Top stocks to invest in – The Value of Self-Awareness | CFA Institute Enterprising Investor

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“If you have a 150 I.Q., sell 30 points to someone else. You need to be smart, but not a genius.” — Warren Buffett

It’s no surprise. Many investment professionals resist the “soft stuff.”

The topic of emotional intelligence (EQ) usually evokes predictable responses: eye-rolling, finger tapping, cavernous yawning, and wristwatch glancing. As the one initiating the discussion, I feel as welcome as Jack Bogle at a hedge fund conference.

While expected, this response is counterproductive.

The research is clear: Intelligence (IQ) gets you in the door, but EQ lands you in the winner’s circle.


Because many in our industry are data driven, let me present some findings from my firm’s 360 database.

We have compiled hundreds of 360 reviews on investment leaders around the globe. The process involves having direct reports, peers, and bosses assess the participants — hence the term 360. The assessment contains objective scores on various competencies — strategic thinking, effective decision making, and client focus, for example — and written comments on the subject’s strengths and weaknesses.

My hypothesis was that Self-Awareness would be a key factor in overall scoring. Specifically, if a person demonstrated a high level of Self-Awareness, then their overall 360 score would be high as well. Conversely, those with low Self-Awareness scores would do poorly overall.

The data confirmed this hypothesis. We ran a correlation to look at the relationship strength between total average score and the competencies. The two competencies with the strongest positive correlation to total average score were:

  1. Provides Direction (r=.88)
  2. Self-Awareness (r=.87)

Great leaders — those with high 360 results — understand that providing clear direction is crucial to team performance. This makes sense.

Following Provides Direction was the variable in question: Self-Awareness. In our 360, we describe people with Self-Awareness as those who:

  • Know their own strengths and weaknesses.
  • Seek feedback and attempt to always learn and improve.
  • Consistently practice self-reflection.

The results of our analysis confirmed that those who score well on these measures also tend to score highest on their overall 360 results. In addition, we found a strong positive correlation between Self-Awareness and the following three competencies:

  • Reading People (r=.77)
  • Builds Effective Collaboration (r=.80)
  • Integrity and Trust (r=.77)

For people familiar with EQ, these results should not be surprising. Daniel Goleman — the father of EQ — divides the basic skills into four quadrants:


top-stocks-to-invest-in


Using the findings from our research, we can drop our results directly into Goleman’s model:


top-stocks-to-invest-in


Goleman agrees that Self-Awareness is the starting point. It drives the other EQ competencies. Further, Self-Awareness and EQ (all four boxes) lead to success in the other 360 competencies.

Comparing the top and bottom 360 scorers, there is a significant difference in Self-Awareness scores, which were measured on a 1 to 5 scale with 5 being the top:


top-stocks-to-invest-in


Consider two investment professionals from the same firm. Each participated in a 360 review with the same associates providing feedback. The results confirmed that each participant is seen as a gifted investor and is well regarded for their technical skills. In addition, the data showed the raters believe the subjects are both good people with good intentions.

Yet outside of technical skills and IQ, their 360 results diverged. One had a high average of 4.6, the other a low one of 3.3. Our hypothesis — that Self-Awareness will determine overall competency scores — is reflected in these Self-Awareness scores:


top-stocks-to-invest-in


One of our Self-Awareness assessments asks participants to rate themselves on the following: “I seek feedback and attempt to always learn and improve myself.”

This statement captures a key competency studied by the Center for Creative Leadership (CCL) called “Learning Agility.” This refers to an openness to feedback combined with a willingness to make good use of it. CCL’s research found that this trait was the chief determinant of executive success. The peer- and self-assessments rating the Learning Agility of our two participants yielded a wide gulf in perception:


top-stocks-to-invest-in


The results for these two individuals reflect what we found overall. Good leadership skills depend on high Self-Awareness.

When I debrief participants on their 360 results, I can tell pretty quickly who is open to learning and improving. High scorers lean into the data. They pay attention. They ask questions. They want to improve.

Unfortunately, many low scorers have the opposite reaction.

One case, in particular, stands out. The portfolio manager in question resisted the whole 360 process. Convinced that the results would be biased, he requested two different sets of raters: one that he picked and one selected at random. When it came time to review the findings, he demonstrated that he had not read the report. In our debrief, he spent most of the time asking unrelated questions. He refused any follow-up coaching. The firm he works for loses analysts on a regular basis because many don’t want to work with him.

My reaction to experiences like this is both sadness and compassion. I would like to see all people learn and improve. Low EQ individuals are often good people with great technical skills. They have the ability to learn and improve. Unfortunately, they choose to be defensive and closed, rather than curious and open.

The good news is that some do “get it.” The light turns on. They see that their defensive stance is harmful and they begin to open up and learn.

One of our success stories: a COO who at first showed all the resistant, defensive signs. He challenged our process, our credentials, and our motives. When he saw the results, which were poor, he questioned them as well.

The turning point came when we asked him to show the findings to his family. We said, “If they agree that the results are bogus, then we won’t mention the 360 again.” He followed our suggestion. “Yes, that’s you,” his wife and adult children told him. The COO was shocked. He decided then and there that he wanted to change.

Several years have passed and his colleagues have told us many times that he has changed for the better. People can and do change. But only if they are open to feedback and committed to learning.

Those investment management professionals are exceptionally bright and motivated. If they are willing to drop their resistance to change, their Self-Awareness and EQ will improve. It’s a choice. Some of my favorite coaching experiences involve individuals who made the decision to learn and change.

The message is clear: Drop your defenses so you can learn, grow, and improve.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/TonBoon


Jim Ware, CFA

James Ware, CFA, is the founder of Focus Consulting Group, a firm dedicated to helping investment leaders leverage their talent. Ware is the author of “Investment Leadership: Building a Winning Culture for Long-Term Success,” and “High Performing Investment Teams,” both of which discuss those elements of leadership and teamwork that lead to sustainable success for investment firms. Ware has 20 years’ experience as a research analyst, portfolio manager, and director of buy-side investment operations. He has been a guest lecturer on the topic of investment firm management at the Kellogg Graduate School of Management, Northwestern University. Ware has a Masters in Business from the University of Chicago and a degree in philosophy from Williams College, where he graduated Phi Beta Kappa.

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