Practical analysis for investment professionals
13 May 2014

Skills That Separate You as an Investment Manager: Creativity

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.

Photo credit: ©iStockphoto.com/CSA-Archive

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: jason@jasonapollovoss.com

22 thoughts on “Skills That Separate You as an Investment Manager: Creativity”

  1. tom brakke says:

    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.]

    1. 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

  2. George says:

    What did he/she say when you asked ”What do you do that is creative?” Could help in framing an answer.

    1. 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

      1. George says:

        Wow!… Thanks Jason, I thought of using the same -real world- concept. Just wasn’t sure how.
        Thanks for the response.

        George

        1. 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

  3. Gordon Ross, CFA says:

    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.

    1. 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

      1. Gordon Ross, CFA says:

        Outstanding, Jason. I am very interested in your project and its possibilities.

  4. Fung says:

    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.

    1. Hello Fung,

      Thank you so much for your comments and for sharing your views on creativity and rationality. They have added to the discussion!

      With smiles,

      Jason

  5. Hi Jason,
    Interesting that the ‘winning answer’ should feature skiing and an analysis of the conditions being faced and how to tackle them. Being a skier myself I’ve experienced a similar situation numerous times myself and gone through a similar process. In fact so often that it now seems natural to do. I think it interesting to consider the degree to which familiarity with the subject matter can foster or perhaps hinder creativity. Whilst great progress has been made in recent years in terms of behavioural finance one could argue that in other areas we’ve lacked creativity and have been flogging similar data with the hope that it will provide us with new insight.
    I’ll let you meditate on that!
    Best wishes
    Richard

    1. Hi Richard,

      Thank you for sharing your experience; it sounds like you agree that the skier I hired could rightly be called creative. What may need highlighting is that it wasn’t necessarily his answering my question with a skiing example that got him hired, it was just that he understood how creativity informed his decision-making. Most people are clueless about how creativity is working hand in hand with intellect to solve problems.

      Definitely agree that finance flogs data – analysis paralysis – or one of the few examples charted by our profession of the left-brain’s limitations. We need much more such discourse.

      Thanks for the meditation suggestion!

      Hope the looooooong summer days in Norway treat you well!

      Jason

  6. Ben Fox says:

    Jason,

    Love this series of articles.

    As you’ve stated, creativity is about doing what no one else is doing. However, many funds (I’d estimate the vast majority) are rigid in their approach to the business. This “set in our ways” mentality permeates virtually every level of the typical organization: from the types of companies that a fund invests in to the research process (focusing on the same quantitative elements) to the kinds of people that work there. I agree that the reason most funds under-perform their benchmarks over time is precisely because of a lack of creativity.

    Despite this I’ve found that it’s difficult to win over others to a different way of thinking…even if such a change drove improved investment returns. I believe that alone should provide all of the necessary justification for “being different,” but human nature (and my experience with it) says otherwise.

    How can one overcome this resistance to change? To extend a metaphor: I would think that one would have to translate an idea, cultivated with one’s creativity, into a language that a portfolio manager can understand…and then, over time, earn a greater degree of freedom to execute the research process as one sees fit. But what if this approach isn’t feasible – say, if a good investment idea simply doesn’t fit neatly within the investment manager’s defined (rigid) boundaries?

    Thank you in advance for clarifying this issue. Looking forward to the discussion on intuition!

    Regards,
    Ben

    1. Hi Ben,

      Great questions!

      First, the series here is for investment managers and not for analysts, and some of the problems you highlight are the sorts of issues that analysts typically face. However, I know that some investment managers work with a team or are a part of an investment committee. In other words, I know that wasn’t the answer you were looking for me to provide : ) And I most certainly am not punting because I have some insights; or at least, I would like to think I have some insights.

      Second, one of my favorite analogies comes courtesy of the creator of Star Trek, Gene Roddenberry, who when he created writers’ guidelines for the series in the early 60s warned: “Only ever make your audience take one leap of faith per episode. Every audience is willing to make one leap of faith, but not more.” I think this is remarkably insightful for all of those who dare ask change of their audience. So one of the ways you can have your creative insights recognized is to slowly earn the trust of your audience. In your example I am guessing you were imagining your audience as the investment decision maker. Sometimes this can take years. It all depends on how far you are asking your audience to leap.

      Third, isn’t possible that the aspiring analyst with the enormous creativity and the underappreciated idea could use those powers of creativity to discover the right way of presenting her/his suite of creative ideas in such a way as to be heard, and in such a way to be convincing? Thought so.

      In each of my responses I am putting the burden for the creative message firmly on the shoulders of both the person with the creative idea, but also on the listener, too. In a previous response to Tom Brakke (and others) I stated that I thought most investment management firms are not particularly creative. So, yes, firms need to better recruit for creativity and then create a culture that allows creativity to flourish. Your questions above highlight some of the unimaginative and ossified practices of most investment management firms. Yet, the creative analyst does not get off so easily! It is not just enough to have the best idea. In my experience the best ideas must move through a natural cycle of: inspiration – imagination – thought – word – deed. Creativity is just one portion of this chain of moving an inspiration to reality. So analysts must absolutely be committed to their ideas becoming reality, and to mastering the art of the communication necessary to make it happen.

      If the above fails to persuade a recalcitrant and particularly tone-deap recipient then I would suggest that the creative analyst write down her/his ideas, including the date and time of the ideas, the price of the assets associated with the idea, and use this tangible document of one’s tangible ideas. This accumulated wisdom serves the analyst, but also the firm, if, in fact, that investment idea diary entries can demonstrate a creativity aptitude. If that doesn’t work I would suggest looking for a firm that appreciates your full suite of skills.

      Whew, and with smiles!

      Jason

  7. Emlyn Flint says:

    Hi Jason,
    Firstly, nice idea for a series of posts. I thoroughly enjoyed the first of the series. However, I found this post rather odd. While I agreed with your underlying sentiment regarding creativity and investing, I felt there was a juxtaposition between sentiment and actual content.

    Is creativity important in investing? Yes, if you want to be a star performer but perhaps not so much if you simply want to be above average (as one astute commenter with respect to passive index tracking and active return dispersion).

    Were the examples you gave truly indicative of creativity? Yes and no.
    Yes: I would say that your idea to focus on electricity rather than tech was a creative solution to the problem given that it was a novel means of changing the existing domain of tech investment.
    No: Making a decision to cross the road is only an exercise in creativity on your very first attempt as you are hypothesising ‘new’ relationships between your data inputs and the possible outputs and using these relationships to then solve a previously unencountered problem. Thereafter, crossing a road becomes an exercise in deductive logic, not creativity.
    Similarly, I would argue that your skier was actually not expressing creativity but simply good deductive reasoning skills; a point that Richard alluded to above.

    1. Hello Emlyn,

      Thank you very much for your comments and feedback. I consider all of your points reasonable. I am guessing that any differences in opinion would be resolved by an agreement on terms; specifically: what the heck is creativity? Agree on that and then there is likely little friction.

      Regarding your point about good deductive reasoning…I used to say, and still on occasion say, when being interviewed on the subject of investment management that it is exactly like detective work, equal parts analysis and creativity. If you were to invite 10 detectives to a crime scene, say a bank robbery, there is certainly something to be said for the skill level of fact gathering. But there are literally a billion points of data that could be relevant. But the detective that solves the crime is the one that can identify the pertinent facts out of the myriad number of them – I consider this to be a rendering of creativity – as well as, and more importantly, understands the story that the facts are telling her and who can reconstruct the theory of, or story of the crime. Creating a narrative around facts is a creative process. So, more directly, I think deductive reasoning is an example of the holistic marriage of analysis and creativity. My own opinion is that many people think of creativity as synonymous with the arts or with “what’s new.” When, to my mind, creativity is also about choices around connections, or permutations of knowledge. Another bias is that the developers of logical topology are, well, logical. If logical topology had been developed by Picasso or Dali I think we would think of reasoning as more creative than we normally grant it to be.

      From Wikipedia about deductive reasoning: “Deductive reasoning links premises with conclusions. If all premises are true, the terms are clear, and the rules of deductive logic are followed, then the conclusion reached is necessarily true.” Left out of the preceding is how the premises are chosen from amongst a nearly infinite set of possibilities? How do we assess whether terms are clear is also not addressed. One of the dangers of overly scientific, empirical thinking is that we generalize our world and overlook the uniqueness of each moment. Apply the same deductive logic over and over again and you miss every state change. So when to apply your reasoning, how to apply your reasoning, and why you are applying it in the first place are all left out of logical typing.

      Look for much more on this subject in a forthcoming product I have been working on for CFA Institute members for the past three years.

      With a big smile!

      Jason

      1. Emlyn Flint says:

        Thanks for the engaging response. As you say, no friction here on the sentiment or your article, I’m with you 100%. Well, let’s say 97%. I was just questioning the relationship between creativity, logic and reasoning. And you hit the nail exactly on the head: what the heck is creativity?

        Your follow-up explains your position brilliantly, so thank you very much for taking the time to put fingers to keyboard. To be honest, I had never thought of deductive reasoning from that viewpoint but it does strike a chord. I particularly liked your appraisal: “Another bias is that the developers of logical topology are, well, logical.” So dry.

        Emlyn

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