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Human Performance, Performance | Apr 3, 2020
Denise Shull of The ReThink Group explains why a systematic assessment of the convictions at play in that risk vs. reward process could be your competitive edge.

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The world of sport may be able to learn from hedge funds when it comes to the decision-making process behind hiring staff and managing athletes.

This is the view of Denise Shull, who first delves into the parallels. “At a hedge fund, chief investment officers oversee portfolio managers, who report to them on the performance of various stocks, currencies or options,” she tells the Leaders Performance Institute. “The relationship is akin to that between a head coach and their position coaches or coordinators.”

“These portfolio managers then take their assets and try to manage their relative strengths and how they fit together in much the same way as an offensive coordinator might work with his staff and the team’s offensive players.”

Shull is a Performance Coach who serves as the Principal of the ReThink Group, a New York-based human capital consultancy that leverages the neuroscience and psychoanalytical research into creating new levels of human performance.

“An NFL coach told me that the most important part of his job was picking the coaches that report to you him,” she adds.

“It’s like the process of picking stocks. Human coaches and financial instruments have characteristics and have historically behaved in a certain way. You’re predicting that they will behave in that same way when they blend into a coherent portfolio of strengths and weaknesses with the other people or stocks that you picked. If they are successful, then their success is your cumulative success.”

However, there tends to be a fundamental difference in the decision-making process as she sees it and therein lies the lesson for sport. “Someone who works for a hedge fund is always thinking: ‘what’s the risk of this choice versus the possible reward?’,” says Shull. “I don’t think too many head coaches are doing that when it comes to hiring their staff but I think it is something they could adopt. It’s an offsetting of strengths but maybe more importantly of weaknesses. Portfolio managers look at individual risk/reward and portfolio-level risk reward. “In sport, we tend to think positive. The assumption tends to be that everything will work out well. They don’t necessarily think about what the real risks are. They just focus on the reward. Or if they do think about the risk then they seldom talk about it.”

“The bias in sport is towards optimism whereas in a hedge fund, for the most part, the bias is towards pessimism; ‘this is the best decision we can make but let’s assume this is not going to work out’.

Confidence in your analysis

“Human beings,” continues Shull, “always make decisions based on their feelings of confidence. They think it’s their data but it’s actually the feelings about the data. How much belief and confidence do you have in the data and its implications? That’s why confidence is something you can analyze and work with in an intentional way. You can deconstruct for example the emotion of trust or the comfort in hiring a known person and ensure the hire is happening for the best risk/reward ratio.”

She explains that hedge fund managers use conviction, an intense form of confidence, as their cornerstone. “Conviction, at the end of the day, is an emotion. It’s a bodily experience with a physical sensation that gives meaning to a set of circumstances. You do all your work, you make all your predictions, you think about what the risk is, but you believe that your prediction of the future is most accurate.

“Conviction is the central piece of what they do and I spend a lot of time coaching them back to their convictions. The environment is fluid, things don’t turn out like you think they would turn out, just like in sports. The best place to make a decision from is not to react to the fact that everything is going wrong but to step back and ask what do we believe and how did we get here and what do we still believe, how have our beliefs changed? What do we have conviction in?

“If you make a reactionary decision it won’t necessarily work out that well. You react and have to react again. You ask yourself why didn’t I stick with my conviction? That’s a worse place, psychologically, to be in than making the wrong bet in the first place. You’ve got to find something that is your rock, that is your cornerstone, something that gives you a better platform from which to make a decision.

“It sounds easy in sport because there’s good and bad players and wins and losses; but the results in any given moment don’t tell the whole story and it’s the same in the hedge fund world.”

The difference is that the hedge fund world is very systematic in establishing its conviction. “In sport, I don’t think there’s much awareness that you can work with conviction – or confidence – as an entity. That you can come to understand your own patterns and you can become more adept at recognizing your intuition – your visceral intelligence – what’s a valid gut feeling and what’s impulsive? You can gain skills in understanding the data in your feelings – if you decide to.”

This is where she believes sport is missing out. “You can be structured and analytical in what you believe, how much confidence you have, and what happens when you start to lose confidence.”

Shull, who has done research with coaches in the NFL, says that football practitioners might have an opportunity in adapting the kind of  risk-reward culture found at hedge funds and other professional portfolio managers. “It’s taught in finance and is ingrained in the culture but people at hedge funds have no influence over their ‘players’; they have to sit back and wait for their stocks. In that sense, the coach has an influence that’s prevented them thinking in risk-reward terms; they can change the risk-reward parameters in a way that the hedge fund manager can’t.”

Shull cites an example of how this plays out at a hedge fund. “I bring a matrix to my clients where we develop a spectrum of confidence that’s specific to that organization. “It’s a 1-7 scale of confidence. Level 1 might be panicked or terrified and level 7 is some form of over-confidence. We take them through exercises where, as an organization, they think about levels 2-6 are, what words describe levels 2-6, then they always use that in their conversations.”

Then they have experience talking about their fears in an organizationally acceptable way. This is huge in macho-oriented cultures. It also makes it easier to say “I was a 5 and am a 2!!!” on that scale” instead of saying “I’m terrified!” After working together to develop a scale, they have a  structured way of thinking about their own psychology.”

Where does a manager or coach ideally want to be on this scale of confidence? “I think level 5 is an optimal or safe place to be – you’re confident but there is still some doubt. We will have taken them through the typical fears like fear of missing out, if they don’t buy that stock right now, and then there’s also personal fears about reputation or future careers. We’ll build this organized way to understand and communicate about their level of confidence.”

Emotions as a competitive edge

Shull explains that such an approach is transferable to the world of sport, although the Leaders Performance Institute points out the probable resistance she would encounter when exploring emotions.

Her response is ready: “That makes it a competitive edge – that’s the irony. If they have the courage to change their feelings about that. For all the searching for the infinitesimal edges that goes on in sport; all the money, resources, investment, for the tiniest edges. Here’s one that’s huge.”

Sport, as she points out, is learning to use psychologists to safeguard and maintain its athletes and staff’s mental health and wellbeing but feels that an improved understanding of emotions can take the mental aspect further. “Coaches don’t realize that they can work with their gut feeling or their confidence – or their lack thereof – in an organized and systematic way. Sport psychologists tend to take a cognitive approach to feelings also but the more you try to ignore emotions the more they’re going to come out in another, usually less productive, way.

“Everyone has to have confidence to make their risk decisions and confidence is an emotion. You can use it as an edge, to ground you, and make better decisions.

“What’s going to happen on the field next week is unknown, so if you have a grounding in what you believe and why you believe it gives you something that doesn’t change; it gives you something you can rely on; it gives you a more stable place to work from once you have honored the feeling as a source of information

“Put simply, when hiring a coaching staff and players, there can be benefit to thinking in risk-reward terms. There’s an idea in the hedge fund world that if you manage the risk then the rewards take care of themselves.”


What is it going to take to win in 2020?

That is the focus of our latest Performance Special Report. Download The High Performance Manual: Winning in 2020, which features sports organisations as diverse as Red Bull, the Brisbane Lions and the Royal Military Academy discussing the pertinent topics across Leadership & Culture, Coaching & Development, Human Performance and Data & Innovation.

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