Old Mutual Investment Group

Macro Perspectives 41 | The art of making investment decisions

October 11, 2022 Old Mutual Investment Group
Old Mutual Investment Group
Macro Perspectives 41 | The art of making investment decisions
Show Notes Transcript Chapter Markers

Portfolio Manager, Peter Brooke, shares his latest Macro Perspectives, comparing the game of Poker with investing, when it comes to the art of  skilled decision-making.

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Peter Brooke  00:00

Good day. I'm Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. And this is Macro Perspective 41 of 2022. There was no Macro Perspective 40 last week, because I was on holiday, where I read a fantastic book called Thinking in Bets. It was written by Annie Duke, a professional poker player. And there's a wealth of input on how to make smarter decisions, which is what we try to do in managing our clients' money. 

Peter Brooke  00:25

One of the things that she focused on which I particularly liked was the difference between poker and chess. She sees chess as basically a game of maths where a computer can solve how to win, whereas poker has the additional messy element of human beings, meaning it is a mixture of art and science. I definitely think this is true of markets, which is why we have a two dimensional philosophy of theme and price, bringing the science of valuation into the price component, and the art of what is driving the investment into the themes. 

Peter Brooke  00:57

One of the other points that she emphasised is the large role of luck in poker. A professional poker player must separate the role of luck and the role of skill, why they won or lost the hand. If you only focus on the result, you lose the ability to improve. And this is also true of fund managers, as we continually make decisions with imperfect knowledge. Therefore, we cannot just look at the outcome, but must focus on the process that drove the outcome. Winning comes from improving what we can control and not stressing about what we can't. And the same holds true for clients. They can control the amount that they save, the time that they invest for, and how much they draw down. These are the key controllable variables. They cannot control the markets, which is the luck element. 

Peter Brooke  01:47

Another key message of the book is that poker players have to control their emotions, especially when they are losing. Making big decisions while stressed is a losing strategy. And once again, this is true in savings. Hence the repeated call by financial advisers to keep calm and stick to the plan. In our team at MacroSolutions, we hate the word bet. And if you use it in a meeting, you have to buy coffee for the team. This is because we invest our clients' money and are not playing a game. However, this book, using the skills from a game, creates a whole lot of lessons on how to think and make better decisions, which we can all use no matter our role. 

I hope you enjoyed what was a slightly different macro perspective. Until next week.

Taking inspiration from a book called “Thinking in Bets” on how to make smarter decisions
The difference between poker and chess and how these apply to markets and a two dimensional philosophy of theme and price
What poker players and fund managers have in common
The importance controlling your emotions for poker players and saving money