Having hired research analyst interns, research analysts, a portfolio manager, and even my own successor when I retired from investment management in 2005, I have gained a fair amount of knowledge about which skills separate you as an investment manager. As such I've been writing a series on the skills — aside from the obvious (e.g., a love of economics, drive, confidence, etc.) — that help you stand out from the pack. Last month I wrote about introspection. Now try adding this one to your arsenal: creativity.
Creativity
One of the questions I used to ask aspiring investor candidates was, “What do you do that is creative?” In all of my years of asking this question I only ever got two coherent answers. One was so superior that I insisted on hiring the candidate on the spot.
Why is the answer to this question so important? There are two reasons. First, it measures whether or not you know how your mind works, and two, it reveals whether or not you are conscious about using your entire mind to think, and consequently, solve problems.
In reality, every time we cross the street we are taking in lots of data about the situation and inventing an on-the-spot solution to the various factors at play: icy road, fast-moving traffic, number of lanes to cross, your health, and so forth. The solution is a creative solution. So in reality, people are using their creativity all the time to solve problems, but most have zero awareness of how they think.
Many people who are conscious of creativity as a part of their mental framework still blow it because they have made an archetype of creativity. What do I mean by that? Creative things are drawing, painting, sculpting, or playing music. But a true creative practice is just being aware that you are creative and doing things to cultivate that part of your mental apparatus.
Remedy
Gaining creativity has two major accelerants. First, constantly be aware of your and your firm’s boundaries. Creativity is about pushing past boundaries into new territory; doing what no one else is doing. If you do what you have always done then you will get what you have always gotten. Second, creativity is about awareness. So the remedy here is: you guessed it, meditation and to challenge orthodoxy by taking mental leaps of faith.
Application
Creativity is such a generalized skill that it can be deployed in almost any situation. However, the most obvious application is in generating new investment ideas. After all, by definition, to outperform your investment management competition you must be doing something that they are not doing. Again, by definition, creativity is the skill that helps you to identify what no one else is doing.
In my investment management career, I developed an important thesis early on: a sneaky way to inexpensively own the technology boom. Via my creativity practice, I recognized technology was both a breadth and depth story. That is, more and more people globally would be buying technological gadgets, and also that more and more gadgets were beneficiaries of new technology (think: refrigerators, toothbrushes, and so forth).
Unfortunately, it was almost impossible to buy the technology leaders at discounted prices. But what I recognized through my creativity was that all of these devices required electricity, and that electricity was also therefore a depth and breadth story. This led me to look for a global power company so I could capture the upside benefits of technological growth but experience the growth through a very stable, established business. My creativity led me to purchase shares in AES Corporation (AES) — a decision that was among the best I made as an investment manager.
Next month I'll discuss another key, but often-overlooked skill in the investment industry: intuition.
Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.
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19 Comments
As Jason wrote, "the most obvious application is in generating new investment ideas." In many investment organizations, that is pretty much the only way that creativity is defined.
That sets up an interesting dichotomy, where investment professionals think of themselves as creative (and organizations like Focus Consulting say that's one of the strongest skills of good analysts and portfolio managers), but that creativity tends to be one-dimensional, limited to producing investment ideas.
Obviously, that's extremely important, but it isn't all that investment organizations need. There should be a focus on improving methods and being more creative when it comes to organizational design. Because those things are viewed as much less important than picking investments (or not considered at all), organizations tend to be remarkably un-creative in many respects and almost proud of it.
Good organizations foster both.
[In the last few months, I have given presentations at a number of CFA societies, "Creativity in the Investment Process," that focus on these issues. Jason identifies the need for personal creativity to be successful in the business; organizations need to take that message to heart as well.]
Hi Tom,
Thanks, as always for your wise comments. Yes, I am in complete agreement.
Creativity and intuition (see next month's column) are the hidden, almost completely unappreciated aspects of investment management. Firms DO, in fact, pride themselves on a lack of creativity and humanity. It is as if they have taken Descartes' view of the world as an intricate machine for science to unravel as the actual state of the world. Consequently, they have attempted to remove every shred of humanity from the process in fear that the irrational will break the machine.
These stories always seem to end the same way: after disaster there is a revisiting of the initial flawed assumption that the world is an intricate machine. And a realization that machines are a poor proxy for the real world. After all, the greater the degree of free will in a system the greater the degree of uncertainty.
With smiles,
Jason
What did he/she say when you asked ''What do you do that is creative?'' Could help in framing an answer.
Hi George,
Thank you for asking. One of the two answers to the question I got was not so good, but at least it was an attempt. This candidate to succeed me as co-portfolio manager of the Davis Appreciation and Income Fund said he had played guitar when he was in high school. To me that is confusing form with substance. That is, playing instruments (like drawing, painting, and other arts) is considered by most to be a creative activity (form), ergo if you play guitar you must be creative. Yet, the substance of the question is: Do people understand their own minds and that the creative function is active for all people? Further, with this awareness do people actively try and tap their creativity?
So the winning answer (Hello MS!) was something along the lines of: "Well I'm not exactly sure what you mean by your question because creativity is always operating and a capacity within the mind. But I think I know what you are after. I came to Santa Fe [where I worked] yesterday and wanted to check out the city, and in particular, the skiing available here. I looked at the newspaper to see that the night before it was freezing on top of the mountain, but had been very warm earlier in the day. So I knew that the mountain would be icy. When I went to go rent my skis and gear I adjusted for the conditions, including how I waxed my skis. I also knew it was early in the morning and that the light would be a challenge on a course I did not know much about. I also had to make it down the mountain safely in order to make it here for my interview this afternoon. I like to ski aggressively, but had to adjust for all of these variables. I then decided how to tackle the mountain."
This is a perfect example of how creativity is used to solve a real world problem and the constraints handed to us. This candidate (Hello MS!) absolutely understood how his mind worked and how creativity helped him to solve problems. This task, how to ski that morning, is a near perfect match for the portfolio management problem. That is, you are given constraints, you have goals for fun (returns) and safety (risks), data about conditions, and then you make a decision under uncertainty with all of these working in conjunction. This is evidence of genius at work.
With smiles,
Jason
Wow!... Thanks Jason, I thought of using the same -real world- concept. Just wasn't sure how.
Thanks for the response.
George
Hi George,
I am glad that was helpful. Creativity is a function of consciousness but most people have very little appreciation it.
With smiles,
Jason
Albert Szent-Gyorgyi (Nobel Prize, Medicine, 1937) might have described creativity as “seeing what everyone else has seen, and thinking what no one else has thought”.
The skier’s answer to your interview question, Jason, illustrated “seeing what everyone else can see and using full awareness to achieve the objective”. As you say, this is analogous to our responsibility as investment managers to be mindful of all possibly relevant influences on ourselves, and the investment objective, while crafting and managing a solution to an organic problem with a life of its own.
If we never cross the boundary of what others have done, we are like the monks before the printing press who spent their lives copying old texts by hand. This is no longer a highly paid activity.
Hello Gordon,
Thank you for sharing your thoughts on creativity. I have been working on a large project for CFA Institute members about how to increase creativity and there is much overlap with your short description above, especially with regard to boundaries. So naturally I am in complete agreement with your thoughts and insights.
I will add to your descriptions a form of creativity which is a stepped down intellectualization of intuitive insights. In other words, those ideas coming from just beyond the grasp, of not just the individual, but of culture itself.
With smiles,
Jason
Outstanding, Jason. I am very interested in your project and its possibilities.
Great read and agreed totally!
The capitalist system -- be it modern or classic -- is about (1) producing better products (2) at lower costs. Both require creativities.
People always think that only businesses like Apple, Amazon, Google or Disney needed creativities to grow, but that's not the case. Creativity is equally important in investment business, especially when the objective is about outperforming the average guy. I have never heard of any investment managers who can consistently beat the market with little or no creativity. However, ironically, being uncreative in investment management -- like buying the index -- is not necessary a bad thing as majority of the funds have consistently underperformed the index. Being CREATIVE is not a simple process, it has to be packaged together with RATIONALITY.
Look forward to your next month's article.