Saturday, July 05, 2014

Values, Innovation, Strengths, and Trading Success

I like this New York Times article on companies that pay employees well above prevailing normal wages in order to secure top talent and highest loyalty.  It's an example of thinking outside the box.  In this case, the box is that you have to minimize expenses in order to maximize profits.  The out-of-box idea is that maximizing compensation and benefits secures the best workforce, provides the best service, and ultimately generates the best retention of customers.  In the case of companies that provide premium compensation, values are an important driver of the business model change.  One executive put it this way:  "If we're talking about building a business that's successful, but our employees can't go home and pay their bills, to me that success is a farce."

Values enter the picture when the motivation driving the business is to do the right things, not just to do things right.  Values drive the innovation; they are the motive force that nudge people out of the box.

At several trading firms where I've worked, I've been part of the hiring process.  Over the years, I've had a front row seat to who succeeds and who does not.  The one conclusion that experience has taught me is that generic approaches to business cannot produce extraordinary results.  If a trader describes a generic thought process in a recruitment interview; if a company's traders are generating consensus ideas from reading the same research and looking at the same information; if a company's management does not innovate in the running of the business, then why should we expect uncommon results from them?

To innovate, however, you have to be willing to fall flat on your face.  It was Edison, after all, who said, "I have not failed.  I've just found 10,000 ways that won't work."  It sure feels like failure when you're at the 5,000 mark, though, and it's likely to look like failure to others.  The status quo seems far more secure; as Keynes observed, "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally."  If your profit margins are suffering and you're paying employees premium wages, you come perilously close to looking like a well-intended idiot.  It takes a deep level of commitment to values and vision to see any campaign through.

Back when Big Data was not a big thing, I recall meeting a trader who hired dozens of college kids to surf online and check prices for hotels, car rentals, airfares at different times and across different locations.  The kids spent hours and hours each week checking those prices and never once did they actually reserve anything.  Instead, the trader assembled the data into pricing curves that expressed whether business was getting firmer or softer over time, region by region, industry by industry.  The aggregated data provided a meaningful real-time window on consumer discretionary spending, which in turn had forecasting promise for the economy.

You know when you are in the presence of talent, because the originality of their efforts smacks you in the face and you have the unmistakeable impression of, "Why didn't I think of that??!!"  Looking at new information in new ways and assembling those data into fresh insights:  that's what creates a trading edge.

Those trading edges come from signature personality, social, and cognitive strengths.  The trader with the college shoppers was a data junky and loved piecing data together into coherent pictures, whether or not they led to a trade.  The values that drove his business were born of his strengths as an information processor:  he loved learning and investigation.  In a very real sense, the business was an expression of who he was as a person.

When you're doing what you believe in--when you're expressing the very core of your strengths and what you love doing--you don't need discipline to work long hours or stick to your plans.  You don't need to be pushed to do the right things when you're pulled by what you believe to be right.  If a strong trading business is the expression of the trader's signature strengths and the innovations that embody those, there can be no question of greater importance to trading success than:  "What makes me--and my trading--special?"

Further Reading:  Signature Strengths and Trading Success