Building a “Slow-Thinking” Team
With: Scott Minerd, Guggenheim Partners Global CIO, Portfolio Manager, Litman Gregory Masters High Income Alternatives Fund
Date: November 14, 2019
Jack Chee: We’re going to spend most of our time getting in your views on the markets and the economy but before we get into that I think it’s worth stepping back and touching on the foundation of everything we’re going to talking about subsequently which is the investment team structure. And I think while many people may know that you lead the investment team, what they may not know is that you were the main architect of the process itself, which has been the box that you used to build the structure that you're using almost 20 years now. So you started basically with a blank sheet of paper. You drew off of Adam Smith’s work and the Wealth of Nations and the division of labor concept. You even looped in Danny Kahneman the Nobel prize winner, for behavioral economics. So you have some really interesting building blocks that you used to build this structure so I thought we should at least step back and put that out there.
Scott Minerd: Sure.
I've got to tell you, I used to run risk for fixed-income in Europe and in the US for a number of Wall Street firms. I watched the behavior on the buy-side, and in those days, you could run trading like a hedge fund. That's the way I did.
When we started the investment management business, I wasn't smart enough to really look at how anybody else did it. I never really even considered the idea to look at someone like PIMCO or Blackrock or anybody in the industry. I just sat down and said, "How should this process work?"
As you'd mentioned, Adam Smith and his work on the segregation of duties – by segregating duties, not only do you increase efficiency, but you increase the quality of work.
Then I was fortunate at that time -- because I went to the University of Chicago, and one of my partners was a member of the board of trustees – to have the opportunity to meet Danny. Danny at that point had not yet won the Nobel Prize. But he had a lot of interesting things.
He made some interesting observations. One is that investors sell when they should buy and they buy when they should sell. Among other observations that I think everybody here would easily recognize.
But as the only Nobel Prize Laureate in Economics to ever win the prize that does not have a degree in Economics, Danny is a psychologist. His study of human behavior in investing – he was able to empirically prove that people systematically make bad investment decisions. For that, he won the Nobel Prize.
But it's interesting. Because when you talk with Danny and listen to him, and how you make decisions, he says very few things. But he asks questions.
Obviously he's a brilliant man. If anybody is not familiar with his book, "Thinking Fast and Slow," it's not just a great book on investing; it's a great book on virtually everything.
Danny is well-deserving of the prize, I think.
The latest news, which I think you know – Danny just agreed to join our board of directors. So we're the only asset-manager in the world where Danny Kahneman has actually been willing to lend his name and credibility to an asset-management firm.
Jack Chee: So, you've built this collaborative team kind of slow-thinking structure. Really what I think what's clear to us is it's not really the "Scott Minerd Show." Right? It's not you sitting in an office saying, "Duration should be XYZ."
Scott Minerd: Yes. Just don't tell my partners.