We welcome our very own VP of Business Development, Jason Cooper, for this guest post:
As the Head of Sales for Alpha Theory, I get to spend my days acting as a diagnostician/thought partner to wickedly intelligent people (Hedge Fund PMs and analysts), helping them unpack, assess and formalize their investment process to achieve greater discipline, speed their path-to-action and improve outcome quality and consistency. In short, I get to help smart decision-makers make even smarter decisions. We’re really good at what we do and it’s a ton of fun!
In my personal life, however, I’m less accomplished in this area. Like many (a/k/a all?) in committed relationships, I attempt, regularly and unsuccessfully, to provide objective and impactful counsel to my better-half on life decisions, large and small. For low-stakes decisions, my opinions are solicited and just-as-quickly dismissed. No (little) fuss. No (little) muss. As the stakes increase, however, so does the likelihood that I’ll receive “negative feedback” that in some cases can be quite severe (interestingly enough and somewhat counterintuitively, exercising the “no opinion” option actually can yield the highest severity negative feedback of all). Anyway, I’d pretty much resigned myself to a lifetime of the observed dynamics until I had a breakthrough – a “hack” if you will – worth sharing. The following is a true story. Identities have been withheld to insulate myself from any potential regulatory/legal liability or potential verbal/physical retaliation:
Recently my better half sought my advice on a high-stakes decision. As a mid-level employee for the online division of a large, listed retailer, she had become increasingly unhappy in her role so she began looking for new opportunities, quickly catching the attention of a hiring manager for a new economy darling who was eyeing her for a more senior position with significantly higher pay. Successfully (and discreetly) progressing through a grueling, multi-round interview process that has become something an urban legend in Silicon Valley circles, she was notified that she had been selected as one of the final candidates for a full-day, on-site, round-robin format selection interview. She got this notice on Friday afternoon and the interview was set for the following Monday. The problem? She had been preparing all quarter for a presentation to senior management scheduled on the same day as the interview, a presentation that had been on the calendar for months and was understood to significantly inform her annual performance review and, by extension, influence her career trajectory.
What to do? Option #1: Bag the presentation – at significant professional risk - for the chance at her dream job. Option #2: Miss the job interview, play it safe, nail her presentation and continue her unhappy existence until the next promotion?
The decision, emotionally charged, was long on variables and short on complete information. Rational thinking had been abandoned. I did my best to listen and suggest ways to frame the decision. Sparing the details, in sum, it didn’t go well. Finally, when all else seemed lost, I gasped “let Alpha Theory tell you what to do!” In my amazement, she immediately calmed, processed this unusual suggestion and agreed. We spent the next 30 minutes defining and structuring the scenarios, associated payoffs, probabilities, time horizons, other key assumptions (like what annualization methodology we’d use, how we’d account for reinvestment rate and the width of the potential distribution of returns, etc.) and how we’d judge the results and act (i.e. like a poker player).
- Positive expected return: Bet (prepare a colleague for the presentation and go to the interview).
- Negative expected return: Fold (miss the interview and take your chances with the existing job).
I plugged everything into Alpha Theory. Here were our results (salary details have been altered):
Clear. Unambiguous. Unemotional. Actionable. Fast. Alpha Theory said “go to the interview”. I emailed her the screen shot above and, to my amazement, she instantly and calmly replied, “Okay. I’ll do it”, which was followed shortly thereafter by an enthusiastic one-line email reading, “I need Alpha Theory for my life!”
Of course you know how this story ends: she pushed off the presentation to a colleague and went to the interview, nailed it and got the offer two days later (which she accepted). This story illustrates the importance of frameworks and using them explicitly (vs. implicitly) to help drive a decision process that yields higher quality outcomes (with lower stress). This was a straight-forward, point-in-time binary decision (go vs. don’t go) and nonetheless was difficult to answer in the face of such high-stakes, so many subjective variables, the human condition (daily decision-fatigue, general fallibility). Can you imagine how much harder it is for investors who are trying to ‘solve for’ a similarly complex primary buy/sell decision but also the second order decision of “how much”? I can, because I see it every day and I’m amazed how many sophisticated investors effectively try to “white-knuckle it” using their mental heuristic when they don’t have to.
Next time you or your significant other have a life decision, try using Alpha Theory. You may not achieve true objectivity and we can’t guarantee a right answer, but the structure and discipline will help drive a more ‘subjectively rational’ decision and maybe…just maybe…no significant other will be injured in the making of this decision.