Diversity in investment teams is a good thing. It’s an important way to address historic and current social inequities such as racism, sexism, and ageism. Viewed this way, the members of your team should look different to one another.
There is an additional thing to be considered: whether the members of your team see differently from one another. This is an important way to address the always pressing problem of producing superior investment performance.
How you look and how you see may overlap but they are by no means identical.
A high-functioning investment team is great at three things:
- Generating fresh, non-consensus ideas
- Vigorously debating viable ideas
- Decisively implementing the best ideas.
That’s not going to happen to the degree that you need if the members of your team see the world in the same way. It can’t. Ideas will be tired and debate will be tepid. Not a winning formula.
So what might be getting in the way? Well, encountering a wide variety of worldviews implies a high degree of friction and discomfort. Multiplicity of worldview will generate unwelcome surprise, aggravating disagreement, and frustrating contrariness. This is the opposite of what most people want, even if they won’t say so aloud. They actually want ease and certainty.
Virtually every active fund manager will say that they seek non-consensus ideas and welcome vigorous debate. A significant percentage of that group is not telling the whole truth, even to themselves. Their egos are deeply allergic to challenge and their tolerance of discomfort is narrower than they fondly imagine. One manifestation of this is that, sometimes quite unconsciously, they encourage views that conform with their own. They seek to have others cement their existing certainties. This elaborate and costly way of avoiding discomfort is measured in lost alpha.
You already know that alpha does not roam freely in the same leafy neighbourhood as ease and certainty. It’s really hard to find and capture alpha. Maybe the hardest part is having to tolerate the discomfort that is inherent in the pursuit. No discomfort, no alpha (and its corollary: no alpha, heaps of discomfort).
You can choose to be intentional about the flavour of your discomfort. You can choose to actively seek out worldviews that are different from yours. You can hire people for your team who see the world differently. You can actively encourage the members of your team to see the world in new and different ways.
If you’ve got five people in your team who all see the world in the same way, then it’s possible that you’ve got four too many people in your team. Or maybe you’ve got five people who could collectively deliver superior performance if they developed the ability to see in new and different ways.
- How do the different members of your team see the world? How do you know?
- What does that mean for your pursuit of alpha?
- How might you create a deeper multiplicity of worldview in your team?