“Sorry guys, I am late,” was a totally non-contextual tweet that got over a hundred thousand likes. The previous one from the same gentleman was two years ago and had barely scraped through to a few hundred. What changed or is this how the proverbial overnight success looks like?
Chances are high that the name Rahul Tewatia has popped up on your timeline sometime in the past week. In case it has not, he is a batsman with the Rajasthan Royals-a team with a cricketing league in India. He shot to the limelight as he led his team to victory in a limited 20 over match. Chasing an extremely high total, he was painfully slow to start, scoring just 17 off 23 balls, at which point, several experts had summarily written him off (a few had advised the team to retire him). What followed was an extraordinary display of batting skill as he hit six of the next seven balls for sixes, securing victory for his team and an ‘overnight success’ tag for himself.
Well, this puts the tweet in context–late to start his aggressive innings, late to find recognition (at 27 years of age) or late to return to twitter. But no, this is no case of ‘overnight success’. In a beautiful article written for ESPN (link below – resource 1), Sidharth Monga dwells on Rahul’s struggles, offering a deep insight into his psyche. “Bro, you need to fight for what you are owed,” was his retort when mocked by a team mate about, “who asks for recognition from the coach himself?”
Inexplicable prodigies: This was a story of struggles, but there’s something called ‘natural talent’, right? K. Anders Ericsson writes in his book ‘Peak’ that, “I have made it a hobby to investigate stories of such prodigies and I can report with confidence that I have never found a convincing case of anyone developing extraordinary abilities without intense and extended practice.”
Case in point is Wolfgang Mozart, arguably the ultimate example of an inexplicable prodigy, who accomplished so much at such a young age that he must have been born with something extra. But dig deeper and you find that his father, Leopold, began Mozart’s training at an incredibly young age of four and trained him with stupendous vigour. In the book, Ericsson also raises questions on Mozart’s composition skills. Several compositions credited to Mozart, in fact, carry an imprint of Leopold’s handwriting or as musicologists eventually realised, they were all based on relatively unknown sonatas written by others.
Perfect pitch: Conjectures, no matter how professionally researched, are not convincing in disproving a thesis. So let us look at a case of a perfect pitch-a talent widely believed to be a genetic gift. Perfect pitch is the ability to recognise a musical note with total accuracy–for example, one hears a note and correctly identifies it as an ‘E flat’ below the middle C. It is exceptionally rare–only one in about 10,000 people have it, and even among professional musicians, it is not common. Beethoven had it, Brahms did not; Sinatra had it, Miles David did not. Among the recent crop, Charlie Puth has often demonstrated perfect pitch. You either have it or you don’t, it can’t be acquired, goes the common rhetoric.
However, Japanese psychologist Ayako Sakakibara debunked this theory. He recruited 24 children between the ages of two and six and put them through a month’s training course, giving them four or five short training sessions per day. While a few of the children developed perfect pitch in less than a year, others took as long as a year and a half. But, by the end of the experiment, every single one of the 24 kids developed perfect pitch. Ayako demonstrated that with enough practice, almost any ‘talent’ can be acquired.
Tiger cubs: That is all good with music and cricket, but doesn’t our business entail a much more complex mix of art and science? Maybe, but a similar thing was attempted in trading as well. In 1983, Richard Dennis and William Eckhardt, legendary commodity traders, held the turtle experiment. Dennis believed that anyone could be taught to trade. He devised a short training programme and placed an ad in the Wall Street Journal to recruit students. Thousands applied, but only 14 were selected based on binary answers to be given to a set of questions.
He called his student traders “turtles” based on a turtle farm that he had seen in Singapore. The experiment was extremely successful, and the first two groups of students were estimated to have earned USD175mn over the next five years. And, it was not restricted to mere trading, many fund managers and analysts working with Julian Robertson’s hedge fund Tiger Management branched out on their own and did very well (known widely as Tiger Cubs). Add to it the funds that he seeded with this own money (the Tiger Seeds); cumulatively, the Tiger family tree now manages over USD230bn in assets across hundreds of funds.
Fund performance: If skills can be acquired and all you need is enough practice, what explains the recent underperformance of active fund management to benchmarks? Well frankly, we do not profess to know the exact answer, but we have a hypothesis. The frantic rise in competition in the asset management industry has constantly narrowed the time periods when performance is judged. Sales teams compare daily NAVs and annual rankings across funds to judge who is better. People have given up the rat race of employment, just to be ensnared into the rat race of beating other people’s returns.
The need to get it right every single day, day after day, leads to extremely sub-optimal decisions, in our view. This attitude, over time, results in portfolios that increasingly look remarkably similar to benchmarks; and a fund has expenses (annual fees, trading commissions, etc.) that a benchmark does not. Change the period of comparison to cross-cycle evaluation (one cyclical top to another or one bottom to another), which could be a few months, a few quarters or a few years, and we will find a totally changed mindset, ready to take decisions which are more rewarding in the long term.