Finding the Right Talent

A long series of postings will unfold intermittently on this site over the next several months, focusing on what the world of work might look like in the investment industry going forward.  That’s an impossibly broad topic — with no discernable endpoint — so the goal is to explore the ideas in ways that help investment professionals and organizations consider the possibilities and weigh their options.

Where to start?  The list of potential subjects is broad and deep.  Certainly there are a couple of major forces to address.   The increased automation of tasks is likely to alter traditional industry roles — and the popularity of remote and hybrid work arrangements will challenge the norms of structuring organizations, with implications for culture, investment process, and a host of other concerns.

Talent

The first few postings in the series will focus on people, specifically on the goal of finding the right people to bring into an organization, using an excellent book — Talent, written by Tyler Cowen and Daniel Gross — as thematic glue.

One of the principles of this site is that good ideas from other disciplines should be examined, debated, and (if appropriate) applied within investment organizations.  That seems obvious, but such exploration is relatively rare; energy gets devoted to the “investment” part of the description, not the “organization” part.

Therefore, on any topic, the standard questions are:  Is there something about investment organizations in general that makes them different than other entities, so that a specific idea wouldn’t apply?  Why?  How can the idea be adapted to fit the circumstances in a given situation in order to further investment and organizational goals?

The authors of Talent encourage that kind of approach:

Always ask:  In which areas might this work?  Might this not work?  When does this work or not work?

Along that line, it’s worth noting that the book focuses on finding “talent with a creative spark.”  How that is interpreted — or whether it is truly valued — varies by organization.  But the concepts put forth are broadly applicable even if they aren’t directly aimed at investment organizations.

This posting will provide an overview of sorts, while subsequent ones will deal with narrower topics like the challenges and opportunities of “otherness,” the differences between virtual and in-person communication, and how the tactical aspects of interviewing highlighted by the authors apply to the craft of due diligence.

Identification and valuation

Some themes of the book:

~ The search for talent is both art and science.

~ The proper valuation of talent is critical to success.

~ Talent might be undervalued or overvalued by the market, perhaps in systematic ways.

~ Identifying and valuing talent in a changing environment requires ongoing improvements in process.

If you substitute “investments” for “talent” in each of those statements, you’ll see that the philosophy of the authors fits with the investment mindset.  Their goal is “to revise the bureaucratic approach to talent search,” in order to provide “a personal or organizational edge” in identifying and valuing talent.

There are valuable insights sprinkled throughout the book.  Early on, a group dinner discussion is described this way:  “Events like this, in which ideas are shotgunned out at a rapid pace, often provide a quick window into whether a person’s true interests lie in status or in ideas.”  Such an important distinction.

One factor that comes into play (not just at dinners but in other situations as well):

Most of us have a bias toward well-spoken and articulate storytellers.  But make sure you keep an awareness of this at the front of your mind, for it can cause you to hire glib but unsubstantial people and overlook rare creative talent.  Do not overestimate the importance of a person’s articulateness.

Being mindful of your biases is important; “don’t leap too quickly to conclusions about [a] person being ‘a weirdo’ . . . ‘weirdos’ may end up as some of your best performers.”  You want to be able to objectively judge people across various dimensions, and to recognize their abilities even when they are overlooked (and therefore misvalued) by others.

Intelligence

Invariably, if you ask someone about working in the investment world, they’ll talk about how smart everyone is.  Therefore, a chapter with the title “What is Intelligence Good For?” seems made to order.  The authors state their conclusion up front, that “intelligence is usually overrated, most of all by people who are smart.”

They cite Marc Andreessen, who agrees with that assessment and “argues that, all other factors equal, the more important qualities in a hire are drive, self-motivation, curiosity, and ethics.”  If intelligence is overrated, it’s also then overvalued.  Now add in some of that articulateness and you can see how the valuation of an individual can really get out of whack.

Analogies to the valuation of companies are appropriate.  There are “no extra gains to be had from investing by running after positive qualities but neglecting price.”  You are much better off discovering “hidden virtues.”  And should you be bidding against others, you may end up experiencing the “winner’s curse” of finding out you paid too much in your rush to capture that talent.

That is especially true when notions of intelligence are intertwined with observations of an investment track record (which is an inherently noisy measure of quality).  Intelligence is context dependent and so is performance.  If you hire someone into a new organizational environment, they may struggle to understand how to succeed within it.  Or they may encounter a much different market regime to navigate than they had before and find it difficult to adapt.  Faced with tougher circumstances, their results may suffer, and perceptions of their intelligence may decline along with them.

Personality

Also context dependent:  personality, even though most tests of it pronounce someone to be of a certain type.  While “often those claims are correct to some degree,” they miss the variability in the measured characteristics across different situations.

The authors use the common Five Factor model for illustration, and write that

if you’ve never heard of it or worked with it, it can teach you something, but at the same time, most of the practitioners who use it or cite it tend to significantly overrate its effectiveness and overlook its limitations.

It’s “marginally useful” to use that model, but you “should not obsess over” it.  Some investment firms swear by personality tests and others think they are garbage, but

there is another use of personality psychology:  namely, as a way of developing a common language so that you and your team can discuss and evaluate claims about personality.

The personalities of individuals matter in an organization.  The authors’ recommendation provides a sensible middle ground on which issues can be examined thoughtfully and with more depth than would result from a slavish adoption of a methodology or the rejection of all possible benefits of one.

In addition to the standard five factors (scales of neuroticism, extraversion, openness to experience, agreeableness, and conscientiousness), Cowen and Gross mention that “a tradition factor” comes into play in certain cultures, especially in Asia.  They also discuss other qualities, including stamina, self-improvement, dynamism, maturity, ambition, sturdiness, generativeness, and several more.

Another indicator is important for the investment realm — the number of conceptual frameworks that someone can reference and apply.  If they have a single model to which they always return, they are likely good at one kind of thing, limiting the roles that they will fit into and the environments in which they can excel.

Also:

When it comes to hiring, most of all you need a good match, not some supposed vision of candidate perfection.  So skill in spotting flaws in other people can lead to very positive matching outcomes, and that is another reason the dialectical perspective of seeing both the good and bad sides of talent is highly useful.

Your talent strategy

The book also gets into different ways of searching for talent, some of which are better suited to the world of entrepreneurs than the process that plays out for investment professionals, which is driven by biography and track record more than innovative ideas.

Nonetheless, every organization demonstrates a pattern of hiring over time, perhaps by design but maybe by happenstance.  Ideally, “your set of filters should be part of an integrated strategy”:

Whom are your filters bringing through the door?  And which strengths and drawbacks are those individuals likely to have?  Your talent search and interviewing techniques never start from a totally blank slate; they should start from an understanding of where your institution stands in the broader scheme of things, and what are the main problems you face when trying to attract talent.

Which brings us to issues to be unfurled as this series continues, including what kinds of jobs are to be filled — and what kinds of people will be needed to fill them — in the decades to come.  The challenge for those leading investment organizations is to create a “hive mind” (and desirable hive behaviors) that fosters an ability to compete at a high level, over time, in a complex adaptive system.  There are many pieces of the puzzle to be uncovered and put together.

 

All future postings in this series will be included in this index as they are published.