Superstars 4 April 2017 JASON A. . VOSS, , CFA Bio iography Ret - - PowerPoint PPT Presentation

Creativity for Investment Superstars

Jas Jason A. Voss, CFA

Content Director, CFA Institute

CFA FA Soc Society Vic Victoria

4 April 2017

JASON A. . VOSS, , CFA

Bio iography

Ret etir ired co co-portf rtfoli lio manager of f th the e Davis vis Appre recia iati tion & In Inco come Fund Fund d bes ested th the e S&P 500 by 49.1 .1% over ver my te tenure Fund was one of Morningstar’s first ten funds to receive its Stewardship Grade “A” Auth thor r of f a hed edge fu fund co communit ity fa favo vorite te book, , The e In Intu tuit itiv ive In Inves vesto tor Given hundreds of interviews to the likes of: WSJ, Barron’s, Smart Money, Business Insider, BBC, BBC’s Toda day Prog rogramme, , Marke rketp tpla lace Morni rning Rep eport, t, et et.a .al. l. Conte tent t Dire irecto tor at t CFA In Insti titu tute Lead researcher and author for CFA Institute’s In Inves vestm tment t Ide Idea Gen enerati tion Guid ide – an in industry fi firs rst book book Oth ther er res research in inte terests: lie ie de dete tecti tion, fro fronti tiers of f beh ehavio ioral l fi finance, how to to bea eat t th the e marke rket

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JASON A. VOSS, CFA

Opening Comments We have arri rrived at t an un unparalle lele led tim time in in human history with regard to intelligence…

Artif rtific icial l in inte tell lligence Natu tura ral l in inte tell lligence

My y point? There re is is more re th than en enough hope!

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CREATIVITY FOR IN INVESTMENT SUPERSTARS OVERVIEW

Knowle ledge

Including…What creativity is and is not; the neuroscience of creativity; nec ecessary co condi diti tions; ty types es of f cre creati tivit ity and d how to to acc ccess th them em; ; an alte ternate il illu lustr trati tion; over verview of f cre creati tive prob roblem solvi ving

Appli lications

Including…A new way to read the news; skills inventory; mind mappin ing; ; do doin ing what t reju rejuvenates you; ; men enta tal l mode del l in inve vento tory

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WHAT CREATIVITY IS… …AND IS NOT

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WHAT CREATIV IVIT ITY IS IS

Defined It It is is th the abili lity to to pro roduce work rk th that is is novel l (th (that t is is, ,

• rig

riginal, l, unexpected), hig igh in in quali lity, and appropri riate (th (that is is, us useful, l, meets ts ta task co constra raints).

Grou rounded in in eve everyday men enta tal l proc rocesses – it it is is not t th the e ex exclusive purvi rview of f a gif ifte ted fe few It It res responds to to proc rocess

Note th the sim imila lari rity of f th this def efinition to to th that of f α

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WHAT CREATIV IVIT ITY IS IS

Im Important t to to In Investment t Managers fo for r Several l Reasons In Individual l lev evel: l: solv lving pro roble lems on th the jo job Economic level: l: leads to to new ew sci cientific fin findings and new ew in inventions Context t lev evel: l: th this is is th the skill ll th that t allo lows yo you to to sca cale le yo your co consciousness to to th the pro roblem at t hand

Example le: What t is is th the e righ right t sca cale le to to watc tch a fo footb tball ll game/matc tch?

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WHAT CREATIVITY IS IS NOT

Not th the ex exclu lusive purv rview of f th the gif ifted fe

• few. Cre

reativity re responds to to pro

• rocess. REPEAT!

Not left-bra rain vs

• vs. rig

right-brain. This is is definitively shown to to be a fa fals lse des escription and is is tru true only ly in in schizophrenics. Not pure re analy lysis. Not bra

• rainstorming. Quickly

ly: Why bra rainstorming sucks.

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FROM A NEUROSCIENCE PERSPECTIVE

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FROM A NEUROSCIE IENCE PERSPECTIVE

Two Types of f Neura ral l Sys ystems Each ex extra racts a dif iffere rent t kin ind of f in information fro from th the en environment

Emoti tional l syste tem – see eems de designed to to att ttach ch a va value ta tag to to sen ensory in info form rmati tion Cognit itive system em – dev evoid of f salient in info form rmation; see eems des esigned to to co conduct t fe featu ture analysis

Both sys ystems are re us used to to co constru ruct t sophisticated re repre resentations of f th the en environment t th that t ser erve as th the basis fo for r co cognitive assessment Both sys ystems also opera rate in in tw two modes: deli libera rate and spontaneous

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NECESSARY CONDITIONS FOR CREATIVITY

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NECESSARY CONDIT ITIO IONS FOR CREATIV IVIT ITY

Work rking Mem emory ry Bandwidth This is is th the ability to to pro rocess in inform rmation co consciously. Defined: A monitoring sys ystem of f ongoing ev events ts th that keeps re rele levant in information to to a sit ituation in in min ind so th that t yo you ca can work rk wit ith it. it. It It is is lim imited in in ca capacity, both in in sto tora rage and in in pro rocessing. Bec ecause it it is is work rking mem emory ry th that allo lows fo for r men ental l pro rocessing in in re real-time, it it is is a pre re-requisite fo for r co cognitive fl flexibili lity, abstract th thinking, stra trategic pla lanning, access to to long-term mem emory ry, sen entience, and hen ence, cr creativity.

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NECESSARY CONDIT ITIO IONS FOR CREATIV IVIT ITY

Sustained Atte ttention For r all l cr creati tivity pro roble lems yo you mus ust t be e able le to to co contro rol l yo your min

• ind. There are

re tw two nec ecessary ry skills lls:

Met etaco cogniti tion – Awaren reness of f aware reness it itself lf Top-Down Contro trol l – Choosin ing what t you th thin ink and d when en you th thin ink it it

Hin int: Do what t rej rejuvenates yo you

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NECESSARY CONDIT ITIO IONS FOR CREATIV IVIT ITY

Cognitive Fle lexibili lity You mus ust be able le to to adjust t yo your r degre ree of f men ental co contro rol. l. Can yo you ch choose to to be both deli eliberate and spontaneous?

Most t of f us have ve spen ent t our r yea ears rs of f ed educati tion on cre creati ting de deli liberate co contro trol l unti til th the e min ind d is is ex exhauste ted, , th then en co contro trol l is is lost. t. Sympto toms: Min ind d wande dering; in inabil ility ty to to be e fo focu cused; a fe feelin ing th that t th ther ere is is not t en enough ti time e in in th the e da day

Can yo you co contro rol when yo you are re spontaneous? That is is, do yo you know how to to let et go? Hint: Know your boundaries…if you do, they are easier to move past

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NECESSARY CONDIT ITIO IONS FOR CREATIV IVIT ITY

Ju Judgment t of f Pro ropriety In In ord rder r to to ju judge something yo you mus ust t have knowle ledge of f th the pro roble lem space. The Good News: Chance are re yo you are re im improving yo your knowle ledge ev every sin ingle day.

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NECESSARY CONDIT ITIO IONS FOR CREATIV IVIT ITY

Tra ransla lati tion and Descri ription Sensations of f both th the em emotional and co cognitive sys ystems mus ust t be e tra translated in into to something us useful. l. What t are re some ways of f tra transla lating yo your r ex experiences?

Number ers Words rds

Numbers and word rds are re not t nec ecessary co conditions fo for r cr creativity, so what are re some oth ther ways of f tra transla lating ex experiences? Hin int: Pra ractice ex expression

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NECESSARY CONDIT ITIO IONS FOR CREATIV IVIT ITY

Mental l Sile lence Bec ecause work rking mem emory ry is is lim imited, th the les ess non-essential sen ensory in inform rmation and abstra ract, t, irre irrele levant in information, th the bet etter. This ex exclusion of f sup uperflu luous in information en ensures work rking mem emory is is not t overl rly ta taxed. Hin int: Close yo your r door, cl close yo your e-mail, tu turn rn off ff yo your ce cell ll phone

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NECESSARY CONDIT ITIO IONS FOR CREATIV IVIT ITY

Tim ime Again, because work rking mem emory is is lim imited, fo for r co comple lex pro roble lems th the abili lity to to syn ynthesize, model l (i. (i.e. sim impli lificati tion), and ex explo lore re per ermutati tions ta takes tim time. Hin int: Schedule le or r allo low tim time to to be e cr creative

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NECESSARY CONDIT ITIO IONS FOR CREATIV IVIT ITY

Emotional l Safety – In Inclu cluding Per ermission to to Fail Emotions make co contro rol more re dif ifficult lt because it it act ctivates parts rts of f th the min ind th that make cr creativity more re dif ifficult.

• t. For

r ex example, th the amygdala. Hin int: This is is both a pers rsonal l and in institutional pre rerogative.

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CREATIV IVIT ITY IL ILLUSTRATED

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TYPES OF CREATIVITY

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TYPES OF CREATIV IVIT ITY

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EMOTIONAL COGNITIVE D E L I B E R A T E

insights, & divergent, many possibilities convergent, the right answer

S P O N T A N E O U S

epiphanies, revelations intuitions, eurekas, ahas! KNOWLEDGE DOMAIN P R O C E S S I N G M O D E

CREATIV IVIT ITY TYPES

Deli liberate - Cognitive Also known as convergent creativity; alias, “the right answer” Necessary Conditions:

Lots ts of f knowle

• ledge. Suggesto

ton: Consta tantl tly be e guid ided by your r ig ignorance. Exper erience. . You must t have ve a sen ense of f what t do does es not t work. rk. Suggesti tion: Take e ti time e to to rev revis isit t in info form rmati tion at t th the e en end d of f ea each da day. . Consid ider th the e im implicatio ions of f th the e in info form rmati tion. . By en engaging in in th this is act ctiv ivit ity it it help elps it it to to be e rec recorded in into to long-term mem emory, ry, and d it it cre creates rela relatedness. Cognit itive fle flexibili

• lity. The

e ability ility to ch change the e ch channel.

• l. Suggestio

ion: Give ive yours rself lf perm ermission to to co consid ider absurd rd, or r opposit ite poin ints ts of f vie view. . Im Imagin ine in in what t ways th thes ese th thin ings co could ld be e tru true. e.

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CREATIV IVIT ITY TYPES

Deli liberate - Cognitive Example les:

Dis isco covery of f th the e stru tructu ture of f DNA. Edison’s systematic approach to inventing. Most t lik ikely ly, th this is is is how most t of f you are re goin ing about t cre creati tivity ty.

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CREATIV IVIT ITY TYPES

Deli liberate - Em Emotional Also known as div iverg rgent cr creativity Necessary Conditions:

Lots ts of f sel elf-knowle

• ledge. Suggesto

ton: Condu duct t a skil ills in inven vento

• tory. Also,

beg egin noti tici cing when en you fe feel l stro trong em emoti tions, es especiall lly ig ignorance or r anxie

• iety. See

ee if if you ca can id iden entif ify the e sourc rce of f those e em emotio ions. Focu cus on spec ecifi fic em emoti tions. . Suggesti tion: Again in, , beg egin noti tici cing when en you fe feel l stro trong em emoti tions, es especiall lly ig ignorance or r anxie iety

• ty. See

ee if if you ca can id identi tify th the e sourc rce of f th those e em emoti tions. Cognit itive fle flexibili lity

• ty. The

e abil ilit ity to to ch change th the e ch channel.

• l. Suggestio

ion: Give ive yours rself lf perm ermission to co consid ider multip iple le poin ints of f vie view. In Inte tenti tionall lly en engage in in absurd rd or r opposit ite poin ints ts of f vie view and d im imagin ine how th they ey co could ld be e tru true. e.

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CREATIV IVIT ITY TYPES

Deli liberate - Emotional Example les:

In Insig ight t in into to your r own preju rejudices and d pref references. . That t is is, , mis isappli licati tion of f men enta tal l mode dels ls rela relati tive to to rea reali lity ty, , th that t is is driv driven by em emoti tions, ra rath ther er th than aware reness. In Insig ight in into the e beh ehavio iors and motiva ivations of f ex executives at fi firm rms you mig ight t in inves vest t in in. New ew in inves vestm tment t id ideas.

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CREATIV IVIT ITY TYPES

Spontaneous - Cognitive Also known as Eur urekas! and Ahas! Necessary Conditions:

Let etti ting your r min ind d go, , ra rath ther er th than try tryin ing to to co contro trol l your r th thoughts ts. . Suggesti tion: Aft fter er putt ttin ing th the e prob roble lem in into to your r min ind, d, th then en go fo for r a walk, lis iste ten to to music ic, , or r do do what t reju rejuvenates you. Must t in inte tenti tionall lly en engage in in rul rule-breaking. . Suggesti tion: In In add ddit ition to to

• th

ther er suggesti tions ea earli rlier, brea reak th the e habit its. . The e nove velt lty of f th thes ese unco conventional l thoughts are re then en allowed to en enter er in into worki rking mem emory. ry. Im Impasses are re brok roken by rela relaxin ing co constr train ints

• ts. Suggesti

tion: Rel elax men enta tal l mode del l bounda daries gra raduall lly to to see ee what t new ew id idea eas co come to to min ind. Lots of f knowle

• ledge. In

Info form rmation gain ined must be e tra ransla lated in into somet ething fa famil iliar or r known. Suggesti tion: Get et do domain in spec ecific knowle ledge about t th the e prob roblem you are re try tryin ing to to solve.

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CREATIV IVIT ITY TYPES

Spontaneous - Cognitive Example les:

Newton’s discovery of gravity Einstein’s discovery of relativity

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CREATIV IVIT ITY TYPES

Spontaneous - Emotional Also known as ep epiphanies, rev revelations Necessary Conditions:

Intense emotional experiences that make for “loud” signals that are allo lowed in into to rea reali lizati

• tion. Suggesti

tion: Chall llenge your r bounda daries co constantly ly; ; see eek new ew ex experiences, not ju just co confi firmatio ion. Thes ese stro trong em emoti tions yea earn rn fo for r ex expressio

• ion. Suggesti

tion: : Engage your r artis rtisti tic sid ide.

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CREATIV IVIT ITY TYPES

Spontaneous - Emotional Example les:

New ew art rt movem vements ts Music ical l im improv rovis isati tion Sports rts ex excelle lence “The market is going to crash” or “we have reached a bottom” “That executive creeps me out.” Epip iphanies and d rev revelati tions of f a prof rofound kin ind. d.

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CREATIV IVIT ITY TYPES

Cre reative Pro roble lem Solv lving Steps Firs irst, t, ask yo yours rself what t typ type of f pro roble lem yo you are re try trying to to solv

• lve. Is

Is it it one rig right answer, or r many new ew possibilities, or r Eurk rkeas/Ahas!, or r pers rsonality in insights, or r ep epiphanies/revela lations? Second, en engage in in th the nec ecessary ry co conditions.

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GENERAL POIN INTS

For r most t fin financial pro rofessionals ls, th the cr creativities associated wit ith co cogniti tion are re fa far r ea easier to to en engage in in; ; sin ince most of f us us have skill ll in in deli liberate-cognitive. It It ca can ta take ye years to to re re-engage wit ith yo your r em emotions, es especiall lly if if yo you have spent t th the en entire rety of f yo your r lif ife in in den enial l of f th them, or r ig ignoring th them. However, r, th there is is powerful l in inform rmation and cr creative possibili lity th there, to

• too. But

t th this work rk is is not t fo for r th the fa faint of f heart rt!

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YOUR QUESTIONS MY ANSWERS

Twitter: r: @TheIn IntuitIn Invest Facebook: Fans of f The In Intu tuitive In Investor Lin inkedIn: Ja Jason Voss, CFA

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