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Perspectives on personalities and investing have shaped my views on leading effective teams, empowering individuals, mitigating behavioral bias and delivering strong performance for our clients."
Last month marked 25 years since I began my journey as an equity investor. As my recent travels took me from Tokyo to London and Paris—and then to Boston and New York—I found myself reflecting on some of the human aspects of investing that I have observed in my career.
These perspectives have shaped my views on leading effective teams, empowering individuals, mitigating behavioral bias and delivering strong performance for our clients. In aggregate, they reflect the culture of the Eaton Vance Equity investment teams within Morgan Stanley Investment Management.
Analysts, investors and market observers
In my view, our profession is populated by three types of individuals—analysts, investors and market observers.
- Analysts are the most common—they research companies, prepare financial models and valuations, and make recommendations.
- Investors are the most valuable—they possess two critical skills that differentiate them from analysts—the ability to make portfolio decisions and comfortable taking risk.
- Market observers can be the most dangerous. Their insights are backward-looking, simply explaining recent market events, rather than looking ahead. Investors must always position portfolios for the future.
Introverts everywhere
In my experience, most equity investors are introverts who are most comfortable sitting quietly at their desks or in their offices with the doors closed. I have found these personalities can thrive within dedicated team-based department structures, whereas they can struggle in a central research function. The quietest analysts often have the most effective ideas or insights, while the most vocal may be more focused on external validation.
Understanding the team
The most effective team leaders and portfolio managers recognize their team’s individual personality differences. Are they analysts or investors? Are they consistently optimistic or pessimistic in their scenarios and price targets? Are they confident and empowered enough to admit when they may be wrong? Effective leaders adjust how they engage with each person, recognizing differences in communication style, inherent risk tolerance, and decision-making ability. Likewise, the manager needs to interpret the messages they are receiving accurately.
The smartest person in the room
This quote from astronaut Scott Kelly resonates with me in its relevance to our investment process, “The smartest person in the room, I’ve learned, is usually the person who knows how to tap into the intelligence of every person in the room.” Investment team meetings are critical for vetting new investment ideas, challenging conviction on existing holdings, sharing knowledge and collective learning.
Empowering each participant with a voice in the debate and having zero tolerance for disrespectful behavior is essential for constructive discussions. Requiring each team member to embrace the portfolio holistically (and incentivizing this behavior)—rather than focusing on a narrow sleeve of sector coverage—is essential. This encourages open exchange of views and constructive feedback, aligns the team with client concerns, facilitates allocation of capital, and makes everyone a better investor.
Every investor demonstrates behavioral bias
Behavioral biases affect all active equity investors—including all my colleagues and me—and can detract from investment performance. Whether it’s risk aversion, herd mentality, recency bias or overconfidence, consistent long-term outperformance requires the ability to mitigate the impact of these biases on decision-making.
Over a decade ago, we developed a structured approach to address behavioral bias in our investment process, built on more than 50 portfolio exercises, which are used across Eaton Vance’s equity teams. This approach requires humility, self-awareness, and a commitment to continuous improvement, hallmarks of our teams.
Bottom line: I strongly believe that delivering long-term, outstanding results for clients in active equity portfolios requires an appreciation of the personalities involved in delivering that performance, along with a rigorous investment process. That process should empower individuals while incentivizing holistic portfolio ownership and team collaboration to minimize behavioral bias.
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