Fund managers appropriately pay attention to many stories on a variety of subjects: the valuation story for a stock, the growth story for an industry, the geopolitical story for a region. But few fund managers pay proper attention to the stories where they are the subject.
A common catalyst for stories about you is your investment performance, whether good or bad. These stories matter because they affect your relationship with the markets and with other people, both of which affect your future results.
The three most important storytelling groups are: your boss, the members of your investment team, and your firm’s existing and prospective clients. The stories that these three tell about you will have a material impact on your professional life.
Free will is located in the space between stimulus and reaction (Viktor Frankl, Man’s Search For Meaning). The greater the space, the greater your ability to function at an optimal level. A skillful boss will be acutely aware that her job is to help you manage that space in good times and in bad. Sadly though, the person whose job is to get the best out of you is likely to create conditions that are bad for you by shrinking the space when it is already contracting.
When your performance is going through a rough patch, the pressure on you will intensify and the space between stimulus and reaction will tighten up. You’d like your boss to absorb some of that pressure so that you can concentrate on generating alpha, but an unskilled boss will add to your pressure by expressing dissatisfaction with your performance and making threatening noises about your career prospects.
The story that she is telling herself and others is that if she exerts more pressure it will magically get you to turn things around. You will need to divert scarce resources to reassure your boss that you have things in hand when you really need her to be reassuring you that she has your back. Her unskillful storytelling changes your orientation from alpha generation to career survival. This change in orientation has consequences for your decision-making and future returns.
When your returns are good and your boss is pleased, she will tell a story about how you are gifted and valuable and she will give you special treatment and greater leeway. Your idiosyncrasies are tolerated and your ego gets inflated because, well, you’re special, right? This greater freedom is your new normal, it’s your right as the investment genius you now know yourself to be. This story is a more subtle way in which your boss shrinks the space between stimulus and reaction. The space must shrink to accommodate your inflating ego, which means that your ability to see, think and act constructively is shrinking too.
The members of your team, your ambitious fellow fund managers and analysts, are highly attuned to your relative performance and to shifts in your boss’s approval. When your boss’s story is that she is unhappy with your performance, your colleagues will smell blood and they will begin to circle for your position. Their story is that this is just how the world works, it’s dog-eat-dog, but it’s nothing personal.
To you, though, it is viscerally personal. Your survival depends on dealing with your rivals. You will need to apply significant energy to survive this political battle, while also taking care to not deeply cement enmity that can survive long after you have survived this particular threat. This additional drain on your attentional assets will in no way be supportive of your ability to produce decent investment returns.
By contrast, after a period of good returns your colleagues will begin to tell a story about your superior skills. They will defer to your apparently greater wisdom, which inflates your ego. You begin to treat your teammates as second-class citizens and your growing arrogance begins to alienate the very people upon whom you rely to help you deliver alpha. When your performance inevitably deteriorates and you really need their input and support, you’ll find yourself isolated and weakened.
Your clients’ storylines are as volatile as your relative performance. They originally allocated to your firm with a story that ran along the lines of good fund manager, good performance. When you begin to underperform the plot line changes to good fund manager going through a temporary bad patch. Then, when your clients’ unhappiness with your performance breaches a certain level, their story shifts again to bad manager, bad performance. This last story is usually accompanied by a redemption notice.
When you sense that your clients’ original allocation story has slipped a notch, you know that you need to invest time and energy to soothe their concerns and to change their story. If you don’t, and your performance doesn’t somehow turn around, your firm is going to be relieved of its duties. You will divert resources away from generating alpha at the very time that the opposite is required.
To soothe your clients you will need to tell a persuasive story by showing conviction about your portfolio positioning, which traps you into being more deeply wedded to your positions at a time when you need to be most flexible and fluid in your thinking. You might even be tempted to depart from your clients’ investment mandate and/or your investment process to make up for lost ground, which is likely to compound the problem.
On the other hand, when your returns have been good you gain the attention of prospective clients who want to hear you confirm their story of you. You spend more time being interviewed by those who want to feel a piece of the magic. This diverts your attention from generating alpha in your portfolios to gathering assets for the business and getting your ego stroked. The more you tell the story, the more compelling it becomes, which reduces the flexibility of your thinking and invites the next cycle of underformance.
- Who are the most powerful storytellers amongst your stakeholders? What makes them powerful?
- What stories might they be telling about you and your performance? How would you know?
- What might be the consequences that flow from those stories? How will you hedge the risks?