Value Investing

Creativity For Investors – Why It Really Matters

Creativity For Investors by Andrew Hunt author of Better Value Investing: A Simple Guide to Improving Your Results as a Value Investor.

Before I became a professional investor I spent three years working as a creative in the TV and advertising industries. In these places, everyone is trying to think and act creatively all the time, sometimes to the point of wackiness. However, professional investing is at the other extreme. People seem to shun creative thinking. What I’ve found is that creative approaches can be really valuable for investors, precisely because they are often neglected. In this article I am going to explain why creativity is so important and outline a few ideas and practical tips on how to making your investment thinking and work more creative.

What is Creativity?

Many investors shun creativity because they see it as irrelevant – the world of eccentric painters and Mad Men advertising agencies. However, creativity can also be viewed as something we all do every day, without realising:

  • Creativity is problem solving (how do you open that door while carry five cups of coffee!).
  • Creativity is divergent thinking – going beyond your initial thoughts or reactions.
  • Creativity is coming up with alternatives. Such as alternative hypotheses or alternative ways of working. Creative minds are able to see that there are multiple possibilities to almost every question, and look beyond binary answers like yes-no, buy-sell, up-down.
  • Creativity is about making connections. Consider some of the most ground breaking examples of creation – such as the i-Phone, the printing press or the Star Wars These creative leaps are in fact just an amalgamation of two or more existing ideas. This is really no different from taking a few different data points or pieces of information and finding your own insight.

If I had to summarise creativity in one sentence I would say it is simply the development of existing ideas, experiences and information. In this sense creativity should be viewed as a constant, fluid, everyday function: not something to be outsourced to a creative or left to the annual away day.

Why Creativity Really Matters

Once you see creativity in this broad sense – as the development of existing thoughts and knowledge – it should be pretty clear why creativity matters for investors.

Creativity is behind the most successful investment cases

We know that when it comes to investing, extrapolation of the past rarely works, experts are woefully bad at making accurate predictions,[i] and consensus – even when it is right – is usually priced in. Hence, you need to develop your own alternative and unique perspectives. The most successful investment cases tend to be highly original narratives.

Creativity is what drives improvement

We get better by discovering problems and risks, understanding them, and creating our very own solutions or alternatives in response.

Successful investment businesses involves constantly innovating and adapting.

The investment industry has some of the highest failure rates of any sector. Reputations rise and fall almost yearly, while clients constantly change their demands. One moment it’s all about global, then it’s passive, smart beta, low volatility or whatever else.  Even for those able to stick to an approach, those investment styles need adapting too, as new investment ideas are required to replace the stale ones. Hence, the long term survivors of the investment world are those who have been willing to develop their approach in new and innovative ways, and that requires creativity.

Five Steps to Creative Thinking

  1. Happy and relaxed people are more creative than stressed or miserable people.

Neuropsychologists have discovered that our brains work better when we are happy. Happy people are open to new ideas, able to learn more effectively, to grasp new concepts quickly, and to think broadly and playfully. In short happy people can see more possibilities.

By contrast, stressful environments do the exact opposite, narrowing people’s focus right down to what they already know.

So to stimulate creativity, start by making your environment as relaxed and as happy as possible. Fortunately, there are many easy and effective ways to achieve this,[ii] and the benefits go way beyond just making you more creative and productive.  Some top tips are:

  • Make time for friends and family
  • Commit small acts of kindness whenever possible
  • Give praise and encouragement
  • Avoid steep hierarchies
  • Widen you social network
  • Do exercise you enjoy
  • Try meditating
  • Smile at people and greet them
  • Get plenty of sleep
  • Get outside when you can and take walks
  • Unplug: make sure you have regular breaks away from email and phones. Give yourself time to just think.
  1. Seek out outsiders

It is amazing how many of the greatest leaps in almost every field have come when someone has crossed over from another subject and taken a fresh look at things. So it is no surprise that most successful innovators have vast, informal networks of diverse people, with whom they constantly share their thoughts and ideas.  This doesn’t come naturally: you have to actively seek out these people who can broaden your perspective the most.  Good places to start are:

  • People who work in investment firms but who are not investors.
  • New hires and graduates. Catch them quickly before they get indoctrinated.
  • Friends who work in other interesting fields.
  • Investors with polar opposite styles. If you’re deep value, try tapping a high growth or tech VC investor. Long term? Get talking to some traders. In-depth fundamental investor? Speak to a quant.  It’s amazing how often great insights come from really listening to a different perspective.

Finally make your interactions with your network casual and fun.  Go for coffees, lunches, nice walks or an ice cream in the park. Let them open up while you listen and take in what they say.

  1. Harness Negativity

Almost every worthwhile innovation springs from a dissatisfaction or frustration with the status quo. So, viewing mistakes or problems as positive opportunities is a great way to speed up development.

  • Encourage dissent and criticism

Understandably, people don’t generally go about moaning or criticizing each other. So in order to get that valuable feedback, you have to actively encourage your friends and colleagues to raise their concerns and criticisms. This means asking people to dissent, and actively thanking and encouraging those who do so. Groups where minority dissent is allowed to flourish have been found to not only be more creative, but they also reach better decisions and are kinder to each other.

  • Learn to love mistakes.

Take time to regularly identify your mistakes and go over them candidly. Mistakes are treasures. This can be hard: It is not intuitive and it can feel uncomfortable. Yet it is worth it. More than anything else, I find mistakes to be the richest source of ideas for improvement.

  1. Fish widely and fish with a fine net

To go back to the beginning, creativity is rarely about sudden thunderbolts out of the blue. Instead, it is really drawing together existing ideas in new ways. Moreover, creativity is also incremental.  The most successful creations are often the result of collecting lots of small marginal gains. It is a bit like building a wall one brick at a time.

To be creative, you need to look widely and always be ready to catch your next insight. For example, I always carry a little A6 notebook and a pencil everywhere, so I can record any ideas or thoughts right when I have them. I also set aside a few minutes every day just to think about ideas for improvements, however small. These are small, easy and low commitment ways to improve your creativity and to develop faster.

  1. Embrace Negative Capability

Negative capability is the willingness to live comfortably with doubt. Unfortunately, most of the problems we face do not have clear, neat answers.  That means most of the time, we need to be able to hold questions open, sometimes for months or years, and sometimes permanently.

Creative people are willing to accept this uncertainty, without trying to force hard answers where none are forthcoming.  Instead, keep important questions open and keep contemplating and discussing them as greater knowledge and new insights emerge. And finally, be willing to experiment – to try out more than one answer or alternative.

Summary

Creativity is the simple act of developing existing thoughts and knowledge along new lines. It is something we use every day.

As investors, creativity is vital to our personal success and the long term success of the organisations we work for. There is no Philosophers Stone: we have to keep adapting and innovating our approaches and investment cases.

To be more creative:

  • Create a happy and supportive environment for yourself and those around you. Avoid stress.
  • Seek outsiders. Actively seek out and encourage views from outsiders and build a wide network diverse supporters.
  • Embrace Negativity. Encourage dissent and criticism. View mistakes as valuable sources of improvement.
  • Always be open to creative solutions. Keep constantly looking, even for the smallest gains.
  • Learn to live with doubt. To hold difficult questions open, to pursue multiple answers and to experiment.

While this might seem like hard work, taking the time to nurture creativity is a vital step on the path to long term investment success.

Andrew Hunt is an Investment Manager and author of Better Value Investing: A Simple Guide to Improving Your Results as a Value Investor.

[i] http://www.newyorker.com/magazine/2005/12/05/everybodys-an-expert

[ii] https://www.ted.com/talks/shawn_achor_the_happy_secret_to_better_work?language=en

Creativity For Investors - Why It Really Matters