One of the things that unites disparate groups of people in the investment industry is their ambition. Every active fund manager wants to win the game, or at least be on the podium. Another thing that most fund managers have in common is their ability to subvert their own ambition.
At some point in your career you might have articulated your ambition, consciously set your intention for what you aim to achieve. You might have said to yourself and your stakeholders something like, “I aim to achieve first quartile investment returns.”
However, this intention does not remain static even if market and competitor conditions are favourable. Your intention is subject to corrosive psychological processes that occur outside of your immediate awareness. I call these processes distortion and escalation.
The first process is where your original intention gets distorted into something subtly different. You might later say to yourself something like, “To deliver first quartile performance, I need to be right more often than not.” That doesn’t sound dramatically different to your original intention, and may even be accurate, but it is a slip that precedes the slide.
The second process is usually an unconscious one, an automatic update of your personal belief system that takes place without your knowledge or permission. In this process your distorted intention gets radically escalated to the point where it becomes an existential imperative. In this form it would sound something like, “If I am not right, then I am worthless.”
You now have two competing commitments, one conscious and the other unconscious. The reason that this is a portent of disaster is that, in this example, you have unconsciously committed to being right. If you have sufficient experience as a fund manager, you will know that generating outperformance and being right are by no means identical.
When your noise levels become elevated, as they might be during a volatile period in the markets, your unconscious commitment will overwhelm your conscious intention. Your unconscious commitment is deeply held because your very worth as a human being depends on it. Your existential imperative is far more muscular than your professional intention.
This has behavioural implications for you and your stakeholders. You will fight the markets when you should flee, or you will abstain when you should participate. Either way, your unconscious commitment to being right (or whatever the particular flavour of your unique existential imperative) is highly likely to result in the destruction of alpha, the exact opposite of your conscious intention.
While your unconscious commitment is dominant, the actions that you take will perplex you and they will disturb your stakeholders, because your actions will be dissonant with your stated intention. As a result, the elevated levels of noise that initially triggered the unconscious commitment will trigger additional sources of noise and all of it will become significantly amplified. These are perfect conditions for a systemic cascade and the end of a wonderful career. But, fortunately, this is a hedgeable risk.
Anything that is unconscious is, by definition, impossible to recognise in yourself by yourself. I have developed a dialectic framework to address this problem. This framework enables you and I, in the space of a 30-minute conversation, to bring to the surface an unconscious commitment, examine it, and consciously reframe it in such a way that it no longer subverts your conscious professional intention.
- What are your key conscious professional intentions?
- In what ways do you find that these intentions are being subverted?
- What might you do about this?