๐๐๐บ๐ฒ ๐๐ต๐ฎ๐ ๐๐ผ๐ฟ๐ธ๐ ๐ณ๐ผ๐ฟ ๐ผ๐๐ต๐ฒ๐ฟ๐ ๐๐ถ๐น๐น ๐๐ผ๐ฟ๐ธ ๐ณ๐ผ๐ฟ ๐๐ผ๐
Itโs tempting to look at something that appears to be working for someone else and try and replicate it. This is harder than we think โ especially when it involves culture.
#๐ฎ ๐๐ผ๐ ๐ณ๐ฒ๐ฒ๐ฑ๐ฏ๐ฎ๐ฐ๐ธ ๐ถ๐ ๐ฎ๐ฝ๐ฝ๐ฟ๐ผ๐ฎ๐ฐ๐ต๐ฒ๐ฑ ๐บ๐ฎ๐๐๐ฒ๐ฟ๐
We all need feedback to learn and develop - how it's given matters. Systems like 'Radical Transparency' may work for some people, but not all people. Probably not most people.ย
#๐ฏ ๐๐ฐ๐ฐ๐๐ฟ๐ฎ๐๐ฒ ๐ณ๐ฒ๐ฒ๐ฑ๐ฏ๐ฎ๐ฐ๐ธ ๐ถ๐ ๐ฝ๐ฟ๐ผ๐ฏ๐ฎ๐ฏ๐น๐ ๐บ๐ผ๐๐ ๐ถ๐บ๐ฝ๐ผ๐ฟ๐๐ฎ๐ป๐ ๐ณ๐ผ๐ฟ ๐น๐ฒ๐ฎ๐ฑ๐ฒ๐ฟ๐
We often focus feedback on helping junior colleagues learn. Of course that is valuable. However, leaders make key decisions and set the cultural tone and strategic direction. Their greater impact means that they need clear feedback on whether what they are doing is working/where they could develop.
#๐ฐ ๐ฃ๐ผ๐๐ฒ๐ฟ ๐ฎ๐๐๐บ๐บ๐ฒ๐๐ฟ๐ถ๐ฒ๐ ๐บ๐ฒ๐ฎ๐ป ๐๐ต๐ฎ๐ ๐น๐ฒ๐ฎ๐ฑ๐ฒ๐ฟ๐ ๐ผ๐ณ๐๐ฒ๐ป ๐ฑ๐ผ๐ป'๐ ๐ด๐ฒ๐ ๐๐ต๐ฒ ๐ณ๐ฒ๐ฒ๐ฑ๐ฏ๐ฎ๐ฐ๐ธ ๐๐ต๐ฒ๐ ๐ป๐ฒ๐ฒ๐ฑ
Almost every person giving feedback upwards will be making some conscious, or unconscious, calculation of career risk. Leaders need to recognise this. For some people this will be a positive (they donโt want that feedback). For others that do, they need to recognise that they still might not get it. You may need to go the (emotional) extra mile to convince people that you really want to hear about what you could do better.
#๐ฑ ๐ช๐ฒ ๐๐ต๐ผ๐๐น๐ฑ ๐ฑ๐ฒ๐๐ถ๐ด๐ป ๐ณ๐ผ๐ฟ ๐ต๐๐บ๐ฎ๐ป๐ ๐๐ถ๐๐ต ๐ฎ๐น๐น ๐ผ๐๐ฟ ๐ป๐ฒ๐ฒ๐ฑ๐ ๐ฎ๐ป๐ฑ ๐ณ๐น๐ฎ๐๐
For many of us, it can be a struggle to give and receive feedback, acknowledge weakness, mistakes, etc.ย We can try and design cultures such as Radical Transparency and recruit for people who can live with it, or try simpler approaches that reflect individual needs. ย
One simple tool is a feedback profile, which can be found here.ย -
Seeing the future
In this episode we discuss how we can make better forecasts with Professor Paul Goodwin.
We tackle everything from the techniques available, to human problems around understanding, bias and incentives. See the chapter headings for full details.
Notes
Philip Tetlock's book is Superforecasting: The Art and Science of Prediction
A paper that describes the key concepts can be found here.ย -
Regrette, je regrette beaucoup de choses
Does fear of getting things wrong stop you from making decisions?ย
If so, youโre not alone. Regret can have a profound impact on our choices.ย
In this short episode, we unpack the challenges, discuss some solutions and use the timely case of thematic investment funds as a case in point. We tackle:ย
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The psychological nature of regret โ why it can be useful, but also harmful.
How regret can impact the best and bright of us โ smarts and market knowledge are no defence.ย
How it can hurt our choices from FOMO to delayed decisions โ we discuss the case surrounding thematic funds.ย
Some simple tweaks that can reduce the fear of getting things wrong โ the value of processes, monitoring choices and justifiability.
How we can help other people help us โ self-knowledge and Joe and my challenges in this area, including Joeโs parentsโ day race travailsโฆ
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Customer Reviews
Brilliant and thought provoking
I love this provocative and โno holds barredโ look at corporate culture, decision making, and so much more. Great rapport between the co-hosts and lots of nuggets of wisdoms packed into every episode โฆ I often have to slow down the speed just to take it in!