I attended a seminar in Cambridge considering this issue from four (very) different angles: macroeconomics, entrepreneurship, neuropsychology and mindfulness. The UK productivity statistics are not good. The Office for National Statistics reports that, post-GFC, UK productivity is 20% lower than it would have been had the previous trend been maintained. It is argued that not much real progress has been made since 1953. Within UK firms, the 99th percentile (top 1%) have shown strongly improving productivity while even the 90th percentile (top 10%) is largely static.
It was back in 1965 that Intel’s Gordon Moore proposed his ‘law’ suggesting the number of transistors per unit area of circuit board would double every two years (currently two and half years, and likely set to slow). So the exponentially increasing power of computing technology seems not to be showing up in aggregate productivity statistics, and may be only benefiting a small subset of firms [aside: there is a separate possible debate on whether these statistics continue to measure productivity accurately in a de-materialised world]. The micro, or firm-level, perspective was built on by the serial entrepreneur. The key point was a mind-set (obsession could be more accurate) of continual productivity improvement. While this starts with leadership, the goal is to ‘infect’ all staff with the mind-set. So the importance of de-briefs was emphasised, and within them ensuring that all voices are heard – no matter how junior, or how small the improvement idea. It is interesting to reflect on the fact that the entrepreneur spoke as if the only point of productivity improvements was to allow the price of the product to be lowered. Technically the firm could retain the benefit in the form of higher margins, but this thinking seemed to be absent from this individual. To them, the point of continual productivity improvement is to compound the cost reductions year after year, allowing a business to “thrash the competition” as after a while they cannot compete on cost. It is not obvious, to me at least, that the investment industry in general has shown any interest in this mind-set. That said, this is an interesting lens through which to view the growth in index tracking.
The seminar’s focus then shifted to personal productivity. The professor of clinical neuropsychology apologised that her talk would not add much if you were already prioritising sleep and exercise. Beyond that, it does appear that Modafinil – a drug for wakefulness – enhances cognitive ability. Apparently, a lot of academics take it. She also drew the distinction between ‘hot’ and ‘cold’ decision making – with ‘hot’ being emotional, social and more risky. This seems to have parallels with, but also be different to, Kahneman’s system 1 and system 2 thinking. The five ways to mental well-being were given, presumably in order of importance, as:
- Keep learning
- Connect to people around you
- Mindfulness (being aware)
- Give (it is its own reward as far as mental health is concerned).
The final perspective was on mindfulness which originated in Buddhism but ‘went clinical’ in the 1970s (MIT and Cambridge, UK). It was argued that technology has shortened attention spans, down to the current 8 seconds (“source Microsoft” apparently?!). This factoid doesn’t sit too well with the next claim – that it can take 20 minutes to return to focussing on a task after interruption (if our attention span is 8 seconds, it is a wonder we ever get back to a task). It was further suggested that evidence is beginning to emerge that a wandering mind is associated with unhappiness. And that the UK’s NICE (national institute for health and care excellence) report that 8 weeks of mindfulness training cuts the rate of relapse into depression by 50% (same as maintenance level drugs).
What can we make of this for the investment industry? The last two sessions are for personal consideration, although the point about lifelong learning shouldn’t be too controversial as an industry requirement. The entrepreneur’s idea of ‘continuous productivity improvement’, again, should gain wide support. At least in principle. I suspect this practice is what confines the gains to the few. What does pursuing continual productivity improvement look like for TAG? On the research front, it would involve taking less time to produce papers of the same quality – so better processes, leveraging the wisdom within working groups, fewer words and shorter sentences. For our events it will involve listening to feedback, holding team debrief meetings, and making a host of changes – most small and incremental. And what would continual productivity improvement look like for asset managers? I have already noted that the idea was expressed as the means by which price can be reduced. Applying this logic to an oversimplified statement that “humans are expensive and computers are cheap”, would suggest that the future path for active management should involve less human input, and more computer input, allowing fee rates to fall as the competition basis shifts to market share. Hand-built portfolios would still be available, in the same way that hand-built cars are still available – just not for the masses. And what about asset owners? We have just released a research paper – The asset owners of tomorrow – that contains a myriad of ideas for improvement for them to be fit for a rapidly changing future.