I categorise the inclinations and behaviours of individuals and teams in the asset-management industry into three distinct modes. Each of these modes is a function of a different type of intelligence. 

  • Connective Mode. This mode takes account of your inclination towards relationship. It is a function of your feeling-intelligence.
  • Reflective Mode. This mode takes account of your inclination towards analysis, a function of your thinking-intelligence.
  • Directive Mode. This mode of functioning takes account of your inclination towards action, a function of your doing-intelligence.

If you or your team experience recurring difficulties, you can use my Mode Framework to diagnose the origin of those difficulties and take corrective action. Usually, recurring difficulties arise from three sources.

  • Access. You’re unable to access a mode other than your default mode.
  • Situation. You unknowingly engage the wrong mode for the situation that you face. 
  • Conditions. Adverse conditions trigger the destructive aspect of the mode you’ve engaged.

Access

Each of the three modes is associated with a specific virtue (see below). Ideally you should have access to all three modes, in which case you can access any of the three virtues at the appropriate time. However, if you have access to only one of the three modes, the three latent virtues manifest as a single vice.

The virtue and vice associated with each mode is as follows:

  • Connective Mode. The virtue associated with Connective Mode is compassion, as long as you have access to the other two modes as well. If not, the vice associated with this mode is mere emotionalism.
  • Reflective Mode. The virtue associated with this Reflective Mode is wisdom, as long as you have access to the other two modes as well. If not, the vice associated with this mode is mere cynicism.
  • Directive Mode. The virtue associated with Directive Mode is courage, as long as you have access to the other two modes as well. If not, the vice associated with this mode is mere recklessness.

The most evolved human beings (think: Nelson Mandela or Desmond Tutu) are able to access all three virtues. They are able to be compassionate and wise and courageous as the situation demands. Lesser individuals and dysfunctional teams are ensnared by their single vice: they are over-emotional or cynical or reckless, whatever the situation.

Situation

While none of the three modes is inherently superior to the others, each mode is superior for a particular interpersonal situation or for a particular section of an investment process.

Your intention for the situation that you face will suggest which mode is best: 

  • Connective Mode for exploration of new territory, for deep collaboration and idea generation.
  • Reflective Mode for examination of the explored territory, for rational analysis and insightful debate.
  • Directive Mode for execution in the examined territory, for decisive conclusion and constructive action.

If you’re in a suboptimal mode for the work that you’re doing, you will experience difficulty. By way of example, if your default inclination is to action, you will tend to make use of your doing-intelligence irrespective of the situation that you’re in. 

So if you use your doing-intelligence while the task at hand is, say, to conduct deep research on a company, you’ll tend to take premature action. You’re likely to pull the trigger before you’ve properly aimed. This will destroy alpha.

You might even execute very well, but you will do so from an insufficiently examined opportunity set. Better to have consciously engaged Reflective Mode while doing the research, rather than running on autopilot in your favoured Directive Mode. Directive Mode is the one you want to engage only once you’ve completed your research and you want to execute the trade. Your choice of mode does matter.

Conditions

Another thing that matters is whether the conditions in which you’re operating are favourable or adverse. Unlike standard personality typing, the Mode Framework recognises that you function differently in different domains under different conditions, and those differences make a difference to what you achieve. 

Under favourable conditions (low noise) the constructive aspect of each mode is operative. Conversely, under adverse conditions (high noise) the destructive aspect of each mode comes into play. 

  • Directive Mode. 
    • People Domain. If you need to get something done in an interpersonal situation while the conditions are favourable, you can come across as constructively assertive. But if the noise levels increase, you can become destructively hostile in that same situation.
    • Market Domain. If you need to get something done in an investment situation while the conditions are favourable, you can be constructively decisive. But if the noise levels increase, you can become destructively dogmatic.
  • Reflective Mode. 
    • People Domain. Under favourable conditions you can be constructively deliberate in your interpersonal dealings, but adverse conditions can force you into being unconstructively detached from others.
    • Market Domain. Under favourable conditions you can be constructively analytical in your approach to investment matters, but adverse conditions can force you into being unconstructively inert in relation to markets.
  • Connective Mode. 
    • People Domain. While the noise levels are low, you can come across as being constructively humble. But if noise levels become elevated, the constructive aspect of this mode can degrade to the point where you can become unconstructively submissive to others.
    • Market Domain. When the noise levels are low, you can be constructively flexible. But if noise levels become elevated, the constructive aspect can degrade to the point where your investment behaviour can become destructively erratic.

Even if you have access to all three modes, and even if you’ve selected the most constructive mode for the situation, the presence of noise will toxify and degrade the constructive aspect of each mode to the point where it becomes destructive to your professional relationships and your investment process. And, as an intensifier, the selection of a suboptimal mode will itself give rise to noise.

Human behaviour can be difficult to understand. This Mode Framework simplifies matters and helps you to better understand yourself and those around you. With better understanding comes better management of yourself and others, which produces better results.

Reflections

  • What is your default inclination: action, analysis, or relationship? 
  • What are the consequences of this default?
  • What might you begin to do differently? How might that happen?

References

Justin Newdigate: Noise (2019)