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Diverse Thought, Endless Possibilities

When a society embraces cognitive diversity, powerful outcomes can result. In this episode of The Active Share, Hugo sits down with Matthew Syed, a best-selling…

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When a society embraces cognitive diversity, powerful outcomes can result. In this episode of The Active Share, Hugo sits down with Matthew Syed, a best-selling author, highly acclaimed speaker, and award-winning journalist, to discuss what it means to think in complex ways; the implications of moving away from group think; and how investors can benefit from diverse cultures and voices.

Comments are edited excerpts from our podcast, which you can listen to in full below.

You spend a lot of time on how society thinks, and how that might be wrong. Could you frame that as group think versus cognitive diversity?

Matthew Syed: It’s interesting that you’ve chosen to characterize that distinction between group thinking and cognitive diversity.

I do feel that diversity as an attribute of groups, networks, and societies is quite misunderstood. It’s also mission critical to how we come up with great innovation, wise strategies, and accurate empirical predictions. 

In fact, diversity shapes wisdom in almost any area of complexity, and this is fundamentally under-optimized in the world today. Getting diversity right has tremendous and often counter-intuitive power, and it certainly contrasts very vividly with the problems we have in many parts of the world today, which is different varieties of group think.

Why is group think persistent? It’s easy to say, “I want cognitive diversity,” and then walk into the next meeting and be guilty of group think. How do we break that?

Syed: I think the key is properly defining and then specifying the circumstances in which cognitive diversity works.

We often think of diversity in demographic terms, differences in race and gender, and social class. Cognitive diversity is a different way of thinking of diversity. Differences in insight, perspective, information, but also the mental models or heuristics that we deploy, consciously or otherwise, to filter information to reason through problems.

There’s often an intimate link between these two concepts of diversity—demographic and cognitive—because our demographic backgrounds shape the experiences we have in our lives and the way we think about certain things.

I think where you really break out of group think is when you optimize for true cognitive diversity, which requires a real analysis and an insight about how to do it and do it well.

I think where you really break out of group think is when you optimize for true cognitive diversity, which requires a real analysis and an insight about how to do it and do it well.

I have two immediate questions. How would you test for true cognitive diversity in the hiring process?  Have you come across organizations where you thought they’ve cracked this?

Syed: It’s a great question and gives me a chance to tell a brief story. I happen to sit on a committee that advises the England men’s football coach, Gareth Southgate. It’s quite an eclectic team. In addition to me, with my interest in culture and psychology, there’s Lucy Giles, who runs the Sandhurst Military Training Academy; David Brailsford, one of the best cycling coaches in the world; Manoj Badale, who’s an expert in artificial intelligence (AI); Sue Campbell, who’s an Olympic sport expert; Michael Barber, an educationalist; and David Sheepshanks and a few others.

I want you to ponder how English football insiders thought about this advisory group when the composition of it leaked. You can kind of imagine, right? They’re horrified. How dare these outsiders come and tell us how to play football?

But if you surrounded Southgate by other English-based football managers, you’d have a lot of domain knowledge. The problem would be the same knowledge replicated five, six, seven times. That’s not an innovative team; it’s an echo chamber. They’re agreeing all the time. It’s comfortable, but they’re not going to come up with innovation on the pitch.

What’s fascinated me about this group is when somebody shares an idea not known by the others in the group. That is divergent thinking. That’s a cross-pollination of ideas and this is where you get a big uplift in the collective intelligence of groups.

To answer your question directly, some organizations explicitly have a cognitive diversity strategy, and I believe they’re going to win in the marketplace that we’re in today–one of complexity and rapid change. Those that don’t are going to lose because they’re going to miss out on what it takes to solve difficult, complex problems and come up with new ideas.

Some organizations explicitly have a cognitive diversity strategy, and I believe they’re going to win in the marketplace that we’re in today–one of complexity and rapid change.

For an organization to embrace intelligence design around cognitive diversity, is it offered in reaction to mistakes? Is it strong leadership or a coming together of something in between?

Syed: It does certainly happen after big failures.

In the case of the CIA, you can trace the profound strategic misjudgments of the post-war period to an analytical intake that was dominated by West Coast, middle-class, Anglo-Saxon, Protestant, and liberal arts male graduates. The recruiters hired people that looked and sounded like them.

Of course, people from that background have a huge amount to contribute to a diverse team. But when you have over 90% from that background, and you’re trying to anticipate emerging threats in different kinds of societies, with different patterns of religious radicalization and alienation, you’re not going to be able to effectively distinguish signals from noise.

You’re not going to have the right array of perspectives, and I think the CIA has acknowledged this. I think British post-war foreign policy has suffered from some of the same biases. What you want, I think, is buy-in from a critical mass of people in an organization that is important for us.

Another example: I was at Oxford University a couple of weeks ago and sat next to the professor of molecular biology and asked, “What are you working on at the moment?” And he said, “Well, I’m working on species of fungi. These mushroom-type species.”

Insights into these fungi provide some useful information about biological evolution. I knew the answer before I asked the following question, “Who are you working with?” And he said, “Well, it’s funny you should say that. To get a really great team together, I’ve had to reach out beyond molecular biology.”

Academics who stay rigorously within their own silo get stuck in an echo chamber and they’re not producing great science. I think the same is true of professional services firms. For the big value-add problems they’re solving, they need different lines of service to come together to provide a strategic overview that unlocks value creation.

Academics who stay rigorously within their own silo get stuck in an echo chamber and they’re not producing great science.

A lot of what you’ve talked about applies to middle-aged people in positions of authority. Let’s talk about younger folks. How do they think and how are they different?

Syed: About five or six years ago, I was invited to a school to give a talk at the opening. One of the students did a performance where you have a baton and you waive it around and throw it up and catch it.

I’ll never forget how the room became tense with anxiety. What if this young person drops the baton? And about two-thirds of the way through, the baton did fall, and a sense of complete mortification dropped around the room.

I ripped up the speech I was intending to give, and I gave a talk on the absolute imperative importance of failing. When we take a risk and we fail, we often learn that life isn’t about always being perfect but about having the resilience to face up to setbacks and challenges that are an absolute necessity if we’re going to reach our full potential.

There is a phenomenon called the curse of perfectionism. Social media, to a certain extent, has exacerbated it, where people curate their lives to look wonderful on the internet. Young people engage with this and think that life is about acting and looking perfect.

But if you want to look perfect, you never take risks. You never try anything new. You never have the courage to get up on stage and be somebody who’s willing to wield the baton. And yet, failure is central to the learning process.

Do you think social media is leading to a change in the way minds work and how we think?

Syed: Going back to diversity and group think, there is a tendency for people to surround themselves with the ideologically likeminded. They’re effectively hearing opinions they already agree with, which can be wonderfully comforting, and it’s not necessarily a bad thing if your group has a monopoly of good ideas.

It’s slightly problematic if you’re shielding yourself from other ideas from which you might learn, which is why a curious mindset is such an important asset.

But on the wider point, I do sometimes worry that young people are kind of living through a gigantic social experiment, the kind we simply don’t know the results of yet.

We’re induced to stay on these platforms longer than what is good for us because that enables them to sell us to advertisers and harvest our data. I hope we reach a better and more benign accommodation with social media.

We talked a lot about how to think. Now I want to talk about how to perform. What stops people from reaching their full potential?

After transitioning from being a ping pong player, I wrote a book called Bounce. I didn’t expect anyone to read it, but a few people did. An unintended side effect was being invited to give a talk at Goldman Sachs.

I had done very little public speaking. I turned up suffering desperately from imposter syndrome and wondering why I was in front of this room. I was nervous and I didn’t do terribly well. I got heckled a couple of times, and on the tube on the way home I thought, “If I’m invited to give another talk by a company or anyone else for that matter, I’ll politely decline.”

Think about that: One negative experience, and I drew the conclusion I didn’t have the innate talent to read a room, effectively severing all possibility of future learning. This is called a fixed mindset, and it’s tremendously damaging because it imposes very powerful self-limiting beliefs.

But a couple of days later, I thought, “No, hang on.”

You can potentially improve at public speaking. I Googled public speaking practice, and the first tip was an organization called Toastmasters, which is a global network of public speaking clubs. I went every second week for about five years.

I’m not saying that I’m now the best speaker in the world, but what amazed me was how much we can improve when we have that can-do attitude, and we’re liberated from these self-limiting beliefs.

Pressure is something that happens to everyone. Should the way one responds to pressure be a lesson learned, or it is coachable?

I think this is a phenomenon we must take seriously. Under pressure, we sometimes trigger the fight-flight-freeze response, and that can be catastrophic for rational decision-making when the stakes are very high. What we need are a series of strategies to help us deal with it.

Can it be coached? Yes, for sure, by putting yourself in that environment. Over time, you’ll begin developing strategies to deal with the emotions and the rising heartrate.

The thing that I do if I’m nervous before a big speech or a big broadcast is instead of thinking of the absolute worst-case scenario as you’re about to perform, think, “Well, hang on a second. Win or lose, perform well or perform badly, my mom will still love me.”

When you have that ground-level truth, it’s something that you can build from psychologically, so that when you get into the crucible of the performance, you have positive, rather than negative, thoughts coursing through your mind.

Let’s talk about investing. If you had to become an investor tomorrow, what would you take from what you’ve learned so far?

Syed: The first is learning from mistakes.

If you make a particular prediction that turns out not to be a good one, update your assumptions or model considering that new information. If a particular stock has gone down in value, be willing to cut the losses. What tends to happen is that people hold their losing stocks twice as long as their winning stocks because they don’t want to crystalize a loss; they hold it hoping that it will rebound.

And if a stock has gone up in value, be willing to run the winner.

The other thing is getting different points of view when it comes to an investment decision. There’s very good evidence that groups tend to perform better when there is a contrarian who’s willing to speak up and disrupt the consensus. But what you really want is lots of people with deep subject knowledge that is different from one another but all of which is relevant to the problem you’re trying to solve.

You want a mix of insiders and outsiders to get that wonderful synthesis, so that you disrupt the group think; you can cross-pollinate ideas and hopefully triangulate across the best decision of all.

This gets us back to where we started—cognitive diversity that’s well and intelligently designed is a must have.

Syed: It’s an absolute mission-critical variable. Organizations that will thrive and shape this post-pandemic age are going to be camped out in that terrain.

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The post Diverse Thought, Endless Possibilities appeared first on William Blair.

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Pharma industry reputation remains steady at a ‘new normal’ after Covid, Harris Poll finds

The pharma industry is hanging on to reputation gains notched during the Covid-19 pandemic. Positive perception of the pharma industry is steady at 45%…

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The pharma industry is hanging on to reputation gains notched during the Covid-19 pandemic. Positive perception of the pharma industry is steady at 45% of US respondents in 2023, according to the latest Harris Poll data. That’s exactly the same as the previous year.

Pharma’s highest point was in February 2021 — as Covid vaccines began to roll out — with a 62% positive US perception, and helping the industry land at an average 55% positive sentiment at the end of the year in Harris’ 2021 annual assessment of industries. The pharma industry’s reputation hit its most recent low at 32% in 2019, but it had hovered around 30% for more than a decade prior.

Rob Jekielek

“Pharma has sustained a lot of the gains, now basically one and half times higher than pre-Covid,” said Harris Poll managing director Rob Jekielek. “There is a question mark around how sustained it will be, but right now it feels like a new normal.”

The Harris survey spans 11 global markets and covers 13 industries. Pharma perception is even better abroad, with an average 58% of respondents notching favorable sentiments in 2023, just a slight slip from 60% in each of the two previous years.

Pharma’s solid global reputation puts it in the middle of the pack among international industries, ranking higher than government at 37% positive, insurance at 48%, financial services at 51% and health insurance at 52%. Pharma ranks just behind automotive (62%), manufacturing (63%) and consumer products (63%), although it lags behind leading industries like tech at 75% positive in the first spot, followed by grocery at 67%.

The bright spotlight on the pharma industry during Covid vaccine and drug development boosted its reputation, but Jekielek said there’s maybe an argument to be made that pharma is continuing to develop innovative drugs outside that spotlight.

“When you look at pharma reputation during Covid, you have clear sense of a very dynamic industry working very quickly and getting therapies and products to market. If you’re looking at things happening now, you could argue that pharma still probably doesn’t get enough credit for its advances, for example, in oncology treatments,” he said.

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Q4 Update: Delinquencies, Foreclosures and REO

Today, in the Calculated Risk Real Estate Newsletter: Q4 Update: Delinquencies, Foreclosures and REO
A brief excerpt: I’ve argued repeatedly that we would NOT see a surge in foreclosures that would significantly impact house prices (as happened followi…

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Today, in the Calculated Risk Real Estate Newsletter: Q4 Update: Delinquencies, Foreclosures and REO

A brief excerpt:
I’ve argued repeatedly that we would NOT see a surge in foreclosures that would significantly impact house prices (as happened following the housing bubble). The two key reasons are mortgage lending has been solid, and most homeowners have substantial equity in their homes..
...
And on mortgage rates, here is some data from the FHFA’s National Mortgage Database showing the distribution of interest rates on closed-end, fixed-rate 1-4 family mortgages outstanding at the end of each quarter since Q1 2013 through Q3 2023 (Q4 2023 data will be released in a two weeks).

This shows the surge in the percent of loans under 3%, and also under 4%, starting in early 2020 as mortgage rates declined sharply during the pandemic. Currently 22.6% of loans are under 3%, 59.4% are under 4%, and 78.7% are under 5%.

With substantial equity, and low mortgage rates (mostly at a fixed rates), few homeowners will have financial difficulties.
There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

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‘Bougie Broke’ – The Financial Reality Behind The Facade

‘Bougie Broke’ – The Financial Reality Behind The Facade

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Social media users claiming…

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'Bougie Broke' - The Financial Reality Behind The Facade

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Social media users claiming to be Bougie Broke share pictures of their fancy cars, high-fashion clothing, and selfies in exotic locations and expensive restaurants. Yet they complain about living paycheck to paycheck and lacking the means to support their lifestyle.

Bougie broke is like “keeping up with the Joneses,” spending beyond one’s means to impress others.

Bougie Broke gives us a glimpse into the financial condition of a growing number of consumers. Since personal consumption represents about two-thirds of economic activity, it’s worth diving into the Bougie Broke fad to appreciate if a large subset of the population can continue to consume at current rates.

The Wealth Divide Disclaimer

Forecasting personal consumption is always tricky, but it has become even more challenging in the post-pandemic era. To appreciate why we share a joke told by Mike Green.

Bill Gates and I walk into the bar…

Bartender: “Wow… a couple of billionaires on average!”

Bill Gates, Jeff Bezos, Elon Musk, Mark Zuckerberg, and other billionaires make us all much richer, on average. Unfortunately, we can’t use the average to pay our bills.

According to Wikipedia, Bill Gates is one of 756 billionaires living in the United States. Many of these billionaires became much wealthier due to the pandemic as their investment fortunes proliferated.

To appreciate the wealth divide, consider the graph below courtesy of Statista. 1% of the U.S. population holds 30% of the wealth. The wealthiest 10% of households have two-thirds of the wealth. The bottom half of the population accounts for less than 3% of the wealth.

The uber-wealthy grossly distorts consumption and savings data. And, with the sharp increase in their wealth over the past few years, the consumption and savings data are more distorted.

Furthermore, and critical to appreciate, the spending by the wealthy doesn’t fluctuate with the economy. Therefore, the spending of the lower wealth classes drives marginal changes in consumption. As such, the condition of the not-so-wealthy is most important for forecasting changes in consumption.

Revenge Spending

Deciphering personal data has also become more difficult because our spending habits have changed due to the pandemic.

A great example is revenge spending. Per the New York Times:

Ola Majekodunmi, the founder of All Things Money, a finance site for young adults, explained revenge spending as expenditures meant to make up for “lost time” after an event like the pandemic.

So, between the growing wealth divide and irregular spending habits, let’s quantify personal savings, debt usage, and real wages to appreciate better if Bougie Broke is a mass movement or a silly meme.

The Means To Consume 

Savings, debt, and wages are the three primary sources that give consumers the ability to consume.

Savings

The graph below shows the rollercoaster on which personal savings have been since the pandemic. The savings rate is hovering at the lowest rate since those seen before the 2008 recession. The total amount of personal savings is back to 2017 levels. But, on an inflation-adjusted basis, it’s at 10-year lows. On average, most consumers are drawing down their savings or less. Given that wages are increasing and unemployment is historically low, they must be consuming more.

Now, strip out the savings of the uber-wealthy, and it’s probable that the amount of personal savings for much of the population is negligible. A survey by Payroll.org estimates that 78% of Americans live paycheck to paycheck.

More on Insufficient Savings

The Fed’s latest, albeit old, Report on the Economic Well-Being of U.S. Households from June 2023 claims that over a third of households do not have enough savings to cover an unexpected $400 expense. We venture to guess that number has grown since then. To wit, the number of households with essentially no savings rose 5% from their prior report a year earlier.  

Relatively small, unexpected expenses, such as a car repair or a modest medical bill, can be a hardship for many families. When faced with a hypothetical expense of $400, 63 percent of all adults in 2022 said they would have covered it exclusively using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as “cash or its equivalent”). The remainder said they would have paid by borrowing or selling something or said they would not have been able to cover the expense.

Debt

After periods where consumers drained their existing savings and/or devoted less of their paychecks to savings, they either slowed their consumption patterns or borrowed to keep them up. Currently, it seems like many are choosing the latter option. Consumer borrowing is accelerating at a quicker pace than it was before the pandemic. 

The first graph below shows outstanding credit card debt fell during the pandemic as the economy cratered. However, after multiple stimulus checks and broad-based economic recovery, consumer confidence rose, and with it, credit card balances surged.

The current trend is steeper than the pre-pandemic trend. Some may be a catch-up, but the current rate is unsustainable. Consequently, borrowing will likely slow down to its pre-pandemic trend or even below it as consumers deal with higher credit card balances and 20+% interest rates on the debt.

The second graph shows that since 2022, credit card balances have grown faster than our incomes. Like the first graph, the credit usage versus income trend is unsustainable, especially with current interest rates.

With many consumers maxing out their credit cards, is it any wonder buy-now-pay-later loans (BNPL) are increasing rapidly?

Insider Intelligence believes that 79 million Americans, or a quarter of those over 18 years old, use BNPL. Lending Tree claims that “nearly 1 in 3 consumers (31%) say they’re at least considering using a buy now, pay later (BNPL) loan this month.”More tellingaccording to their survey, only 52% of those asked are confident they can pay off their BNPL loan without missing a payment!

Wage Growth

Wages have been growing above trend since the pandemic. Since 2022, the average annual growth in compensation has been 6.28%. Higher incomes support more consumption, but higher prices reduce the amount of goods or services one can buy. Over the same period, real compensation has grown by less than half a percent annually. The average real compensation growth was 2.30% during the three years before the pandemic.

In other words, compensation is just keeping up with inflation instead of outpacing it and providing consumers with the ability to consume, save, or pay down debt.

It’s All About Employment

The unemployment rate is 3.9%, up slightly from recent lows but still among the lowest rates in the last seventy-five years.

The uptick in credit card usage, decline in savings, and the savings rate argue that consumers are slowly running out of room to keep consuming at their current pace.

However, the most significant means by which we consume is income. If the unemployment rate stays low, consumption may moderate. But, if the recent uptick in unemployment continues, a recession is extremely likely, as we have seen every time it turned higher.

It’s not just those losing jobs that consume less. Of greater impact is a loss of confidence by those employed when they see friends or neighbors being laid off.   

Accordingly, the labor market is probably the most important leading indicator of consumption and of the ability of the Bougie Broke to continue to be Bougie instead of flat-out broke!

Summary

There are always consumers living above their means. This is often harmless until their means decline or disappear. The Bougie Broke meme and the ability social media gives consumers to flaunt their “wealth” is a new medium for an age-old message.

Diving into the data, it argues that consumption will likely slow in the coming months. Such would allow some consumers to save and whittle down their debt. That situation would be healthy and unlikely to cause a recession.

The potential for the unemployment rate to continue higher is of much greater concern. The combination of a higher unemployment rate and strapped consumers could accentuate a recession.

Tyler Durden Wed, 03/13/2024 - 09:25

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