Investing with Grit


Rethinking Decisions
Do you have special qualities that set you apart? Do you have cognitive control? How about “grit” — not the “True Grit” that people associate with John Wayne, but the mix of competencies that Daniel Goleman, psychologist and author of Emotional Intelligence, cites as the key components of financial and personal success.

According to Goleman, it is not your IQ or wealth that predicts success, but rather your grit. Grit is that quality that “keeps you plugging away despite any setbacks or failures,” and the abilities that grit draws on run the emotional intelligence spectrum: self-awareness, self-management, empathy, and social effectiveness. In practice, these skills include confidence, staying cool under pressure, collaboration, persuasion, and influence. “These are the competencies companies use to identify their star performers about twice as often as purely cognitive skills,” according to Goleman.

How does one come to possess these qualities? It requires attention and focus applied to develop one’s emotional intelligence. Goleman, the creator of the emotional intelligence (EI) movement, writes that EI refers to two kinds of focus. “First: an inward awareness of our thoughts and our feelings, and applying that in managing our upsets and a focus on our goals. Second: a focus on others, to empathize and understand them, and on the basis of this to have effective interactions and relationships.”

Goleman writes about a study done at American Express in which financial advisers were given some training in basic EI skills like self-awareness and empathy. These advisers were then better able to have difficult discussions with their clients and to help them make better decisions about their investments. The advisers were able to sense their own anxiety, the uneasiness of their clients, and then bring it up, rather than try to bluff their way through.

The improved decisions that arose from their willingness to identify and discuss their emotions have implications for investment professionals beyond basic adviser/client relationships — it could produce better outcomes for analyst recommendations, portfolio managers, and interactions between members of investment committees. And the ability to manage upsetting emotions well is part of what Goleman identifies as cognitive control, an essential part of grit.

At the 69th CFA Institute Annual Conference in Montreal, Goleman will discuss Finance as a Force for Good.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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