22 April, 2020
I stumbled upon Stanford University’s psychology professor, Dr Carol Dweck, who wrote the book “The growth mindset – changing the way to fulfil your potential.” Although the name initially sounded a bit mumbo-jumboesque, it provides useful insights on manager selection. The core idea of the book is to depict the two mindsets teachers’ et al. encounter: the fixed versus growth mindsets.
A fixed mindset is one that views talent, ability and intelligence as a fixed quantity. It defines one’s personality according to external judgement, encouraging fear of failure and judgement. A growth mindset on the other hand, is focused on learning and self-progress. Every challenge is seen as an opportunity to learn and as a way to progress in life. Someone with a growth mindset is cold-headed when successful and learns and improves with failures.
Asset and investment management exemplifies this concept quite well. The sector is focused on fixed mindset traits such as past track records, star managers and “good old tricks that have worked before”, other misleading heuristics (past experience as the antidote to any problem), and cognitive biases (anchor or self-confirmation biases). Here are some questions to ponder: Are the best managers those who seek to continuously improve and remain cold-headed when successful? Should due diligence focus more on these types of mindset traits?