The previous posting kicked off two series — one devoted to the book Talent by Tyler Cowen and Daniel Gross, and the other (which will grow to be quite extensive over the coming months) about the new world of work in the investment business.
A key theme in the book is that talent is often improperly valued, providing opportunities for those who can get past structural barriers and behavioral biases to see the possibilities.
Human differences
A short opening section of one chapter uses Greta Thunberg as an example to
reveal important lessons about how people with “disabilities” can be startlingly effective not because they “overcame” their disability but because of it.
Thunberg describes herself as having Asperger’s syndrome, which she has in common with some notable investors. Michael Burry, one of the key figures in The Big Short, said, “Only someone who has Asperger’s would read a subprime-mortgage-bond prospectus.” Then there are the two most famous fixed income portfolio managers. Jeffrey Gundlach claimed to be “obsessively regimented in my analysis, borderline autistic,” and Bill Gross believes his Asperger’s diagnosis “helps explain not only why he was such a successful investor for so long but also why he could, by his own admission, rub people the wrong way.”
That dichotomy is what gives people pause and what leads to those misvaluations. Yet:
To the extent that autistic and Asperger’s individuals remain outside of the usual loops of social pressure and mimetic desire, they may retain strong capacities for original, non-conformist thought.
The authors provide context for the use of the word “disability,” including a “possible” definition: “human differences in range and/or abilities, which are currently judged to impair essential aspects of functioning, regardless of actual outcomes or achievements.”
What is often missed:
Many individuals respond to that initial deficiency by investing more in acquiring other, different skills. Disability is thus a potential marker for skill specialization, and skill specialization can be a very potent advantage, most of all in a world that is rapidly becoming more complex.
Common misconceptions about different conditions abound, so education is the first step in preparation for interviewing people who are (or are perceived to be) out of the norm — and for creating a work environment where they can thrive. The book uses those on the autism spectrum to examine the competitive advantages (even “superpowers”) that they can bring to an organization, as well as the potential challenges. With that kind of balanced understanding, you can evaluate a range of possibilities, including the use of remote work options that might better fit the needs of an employee.
The authors’ bottom line on this topic also sets up the ones to come:
At the very least, please consider and internalize the general lesson that you should not let stereotypes dominate your thinking.
Gender
As other professions have become more balanced between men and women over the last few decades, decision making roles in the investment world have remained dominated by men. That’s true even though the evidence from study after study is that women in general produce better risk-adjusted returns.
The italics above were used because while there are differences across genders in various attributes, the authors stress that looking past those to the qualities of specific individuals is key, since there are situations where “the returns on talent spotting are going to be high, because other people are too attached to their statistical discrimination.”
If you look at the scores for the Five Factor personality model, there are different ranges by gender — from their scores, “whether a person is male or female can be forecast with about 85 percent accuracy.” And the evidence shows that personality traits matter more in the evaluation of women than men. That leads the authors to conclude that “the talent search for women is more difficult or requires a subtler set of skills,” so that “you can take advantage of other people’s prescriptive stereotypes.”
Among the tendencies to be aware of: people have a harder time being criticized by a woman; female voices more often cause negative reactions; and women are “asked to walk an almost impossible middle line in the workplace,” where they “are supposed to be tough but not too tough, firm but not obnoxious, like men but not too much like men.”
In general, women have different communication styles and lower self-confidence than men. “Yet labor markets often reward confidence, sometimes even excess confidence.” (That’s something rather noticeable among investment folks, and the authors cite “evidence from economics . . . that the gender confidence gap comes mainly from male economists making proclamations about areas they don’t know much about.”)
Notably, men aren’t very good at reading and understanding different personality styles — or judging the intelligence of women — and “many talent-spotting mechanisms are more geared toward males, [so] it is easier for super-talented women to go unselected.”
It is, at this late date, still easy to find investment firms at which women appear only at the margins (just as was the situation seven years ago when this essay was written); whatever the reason for the narrow pool of talent, it is likely to hurt those organizations over time. Cowen and Gross:
It is better for everyone — yourself included — if you side with an emancipatory perspective that improvement is possible and you can be an agent of change. This holds even if you harbor very strong conservative views about the intrinsic differences between the sexes.
Race
Misperceptions and poor valuations come into play regarding differences in race too, which can be even trickier:
Our first piece of advice — and we mean this for individuals of all races — is not to pretend that you understand race as an issue very well. Don’t approach the problem, and the issue of bias, with some pet theory about how the world works with respect to race, because the diversity of racial issues, problems, and biases likely will defeat your schema. Mostly, as an outsider, you want to shed many of your preconceptions, whether explicit or implicit ones, and open yourself up to the talent possibilities in minority communities, particularly communities you may have no connection to personally.
Again, the authors recommend learning above all else, putting yourself in new environments and exposing yourself to content that is foreign to you. There are knowledge gaps to be closed (or at least narrowed) before you can begin to value the talent available with an objective perspective.
Consider how the lack of familiarity can play out in the search process:
To the extent there is a cultural gap between whites and blacks (or other groups) in an interview setting, it is a common strategic response — on both sides — to take fewer chances. To be less natural. To tell fewer jokes. To reveal less about one’s personal life. And so on. It is thus harder to move into the highly productive conversational mode [discussed earlier in the book]. The end result is that you — even if you have no prejudices in the narrow sense of the term — are less likely to see the true talent strengths of the people you are talking to.
Similar dynamics might affect another talent-selection endeavor. Many minority-owned investment firms and funds have trouble raising assets, even when their results are good (and even though some consultants and asset owners have programs designed to foster them).
Otherness
No doubt there are additional dimensions of otherness that could fit into this paradigm. Early in the book, the authors reflect on the past fifty years:
Prejudices were — and still are — distorting many of our talent allocation decisions.
We struggle to value otherness, in the hiring process and in the operation of our organizations. As with the investment process, identifying talent and properly valuing it necessarily depends on the ability to get past traditional methods and deep-seated biases.
Published: July 20, 2022
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