What does meditation or doing the dishes have to do with generating alpha or deciphering global events? A lot, argues Jason Voss , former portfolio manager, author of The Intuitive Investor and Content Director for the US CFA Institute. Voss argues that money managers, who usually tend to be numbers-oriented, can outperform peers by using intuitive right-brain thinking, to make better investing decisions. Business Line caught up with him over phone during a recent trip to address the India Investment Conference conducted by the CFA Institute.

In your address to the Indian Association of Investment Professionals, you talked about the role of intuition in investing. What do you mean by intuition? Is it gut-feel?

That’s a common problem that many people have with the word intuition. They relate it to gut instinct. That’s wrong. Gut instinct relates to the ancient part of the brain — the amygdala — which reacts to unknown or scary events, and helps us get away quickly. Intuition is different.

It is that flash of understanding that comes out of nowhere. It’s that Aha moment that helps us understand something we have never understood before.

To have that flash of intuition, you need two things. You need to have deliberated on some issue in detail and you need to be in a relaxed state of mind, not trying to be overly logical.

As intuition comes to you by chance, can you really rely on it to make regular investment decisions? When you need it, it may not come to you.

Yes. But if you are talking of an individual investor, he or she is not someone who needs to make a decision everyday. She can be careful and deliberate her choices over time to make her decisions.

Sometimes, reading a fund manager’s interviews can give you an excellent feel for the kind of person they are.

You can also consciously aid intuition by getting into a relaxed state of mind. It may be through meditation or simply something that rejuvenates you, like doing the dishes!

Fundamental analysis in India seems to rely a lot on mathematical modelling. So where does the right brain or intuition come in?

Mathematical models are estimations of reality. One pet theme of mine is that there is no such thing as a future fact. Facts are things that occurred in the past.

To be a successful investor, you need to understand the future. Therefore, facts and investing are actually at cross purposes to each other.

Relying solely on facts and mathematical models of them to invest, is like conducting an autopsy to find out how where a person will be in their lives in five years.

In other words, it provides some information, but also leaves out much of how we would normally assess that situation.

You gave the example of Russia to talk about the investors’ tendency to erroneously use context. Can you explain that?

Finding similarities is easy; finding differences is not. The nature of the world is that if you search hard enough, you will always find events in the past that were similar to what is happening now.

When Russia recently invaded Ukraine, there were a lot of references to how this could escalate into another Cold War.

But if you ask a different question, which is — Does Russia have the resources to successfully invade Ukraine? — The answer is yes. That leads you to answer that Russia is simply trying to create a mosquito bite for Western Europe and the US that they can’t scratch.

This situation is nothing like the past. An individual investor must develop the ability to see differences between situations.

In your talk, you suggest that investors should use different scales to evaluate companies or stocks. What do you mean?

Most analysts have a preferred parameter on which they evaluate a sector or stock — it could be revenue per passenger kilometre for an airline or book value for bank.

But to get another perspective, you should evaluate the stock on a different parameter. Let me give an example that a retail investor can relate to.

Most sell-side reports are about trying to get the investor to transact on a stock.

You will never find a sell side report that says nothing is happening with the company. But as an individual investor that may not be your objective. So you can use different time scales to evaluate a decision.

You can ask — How comfortable am I if this stock doesn’t perform for one year, or three years or five years? That may give you a sense of how comfortable you are with volatility. You can also take a company which is already in your portfolio and ask- what if the things I really like about this company change in some way? What if the CEO resigns? What if it taken over by a European company? This allows you to evaluate the investment on a different scale.

How can an ordinary investor avoid biases in investing?

People need to begin documenting their decisions. Most people think it is sufficient to track their investment portfolio, but portfolio returns and the securities in it make up only a minuscule portion of all the decisions you make while investing. I would advise keeping a diary. You keep revisiting the diary. If you were wrong, you can learn from it.

Having met several Indian portfolio managers during this trip, do you find any biases among them?

This is my first trip to India. One thing I find is that the investment community here almost apologises for India. So, we (the economy) could be further along than we really are. Most people seem to be really apologetic about the past. But investing is about the future. So why not just focus on what works and build on it? I am a fan of India and so I think this is wasted energy.

Related Topics