The Value Perspective Podcast episode – with Dan Mikulskis

Our guest this week is Dan Mikulskis, an investment partner at Lane Clark & Peacock (LCP) and also the co-host of the Investment Uncut podcast. He couples his work with a fortnightly newsletter offering commentary on what has been happening in markets and around the world, to which you can subscribe through LinkedIn. Dan is also particularly well-versed in the recent ‘liability driven investment’ (LDI) crisis and why that has caught pension funds off-guard. It can be a technical topic so, if you would like to understand more about what has happened, check out his Twitter account at DanMikulskis. In this episode, Andrew Williams and Juan Torres Rodriguez cover topics including what can be learned from co-hosting a podcast, which can then be applied to decision-making processes; accounting for one’s own biases when meeting fund managers; how Dan goes about helping clients deal with uncertainty; building financial models, what makes a good model and when, if at all, one should overrule those models with qualitative insights; and, finally, how to learn the right lessons – and not learn the wrong ones – from your process. Enjoy!


Juan Torres Rodriguez

Juan Torres Rodriguez

Fund Manager, Equity Value

Andrew Williams

Andrew Williams

Investment Director

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Chapter headings for Dan Mikulskis on The Value Perspective Podcast

Please click on the link below to jump straight to a chapter

* Dan Mikulskis, welcome ...

* Lessons learned from other investors

* Removing personal bias from meetings

* Telling narrative from reality

* Accepting and preparing for uncertainty

* Good financial models and when to ignore them

* Learning the right lessons from decisions made

* Book recommendations and one big mistake

JTR: Dan Mikulskis – welcome to The Value Perspective podcast. It is a pleasure to have you here. How are you?

DM: Really good. Thank you so much for having me – and here in your podcast studio as well! I am super-excited to be here today. So thank you.

JTR: Could you provide our listeners with a little bit of your background and an introduction?

DM: Yes. I am an investment consultant so I work with and advise large pension schemes and other asset owners on their investments – everything from the strategy, the amount of risk they are taking, different asset classes and, of course, choosing managers and helping them fulfil their regulatory reporting requirements, those sorts of things. I am a partner at LCP in their investment practice and I have broadly done that for about 20 years in my career. I started my career at Mercer and spent a bit of time at Redington as well but, really, most of that I have been an investment consultant advising pension schemes and other asset owners.

JTR: You have left out something very important to us and that is the fact you also have a podcast. Can you tell us everything about that?

DM: I am a podcaster as well, yes! We started our podcast, I think, in January 2020. It is called Investment Uncut and you can find it on all the good podcast platforms. And myself and a colleague of mine, Mary, we interview interesting guests each week – ranging from colleagues to external people around the industry. We have had a lot of great conversations – as I’m sure you have as well – and learned a lot about podcasting and the art of good conversations and questions and those sorts of things.

JTR: Before coming on-air, you were telling us how you try and approach the nature of your podcast guests from different angles. So what exactly are you aiming for?

DM: It is a constant experimentation – I mean, one thing I was adamant about when we launched it is you have to form a really clear idea of your audience. Even if you are wrong, you have to form a theory of your audience and what they want and try and go with that – because, if you’re not careful, you can end up with something that doesn’t really work for anyone. And what we have ended up settling on is kind of a split between some guests who are focusing on out-and-out investment research and investment ideas – people like, say, Michael Mauboussin or Ludovic Phallippou; and then other guests who focus more on the art of communicating about investment – so, for example, we had a great episode on storytelling with Stacy Havener – and then others from the media and journalism, who cover that side of it, which I think is increasingly important; and then we also cover the more behavioural or ‘meta’ or psychological side of investing as well. So we settled on that as rough split and that seems to broadly work for our audience.

JTR: We have had some overlap in terms of guests. You had Michael Mauboussin, who is absolutely fantastic, and Joe Wiggins, who is as well and is about to come out with his own book. Joe was not only a guest, he actually co-hosted an episode with us, which was great. And now, thanks to your podcast, we are really looking forward to interviewing Stacy Havener at some point in the future. Now, the other thing you left out from your very brief intro is that you have this newsletter, which is quite popular on LinkedIn. What is that about?

DM: Yes, I write a fortnightly markets newsletter. I had an idea at the start of the year to do it. I launched it on LinkedIn in January 2022 and, basically, the initial idea was have a bit of a laugh at the expense of market forecasters – poke a bit of harmless fun at them but also try and add some real comment around it. But, of course, 2022 got pretty serious, pretty quickly and that light-hearted angle was maybe not the right way to go. But, you know, every couple of weeks I just try and tell it like it is about markets in the short term. But then I also try and focus on some longer-term things I am reading and podcasts I am listening to and try and weave through a bit of a theme around longer-term decision-making on things people might find interesting.

And have a little bit of humour in there as well –always try and finish on something entertaining or light-hearted. It seems to be working – people comment. I always love running into people who say they read it and the stats seem to be pretty good so I have kept it going. It takes me a little bit of time but it is nice to have a target like that every couple of weeks. A lot of people say that – it is like a forcing function to help you think about what to read and what you’re enjoying. You bookmark stuff and say, oh, yes, that’s one for the newsletter – even my wife says to me, like, maybe that’s one for the newsletters! You know, it’s nice to have that, I think. It works for me.

Lessons learned from other investors

JTR: Well, both Andrew and I are followers of that and, of course, of your podcast. And going back to the podcast, which we heartily recommend to our listeners, is there anything in particular you have learned from your conversations that you have incorporated into your own decision-making process?

DM: So much – so many things. I will go through a few specifics but one interesting point is we ask all of our guests, what do you think is the most underappreciated thing about investing? I love that question because, whenever you ask about ‘underappreciated’, you are nudging someone towards a bit of second-level thinking – like not just what’s important, but what is underappreciated. But the most popular answer we get is how hard and how complex investing is, which is not surprising. People say, you know, even the best investors only get it right 55% of the time or whatever – even the best investors get it wrong a lot. It is very hard.

Interestingly, though, another popular answer we have had to that is how easy it is – you know, you can invest in a passive fund, global diversification, five basis points or whatever the charges are, buy and hold and 20 years later ... and that has been a very effective strategy for almost all time periods. And I love the tension between those two answers. What is the most underappreciated thing? How hard it is – ah, but also how easy it is! But that is inherently the tension in investing – in that it is very hard to outperform but you do have that central baseline counterfactual you can always go back to, which is a passive approach, which is sort of much easier. That is, I think, important context for all investment decisions, actually, and something I have said to my clients quite a lot. And I think it is quite helpful because you can get tied up in that.

A couple of specifics to point out too – I mean, you mentioned Joe Wiggins and, when we had him on the podcast, the points he made around the decision-making environment really stuck with me. For me and my clients, when we say ‘environment’, we often mean things like ‘the report we are reading’. So what is on page one of report one that you are opening up at your quarterly meeting? What is on that first page? And I just think that is so underappreciated in terms of how powerful it is – like, oftentimes, it might be some spiel about what the US Federal Reserve did three months ago and a long build-up about market background and stuff.

And that is framing you to think about things in a certain way. It is emphasising that that is what is important when maybe it’s actually not the first thing the investor should be thinking about. So the environment in terms of what you are reading and then even the way you set yourself up in committees – you know, my clients will often have an investment committee or trustee board, with different compositions and different sizes – all of that, I think, plays into the environment you set for yourself and a lot of decision-making flows from those sorts of things. So those are a couple of examples but I have been very fortunate to have some good conversations and taken a lot out of them.

JTR: Jake Taylor once made the point on this podcast that, if you tried really hard at the beginning of the year to underperform, it would be very hard to blow up in a big way.

DM: Well, that is a test, isn’t it? The likes of Annie Duke and Michael Mauboussin talk about that as a test for the trade-off between luck and skill in an endeavour – can you lose intentionally? And if you can lose intentionally, then there is a high degree of skill in that particular field whereas, if you can’t, it shows there is actually quite a lot of luck involved as well.

Removing personal bias from meetings

AW: There are so many rabbit-holes we could dive down there – luck versus skill, say, or short timeframes versus long ones – but what really chimed with me was what you said about the investment reports clients receive. Often, the first thing the client will see is a pretty generic market overview of the last three months, which does not necessarily set the tone at all well for what the fund managers are actually trying to achieve. So that was really interesting. Now, as you know, this is a podcast all about decision-making so I am really interested just to dig into what you believe you can glean when you meet and talk to a fund manager in person, versus looking at the data about how they have behaved and the decisions they have made in the past. And, as a follow-up to that, how do you go about accounting for your own biases when making a decision after meeting a manager?

DM: That is a great question. In terms of the data versus meeting a manager, clearly both are really important. I do think data is important but it is more limited than is often thought – I think often there is this idea that you can just look at the data and it will tell you everything you need to know. And maybe if, say, you are an equity manager with a 30-year track record – which your team probably does actually have – then I think the data probably is quite meaningful. But that is not the case a lot of times – a lot of the funds have less than a 10-year track record so it has really been in just one market environment. Or maybe the fund is managing across asset classes, which makes it a bit harder to see what the benchmark ought to be, or maybe it is doing something in credit, where it is not really trying to outperform and might be more buy-and-hold. So the data often isn’t as helpful as you think – but, of course, there is some information there.

I think what you glean by meeting a fund manager – or what I’m trying to get to – is how they are thinking about particular areas. What is their framework and approach to things? And two things you definitely get from meeting a fund manager that do I think matter are a sense of humility – are they being honest about what they have really got wrong versus where they have just been unlucky? – and a sense of self-awareness. Are they self-aware about some of their own biases and things like that? Obviously, that won’t come through in data at all but I do think that is quite important.

You know, there is the classic trope of the fund manager who is just constantly railing against QE or something – the Fed, it just shouldn’t be allowed, it shouldn’t have happened, it's not happening sort of thing – and you get that sort of reality distortion sometimes. But you will get that sense of humility and self-awareness from meeting managers in person. And then, also, how they are thinking about particular things, which is a more rounded perspective than just looking at how they have acted.

But key elements you would want from the data are all those classic things around whether they are doing what they initially told you they were going to do when you gave them the money. Style drift, for example, would be a classic one. You don’t want them being a tourist into new areas – we have all seen managers dabbling into a bit of high yield or derivatives or something. Or whether they are more taking more illiquidity or just taking more risk than they have been before – all of those things, I think, are important. And you can get quite a good handle on that from the data as well as just putting current performance into context. You know, if a manager is underperforming, it helps to know, is this the worst underperformance I have ever seen? Or is it top three? Is it not even top 10? Simple things like that. So I think both are important but, often, it is maybe a little bit exaggerated how much you get from data.

AW: Do you have a preference for looking at the data first or going into a fund management meeting ‘cold’? It is coming back to the second part of my question about biases – how do you think about that?


DM: I tend to think you want to look at data first. You want to have that as your baseline and be able to explore that a bit with the manager because, otherwise, you are a little vulnerable to them picking off particular favourable data points that suit their story and being influenced by those. So I think there are some basic questions you want to check off by just looking at the data – and then you can use the actual time with a manager to explore more how they think about things rather than getting them to recite what their trailing standard deviation or something has been or what their largest drawdowns are, which you ought to be able to work out and just know yourself.

JTR: How do you manage to not be biased when meeting the person?

DM: What a great question. I mean, I’ll let you know when I’ve figured that one out! I think that is absolutely an issue and a risk and, of course, it is true that charismatic, persuasive people are persuasive and get to influence us in ways that may be slightly undeserved. That is a real thing but try to to frame the questions yourself a little bit so you’re not just giving them a stage to kind of hold forth. So frame it yourself, put the questions you want to put, try and interject a little bit and just drill a bit deeper – these are all little things that can help. But I can’t claim to have a monopoly on how to do that – that is hard, right? We are all humans.

Telling narrative from reality

JTR: Then let me change the question a little bit. How well can you distinguish narrative from reality?

DM: Well, you hit on a really important point there, which is this tension between story or narrative and more objective facts. I suppose one big thing I have changed my mind on during my career is just the importance of story versus objective fact – and, of course, from my personal perspective, you want to have both on your side, if you are making a case. I think a lot of people fall into this trap of thinking, well, I have all the facts, I have the data, so I don’t have to worry about story – and that is absolutely the wrong way of approaching something because you risk underselling it, if you don’t have the story as well.

But, of course, on the flipside, once you’re aware of the power of stories, that means you can be more alert to how others are deploying them – and just make sure you’re not having the wool pulled over your eyes by a story that isn’t supported by the facts as well. I used to have this inherent knee-jerk pushback against stories and just dislike them because, I suppose, you feel someone is trying to influence you – and maybe in a sort of a malign way. Whereas I have probably nuanced my position on that over the years to say, well, they are actually fundamentally important ways of communicating – but you need to educate yourself to understand when you are potentially at risk of being a drawn into a story and when it is actually a helpful device for making a case that is supported by the data.

JTR: Two things come to mind. First, Annie Duke told us in one of our podcast sessions that some people see the outside view as the most powerful, for others it is the inside view but, actually, the most powerful approach is a combination of both the outside view – the base rate – and the inside view – your own knowledge of a situation. The other thing that comes to mind is that Warren Buffett has built this brand and image of being someone who spends all his time reading before making decisions and yet, throughout his career, he has been massive networker – going out and meeting lots of different people, which has presumably helped evolve the opinions he formed from all his reading.

DM: Yes. And one point I always come back to in investing is it is very natural to want to have some unifying narrative of everything that is going on at the moment – to be able to tell some story that explains why interest rates are where they are, say, and inflation is where it is, and unemployment and geopolitics and weave it all together. It is very tempting to try and do that but it is not actually necessary to do that to be a good investor – and, in fact, doing that could actually be a bit of a distraction from stockpicking effectively. If you are trying to pick a portfolio of 50 or 100 stocks, I personally don’t think you need to have a unifying view of the whole global macroeconomy and what is going on in order to be able to do that. And yet it can be very persuasive when people come along with these sort of unifying views. So I suppose it comes back to that point about focusing on the right things in your investing environment and deciding what’s important.

Accepting and preparing for uncertainty

JTR: In a recent newsletter, you referenced Morgan Housel, who is someone our whole team has very much enjoyed reading over the last few years. He wrote this great piece about uncertainty, where he made the point that there is this perception that uncertainty changes – sometimes the future looks more or less uncertain but, actually, uncertainty is always the same. The future is always uncertain and there are no degrees of uncertainty so how do you help your clients prepare for uncertainty and make better decisions – and what tools are available to help them?

DM: I love Morgan’s work – I think it is brilliant. I’ve read a lot of his stuff and I recognise the piece you’re talking about. I think he does a really good job of just trying to remind people of that with his beautifully-written pieces that are often fundamentally saying similar things, which is basically that point: uncertainty is always there and it is not effective to try and minimise it or take it away.

As for how I help clients with uncertainty? Honestly, I think one of the things I have seen the actuarial or investment consulting profession maybe go a bit overboard on over the last 20 years is trying to sell a bit of a false sense of security to clients. And that can be quite tricky – for example, I have seen expected returns quoted to two decimal places and that sort of thing, right? Maybe that is a silly example but, clearly, you don’t know your expected return to two decimal places.

So that is one example but also seeing risk models saying, well, you can reduce your risk by 0.1 by moving from this to this – and I feel, again, that is a bit of a false sense of security. So I think the first thing is to recognise that a lot of the investment industry – writ large – is maybe a bit predicated on trying to deliver more of a sense of security than is really justifiable. And so you have got to work quite hard to unwind that and really prepare people by saying things like Morgan is saying.

That said, I do think risk models have a role in that, of course. If you can say to someone, well, my risk model says your portfolio in a negative market environment is going to lose £20m and so that is what we should be prepared for, I think you can brief people to sort of get used to that idea. And then it is not so shocking when it comes. So it goes back to position-sizing and that sort of stuff – I think all of that is really useful to try and ensure that, when those shocks do come, they are actually not quite as unexpected as they might otherwise be.

And then also, coming back to other aspects of investment, having some kind of framework to operate within just gives a really good anchor for those sorts of conversations because, when uncertainty hits, there are all sorts of things going on. You are kind of spinning thinking, wow, have we got too much in the US? Have we got enough currency hedging? Have we got too much bonds or too little bonds or too much infrastructure? You know, there are a million decisions that could be spinning around in your head.

Whereas if you can just constantly be anchoring investors to a framework that focuses on a small number of things, you are just going to have better conversations. And those frameworks should focus on what you can actually do about things, of course, right? Which, for an investor, is you can make allocation changes or you can sack or hire a manager, say – but, obviously, you can’t change what the Federal Reserve or stockmarkets are going to do tomorrow. So that is kind of obvious and should go without saying, right? But it is just missed so often and people end up spending a lot of time on the Fed and what markets are doing and not enough on, well, actually, what could we do? What should we do? Even if the answer might be ‘nothing’.

JTR: When you come across a client, who is too focused on the macro or on what external forces that are completely out of their control are doing, and you tell them that’s just ‘noise’, try not to pay too much attention to it, do you find that message gets across? Or is it all anchoring their own psychology and behaviour and what drives them so much that it is very difficult to change?

DM: I think you can work on it – I think people are amenable to that. When you tell them, look, that’s noise, don’t focus on it, people do take that on board. They do sort of realise it. But, yes, it is something you have got to constantly be pushing against. When you are presenting an investment idea or something, you will often get the ‘well, it feels like there could be a recession next year’ or ‘this feels like it could be a bit exposed to a recession’ sort of thing. And then it is that constant work of saying, OK, we might have a recession next year but that is not something we can control and I don’t think we can really take a good view on that so we have to try and step above that to a more strategic level.

So it is constantly trying to pull people up to a more strategic level and, broadly, it can be done – especially if you are working with a consistent group over time, and ideally, a group that is roughly the right size to do that. But it is a common enough story from investment consultants – there will often be that one voice around the table saying, but what if we go into recession next month? Or, I have some dodgy feelings about the next Bank of England meeting – that kind of thing. But it is just reality – people are going to like think like that.

JTR: Let’s circle back to your newsletter, which is so good, and I am going to quote something you wrote in it – though I cannot remember exactly when. You wrote: “If the outlook seems clear as mud, that’s because it is. And the shock truth is, no-one really knows what’s going to happen. Price drives narrative a lot of the time, not the other way around.” Is there a conflict between the inputs and the objectiveness required to make good decisions, and the narrative required to sell that decision to colleagues and clients?

DM: Absolutely there is – 100%. And it comes back to that point I was making earlier, which is you have to have both of those things, ideally, right? You have got to have the objectiveness and the facts – and you have also got to have a nice story to present your case and help it land in people’s minds, cleanly and neatly. And I think people ought to pay attention to both of those things. As I said, there is a bit of a tendency in our industry to think we are these – I don’t know – these kinds of impartial spreadsheet technocrats who are just there crunching numbers and then the answer pops out and everyone will agree it’s the answer and that’s it.

That’s not how the world works in any way and it’s certainly not how our industry works. I think one needs to be aware of both of those aspects – but then you also need to be conscious of situations where you are getting one without the other. And you can definitely go overboard on story, clearly. It happens all the time in the industry – whether that is, you know, talking heads on TV ... and that is what I was getting at with that quote. I mean, people are always trying to construct a narrative to explain away the uncertainty in the world. It is a natural human tendency to want to do that and it is a natural tendency to want to listen to people who seem to be doing that.

But often the reality simply is, yes, it’s clear as mud and no-one knows what is going to happen. But that’s OK – because I don’t think investors need to better predict the future. As we said before, a long-term passive global portfolio has done perfectly well and can be a perfectly great investment. So, even if you can’t predict the future, you can still be a very successful investor. Arguably, a lot of the most successful investors have not tried that hard to predict the future – just taking a diversified position in assets they believe in and trying to screen out some of that noise is actually very effective.

So, yes, I think people can get very focused on trying to pick the person who has the right kind of unifying explanation that takes away all the uncertainty from the moment – whereas it can be better just to acknowledge there is always going to be uncertainty. I mean, there is a lot of bad stuff going on this year, for sure – I am not trying to minimise that – it is an exceptional year, in so many ways. But as I say, investors don’t need to see the way through all of that – there is a way forward with investing that doesn’t involve needing to know the future.

Good financial models and when to ignore them

AW: You touched on the role of models earlier and it is really interesting – that balance between what the model is telling you to do and what your insight or intuition is telling you to do. Also, earlier in your career, you were very involved in developing the models that underpin asset allocation decisions so here’s quite a simple question really – first off, what makes a good model? Then, should you ever overrule your model with qualitative insight and, if so, when?


DM: What a great question. It is probably one of those things I have changed my perspective on a little bit through my career as well. If you had spoken to me maybe 10 or 15 years ago, I probably would have said, the more complicated model, the better – you know, let’s crack open MATLAB and C++ and write 10,000 lines of code. But I would say, at this point, a simple model is actually really, really helpful. Because what you want from the model is a common framework and language that people can get on board with and that just gives you a foundation for your investment conversations.

So that might be something like value-at-risk, right? It may be a much criticised statistic but I still think there is value there. And it is a good framework because people can say, well, if we make this change, does it change our value-at-risk or not, according to your model? And, hopefully, you can answer the question – hopefully, you can give an intuitive explanation of why that is the case. And people understand that and then that, actually, is a helpful conversation.

Obviously, another very common model is the expected return of an investment portfolio and, again, you can give an intuitive, thought-through explanation of that. And that is also, I think, quite a good framework because it then anchors your decision because you can say, well, what return are we aiming for? Is this investment decision going to move our expected return up or down? So the directionality of a change is important and also this can help you size different things – especially on the risk side. A classic mistake asset-owners do sometimes make is on sizing of asset classes or managers making them too big or too small.

All that being said, I think simple models that give you a framework for investing are really, really good but models that are black-boxy and just don’t seem to give intuitive answers are more tricky. And one way that is manifesting itself a little bit at the moment, I would say – particularly in the defined benefit world – is a lot of defined benefit pension schemes have de-risked an awful lot over the last 10 years. As you might be aware, the huge trend of the market has been de-risking and I think the risk models have broadly been helpful in doing that – they have broadly given the ‘right’, in air quotes, answers to that, which is they have suggested strategies that have reduced risk.

But, when you get down to that very lowest risk level, the sort of granularity those models are working at is maybe starting to be put under a bit of stress while, at the same time, there are other risks that are not in the model that are becoming quite important in that world. So then, if you only look at the model, you could be making decisions that are maybe a bit questionable.

That is kind of to your second point of should you ever overrule a model? And I think potentially, yes – if it is becoming clear you are squeezing it to a degree that is a bit uncomfortable. And if there are other aspects that are not really included in the model that you think you can sort of intuitively weigh up a little bit. So I think models are useful but they can easily be overdone. Someone said recently – I think it was Morgan Housel, actually – ‘good things get taken to extremes in investing all the time’ – and I do think models is one of those ‘good things’. If you can manage that balance of getting the good stuff out of it and then knowing when you need to just leave it and move on – I think that’s the magic.

AW: There is something about the allure of complexity in there and even the narrative of complexity as well – you know, if you are selling something that seems like a very clever, complex solution, there is something in that that humans are inherently attracted to. So it can be quite hard to say to people, actually, it is not that complex – you need to keep it a bit more simple.

DM: Absolutely. I think that is inherent in the investment industry as well. It is inherent in consulting – I’ll be honest – and I have been subject to that for sure. And, if you turned up to a client with maybe one page of a few scribbles and said, right, here’s the answer, then they would be a bit suspicious. Whereas if you turn up with a 100-page slide deck of all these different portfolios you’ve crunched and all the models you’ve run, it somehow seems better. And it might be – some of that is worthwhile. But some of that complexity can just be for show or for effect and, you know, the ‘thud factor’ of a 100-page slide deck landing on a table lending the answer a degree of credibility that may be a bit undeserved because it can lead you down some bad roads.

Learning the right lessons from decisions made

AW: Turning to a question we often ask on this podcast, we all know the outcomes of decisions can be a lousy teacher – especially in investment and even more so over short timeframes, as we were discussing earlier in the context of luck versus skill. So do you have any mental models or thought processes you have found help you learn the right lessons over time? And how do you then communicate those lessons to your colleagues and your clients effectively?

DM: I think that is a real challenge in investing, actually – just because of the timescale a lot of these things take place over. Market cycles are quite long – even people with quite long careers may have only seen a few – and it might have been a long time since you saw ... I mean, just look at inflation levels now, for example. Very few people nowadays will have good mental models for how to operate within such an environment.

So that is difficult and I think the best answer I can come up with is trying to articulate a really small number of central guiding investment principles. That is really important and, if you can nail down, say, fewer than 10 really key drivers that capture what you think are the core lessons – and maybe adapt them a little as you go along – then that is one of the better ways to really learn lessons. And then try and really live those principles too – as in put them on the table when you’re making decisions – which is easier said than done, obviously.

But I think that really helps and then you can capture the right things – although the issue there is trying to make them useful and not just really obvious statements. Like, you often see you investment principles such as ‘More risk doesn’t necessarily equal more return’ where you think, OK, I get what you’re saying but isn’t that a bit of a truism? So you want to avoid principles that are more like truisms, rather than really usable guides to investing. But I think that is probably one of the one of the better ways.

And then, you know, talking things through with colleagues and having a pool of peers with whom you can

honestly reflect on events and decisions that have happened and whether those were good or bad. In fact, I think reflecting on decisions is important and just not done enough in life generally. And Annie Duke and Michael Mauboussin and others have, again, made this point that having a decision log or decision journal can be a really powerful thing – you know, you log your decisions at the time, very briefly state the reasoning and then you can come back to them. I have tried to do it myself and with colleagues and with clients – it is just very hard because, I think, there is something intrinsic to human psychology that pushes you away from reflecting on decisions, maybe because you might have made some bad decisions or you might then realise how much luck is involved in everything! And so, psychologically, is quite hard to do – surprisingly hard.

AW: We had Simon Evan-Cook on the podcast and, related to this, we were talking about probabilities. He has a framework where he thinks about things as ‘probability buckets’ – and the interesting behavioural nudge there is, if something isn’t 100%, it forces you to look into that 10% or whatever of why you might be wrong. And how that can help here is it also forces us to put a probability on the decision as well, which I think is quite helpful – because, once you have made that decision, as humans we often just then try and backfill the narrative of why it is a good decision. Also, when things go wrong, it can be helpful to say, was I calibrated right? Was it actually, say, a 70% chance of success there or was I was I kidding myself in some way?

JTR: Are you aware of this poker concept of ‘resulting’ that Annie Duke talks about, where you make the mistake of measuring an outcome by its end-result, without taking into account whether or not the process was any good to begin with? That is something that happens in investing all the time – you make a decision, it goes wrong and then you judge your decision based on the outcome – and it can be very difficult to change the behaviour of people to make them understand they are actually falling into resulting. Furthermore, it can often take months and even years before you can actually call whether or not a decision was good. So how can you help people be better in this regard?

DM: The timescale is the hardest thing there, I think. As you know, with a lot of investment decisions, it’s like, let’s come back in 20 years and see what has happened. You can maybe try and narrow the timescale down a little bit – I think you have to in investing because there is a worry that, if you simply shrug and say, well, we’ll know in 20 years, that is just completely useless. I think you have to nail down a bit of a timescale – be reflective on a three to five-year horizon, maybe? Some people will disagree with me on that and say, look, that’s just not long enough – that’s not long term. But you have to find some kind of middle ground so you can sensibly look back and say, OK, this decision has worked or not worked over that period of time.

But, broadly, I agree with you it is a problem – and I don’t think I really have any great solutions because I don’t think we are set up to be very reflective about this. People would much rather just take the resulting and sort of move on, really, and that degree of reflection is not that common. Still, if you can find it, then I think those people are on to something really good.

Book recommendations and one big mistake

AW: Dan, this has been a thoroughly enjoyable conversation. Before we let you go, we ask all our guests two signature questions. The first is for a book recommendation for our listeners and the second is for an example from any part of your life of a bad decision that was due to bad process rather than bad luck.

DM: Well, you gave me good notice of these questions so I had a little bit of a think. On the books – I mean, there are so many. I love asking our own guests this question as well and I have got so many good ideas from that. I was going through a few this morning but one I’ll pick out is the autobiography of Dave Grohl, who was the drummer in Nirvana and is now the frontman of Foo Fighters. I read that last Christmas and it is just a great book. He is incredibly reflective on his life and it is extremely well-written and almost a page-turner from the get-go. The way he writes is quite amazing and, if you share any nostalgia at all for 1990s-era music, you will absolutely love it. That may be a slightly different genre to some of the recommendations you usually get – I don’t know – but that is one to put out there.

JTR: I have to say, every time I see him perform, he is such an amazing musician. And his career has been so outstanding – being the drummer of Nirvana and creating Foo Fighters and the success he has had with both bands and then being a drummer and a lead vocalist and a guitarist. It is just so well-rounded.

DM: It is actually. That is a really good point and I didn’t really grasp that till I was reading the book. But it is a real case of a growth mindset in that he didn’t just continue in the vein of being a drummer – he did sort of move on from that. Of course, on one Foo Fighters album, he recorded every part of it – the singing, the guitar, the drums, everything. He is also quite a good person, a good human being, and the book is just a really, really riveting read – a great insight into his relationship with Kurt Cobain, for example, and that particular era, which was obviously quite something.

AW: And then the decision?

DM: I was actually chatting with my wife about this last night – and I actually reflected on quite a few bad decisions and extracted some good life lessons out of them. So I should thank you for asking that question as you have given me a chance to reflect on some good life lessons. I was wondering which of them I can possibly admit to on a podcast! And should it be a work-related one or not? But the one I settled on – and it is going to sound a bit random – is takeaway pizza. That might sound a bit trivial but bear with me because I think it is an example of a larger category of decisions.

Several times recently, my wife and I have ordered takeaway pizza and been disappointed with it when it has arrived. And why is that? I think it is because it is an example of something where – and this is often a precursor of bad decisions – we failed to properly understand what was going to give us pleasure in that moment and we were wrongly influenced by perceptions of something. I love pizza, right? A nice pizza in a restaurant, maybe with a beer or a glass of wine, chatting to friends, a lovely evening – I love it.

But you remove pizza from that situation and have it at home and a lot of that drops away and you don’t realise a lot of the pleasure was down to those other ingredients as well as the actual pizza. I think that was one thing – just failing to understand what is really driving your pleasure out of a certain thing. And then the second thing is, because we have made that bad decision several times, you can see that it is a bad process because we didn’t even ask ourselves, what was the outcome last time I made this decision? It was a bad outcome – don’t make it again. So there you go – takeaway pizza.

AW: That is exactly like the rosé or the lager you bring back from holiday because it was the sweetest-tasting drink you've ever had – and you try it at home and, when you’re not on the beach, it tastes horrible.

DM: Actually, Rory Sutherland covers this really well. I always say to my wife, I drink cappuccinos in Italy and only in Italy because I had a cappuccino there once and, my goodness me, it was the best coffee I’d ever tasted. I’m not sure they made it that different – I don’t know if they used some different ingredients – but it was absolutely lovely. And I don’t want to try and spoil that by having cappuccinos in any other situation.

JTR: Dan, thank you very much for coming on The Value Perspective podcast.

DM: It’s been a great pleasure. Thank you so much for having me.


Juan Torres Rodriguez

Juan Torres Rodriguez

Fund Manager, Equity Value

I joined Schroders in January 2017 as a member of the Global Value Investment team and manage Emerging Market Value. Prior to joining Schroders I worked for the Global Emerging Markets value and income funds at Pictet Asset Management with responsibility over different sectors, among those Consumer, Telecoms and Utilities. Before joining Pictet, I was a member of the Customs Solution Group at HOLT Credit Suisse.  

Andrew Williams

Andrew Williams

Investment Director

I joined Schroders in 2010 as part of the Investment Communications team focusing on UK equities. In 2014, I moved across to the Value Investment team. Prior to joining Schroders I was an analyst at an independent capital markets research firm and hold a Economics and Politics degree.

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