Maggie Siff as Wendy Rhodes on Showtimes' Billions
Since Showtime’s new show Billions premiered, people have been asking me if I’ve watched it. They ask because there is a character, Wendy Rhodes, who serves as a trading psychologist / performance coach at a hedge fund. I get it. Years ago, every time my wife met anyone even remotely connected to finance she would come home and say something like, “he does what you do.” He could have been a stock broker or a bank teller, but because she didn’t really understand what I did for a living, or what he did, she lumped us together as “guys who deal with money for a living.” Of course, anyone who knows what it means to make markets, manage a portfolio or run a hedge fund understands what makes those roles distinct from that of a bank teller, and each other. The same goes for my job these days.
Well, curiosity finally got the better of me. I broke down and watched the first episode to see if there is any similarity between the role played by actress Maggie Siff and the one I play at Bija. Seventeen minutes in, we meet Dr. Rhodes in her office at Axe Capital. She is talking with a portfolio manager who is down 4% while everyone else at the firm is up double digits. Rhodes asks questions about his eating, sleeping and exercising patterns, as well as his sexual activity. She surmises that he doesn’t require medication. Instead, he simply needs to stop listening to the “wrong voice”. He’s listening to the one that keeps yelling at him, “you’re f^&@# stupid and your performance blows,” while ignoring the quiet voice inside “telling you where the alpha is.” She has him stand up and tell her how much he “took down last year.” “Seven point two million,” he responds. Rhodes then repeats it back to him while pounding her chest, “Seven point two million!” She asks what that says about him? “That I’m awesome!,” he responds. They then sit down for a heart to heart, where she tells him exactly what he needs to do when he gets back to his desk. “Cut bait on your losers. I want you to just commit, that you’re in it for the long haul, that you will succeed. Once you do that, the winners will present themselves, because you are a winner. Now get out there and do what needs to be done.”
To be honest, I had initially chalked this portrayal of the trading psychologist up to yet another mischaracterization by Hollywood. However, in searching the Internet for the character’s name to include in this Seeds, the first article that came up was one published by Fortune titled, Inside the Secretive World of Hedge Fund Psychiatrists and Performance Coaches. The writer had interviewed and quoted several of them in the article. I couldn’t believe what I was reading. “Performance coaches interviewed by Fortune say that Siff’s portrayal of the role isn’t too far off.” Isn’t too far off?
Let me be as clear as I can be. I found the scene, and several that followed, to be so absurd, so ridiculous, that I was immediately insulted that this character could possibly cause anyone to make a connection between us, and to what I do. (Thankfully, none of my clients have.) At the same time, I get it. Just as my wife used to lump together all of us “guys who deal with money for a living,” I can see how some might now lump me in with the trading psychology / performance coaching (TP/PC) crowd. I guess I bear some responsibility. After all, I did voluntarily choose to call what I do, “coaching.”
In this edition of Seeds, I’d like to explain what I do when working with PMs and CIOs, particularly as it relates to what TP/PC’s do. This isn’t a sales pitch, though. The distinction is important, because what lies at the heart of the difference between our approaches is what I see as the reason this industry perennially fails to generate returns reflective of the brain power dedicated to the task.
Performance Coaching vs Decision Architecture
Nearly everything we’ve come to take as gospel in the business of investment management is, by its very nature, reactive. Risk management, manager selection, asset allocation and so much more, are all deeply rooted in reactive decision making. Regardless of the disclaimer regulators make us add to our returns, most of what we do and think, is a function of past performance. It’s understandable that this would be the case, after all, it is how we are hard wired as a species. We are designed to maximize efficiency, which is another way of saying that we don’t like to expend energy or effort unless it’s absolutely necessary, both physically and mentally. As a result, we are designed to achieve and maintain a state of cognitive ease whenever possible. In this state, we don’t feel threatened or at risk, so we don’t have to mobilize the part of our brain that is in charge of thinking hard or deeply. Instead we can rely on our intuition and gut feel. It’s how we live the majority of our lives, and make the majority of our mistakes.
In doing so, we are attempting to avoid cognitive strain, and it turns out we are quite adept at it. We prefer to put out fires as they come up, rather than putting in the effort up front to reduce the odds that a fire will come about in the first place. We use mental shortcuts known as heuristics to help us avoid cognitive strain. Armed with scarcely more than a cursory glance, we will make broad assumptions about correlations and causation, develop narratives and leap to conclusions with little concern for evidence supporting any of it.
When a performance coach gives you a “Rah-Rah” speech to get your head back in the game, it will feel good in the moment and appeal to your intuition. After all, if you could just shake those negative feelings, then you will see things clearly again, right? Wrong. To prove it, you need only consider the premise from start to finish. Let’s assume you were at one point on a fantastic roll, experiencing tremendous success. In that moment, you were likely feeling extremely confident in your abilities as an alpha generator. If all that is required to generate positive returns, to “see things clearly”, is confidence and having your head on straight, then how could you have gotten from there to a place that requires a coach to remind you of how great you are? In other words, once you’re successful and confident it will breed more success and confidence, indeed resulting in a never ending cycle of success and confidence. Therefore, if the TP/PC’s approach is valid, you will never require their assistance. In actual fact, their approach, like most in this industry, is reactive. It is about putting out fires. Clients seek immediate relief from what ails them and the TP/PC’s approach is designed to deliver it.
Technically speaking, I am not a trading psychologist or a performance coach. I am a decision architect. Decision Theory is the science behind decision making. Interestingly, it is primarily broken into two separate and distinct disciplines. One studies how we should make decisions (normative) while the other focuses on explaining how we actually make them (descriptive). As a decision architect, my job is to close the gap between how my clients should make decisions, and how they actually do. The field is known as “prescriptive” decision theory. Behavioral psychology plays a significant role in helping us understand why we tend to deviate and when we are most likely to do so. It allows us to recognize what makes us vulnerable to mistakes. A TP/PC believes that by simply being aware of your mistakes and/or being aware of what you should do, you will do it. In other words, if they can get you to “snap out of it”, you’ll do what needs to be done. That approach ignores the decades of research produced by cognitive scientists which has gone a long way to explaining why smart people make poor decisions. Trading psychology / performance coaching pretends that we don’t have flaws, that there aren’t moments when even the most disciplined among us will be undisciplined, and that even the smartest, most highly educated people can’t behave irrationally given the right circumstances. Decision architecture does not. My job is to recognize an individual’s vulnerabilities, to identify those moments when the mistakes are most likely to occur, and devise a process which reduces the probability that they will. It is about shifting from a reactive, belief based decision making process to one that is proactive and evidence based. Rather than propping up my client’s egos, we develop an approach that reduces the likelihood that Rah-Rah speeches will ever be necessary.
"While everyone else is scrambling to answer who, what, where and when, Duneier is focused on explaining the 'why'."
For nearly thirty years, Stephen Duneier has applied cognitive science to investment and business management. The result has been the turnaround of numerous institutional trading businesses, career best returns for experienced portfolio managers who have adopted his methods, the development of a $1.25 billion dollar hedge fund and 20.3% average annualized returns as a global macro portfolio manager.
Mr. Duneier teaches graduate courses on Decision Analysis in the College of Engineering, as well as Behavioral Investing, at the University of California. His new book, AlphaBrain, is due to be published in early 2017 (Wiley & Sons).
Through Bija Advisors' coaching, workshops and publications, he helps the world's most successful and experienced investment managers improve performance by applying proven, proprietary decision-making methods to their own processes.
Stephen Duneier was formerly Global Head of Currency Option Trading at Bank of America, Managing Director in charge of Emerging Markets at AIG International and founding partner of award winning hedge funds, Grant Capital Partners and Bija Capital Management. As a speaker, Stephen has delivered informative and inspirational talks to audiences around the world for more than 20 years on topics including global macro economic themes, how cognitive science can improve performance and the keys to living a more deliberate life. Each is delivered via highly entertaining stories that inevitably lead to further conversation, and ultimately, better results.
His artwork has been featured in international publications and on television programs around the world, is represented by the renowned gallery, Sullivan Goss and earned him more than 60,000 followers across social media. As Commissioner of the League of Professional Educators, Duneier is using cognitive science to alter the landscape of American K-12 education. He received his master's degree in finance and economics from New York University's Stern School of Business.
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