From Sports Psychology to Hedge Funds (w/ Dr. Gio Valiante)

Video Transcription:

  From Sports Psychology to Hedge Funds (w/ Dr. Gio Valiante)

MAX WIETHE: I want to take it back and look at how you got into the businesses you're in, how you think about performance, high performance activities, that finances is certainly one of those things. GIO VALIANTE: It's really interesting. One of the things I often say is if you take the highest achievers in different domains, so for example, we know that in academic research, the top 2% of researchers are responsible for 80% of the publications, the top 2%. If you look at the best scientists and the best writers and authors and the best athletes and the best traders and the best golfers, I often say, for example, Tiger Woods has more in common with Steve Cohen, than Tiger Woods has in common with for example, Sergio Garcia. The only thing that someone like Sergio Garcia, who's a very good golfer, has won one major championship what Tiger and Sergio have in common is the game of golf, but what Tiger and Steve Cohen and/or the various scientists and academics with whom I've work have in common, Sean McDermott, the head coach of the Buffalo Bills, Tom Brady and Bill Belichick. They have excellence in common and excellence is transcendent. Kobe Bryant who recently passed, I just finished a thought piece on the Mamba Mentality. People talk about the Mamba mentality but they've never delved into what it actually means. The Mamba mentality is a manifesto for excellent living. What you see across domains is when you connect the dots laterally rather than vertically, is the best of the best, BOTV have more in common laterally than they do vertically. Which is why I've been able to go from academia, where I worked with some of the top academics and some of the top students into sports, golfers, working with Jack Nicklaus, Justin Rose, Jordan Spaeth, Henrik Stenson, Matt Cooch are some of the best in the world, all three-medal winners, and into the hedge fund world. It's interesting, how I transitioned from sports and from golf into the hedge fund world was really fascinating. There was a banker on Wall Street who had read my first book, he read Fearless Coffee and emailed me, said hey, I read your book. He said, it hasn't helped my golf game, but it speaks to me as a financial investor. I'm in a bit of a slump. Will you help me? I developed a relationship with this individual, but I never sent him a bill. At the end of our work, he's like, hey, send me a bill. He wasn't, when he called me, weren't making any money. I didn't feel it was right to bill somebody who wasn't making money. Well, fast forward six years, I get an email out of the blue. He says, hey, I don't know if you remember me. I'm now the president of-- he's the president of a big bank at this point. He said, you never billed me and my way of saying thank you is I need a guest speaker at one of my events, would you be willing? I'm like who is this? I go look at my email, and I'm like that guy. Oh, wow, good for him. I'm so proud of him. I go and give this talk and in the audience is one of Steve Cohen's portfolio managers, who then flew up and said, I just heard a talk with a sports psychologist and it sounds like he's talking about what we do for a living. Then they invited me to give a talk at Point72. I was just talking about the psychology of performance in sports. It spoke to a lot of people in the room and very quickly, they said, hey, can you jump on board and work with some of our guys? Because the psychology of investing is very similar to the psychology of sports, you have a scoreboard, P&L, you have variability, and you have competition. When you look at the variables, you're an individual, working in a domain with a scoreboard that's highly competitive, and there's variability. There's a very particular type of psychology when you do not have control over the outcome. For example, a PM might make all the right calls. Get earnings, but a CEO resigns or there's exogenous events that you could not see coming, we'll call them Black Swan events because that's hyperbolic, but events that you don't see coming. What's the psychology of you do everything right, but you lose money? In golf, you do everything right and a wind hits the ball, hit the X in the water, takes a bad bouncer, bad break, and so that's the parallels across these domains. MAX WIETHE: How did you get interested in the psychology and science of performance? Did you start out in your doctoral program? Was this something that you wanted to study? What drew you to it, because it's its own niche within psychology? GIO VALIANTE: It started very early for me. I remember when I was in high school, playing on the golf team, I started to enjoy caddying for my teammates more than playing. I enjoyed the process of helping them win more than winning myself. That extended. I went, got my master's degree in education, became a fourth grade teacher for Strata College. I love the challenge of taking this group of 32 students and making them great, and we ended up getting the third highest score on the standardized writing tests in the county despite the fact that school was a low achieving school. My students scored high and I loved the challenge. My students won the Best Behaved Students award in the school for all four semesters of the challenge. I loved it. That segued into middle school, did the same thing. I started running this playbook of working with people just to try to get them better. I was a swim instructor. I just love teaching and developing people. I went to a doctoral program at Emory University, and this is where I got really lucky. I ran into a researcher guy named Albert Bandura, who was a professor at Stanford University, the president of the American Psychological Association, who had what's called social cognitive theory, which now is the dominant theory in psychology. 20 years ago, it was a new theory. What happened is you start applying social cognitive theory to individuals in achievement domains where there's a scoreboard and you start interpreting their experience through the lens of social cognitive theory and you start turning the dials as the theory suggests, obviously, you start getting good results. The way it worked out in golf is my first golfer I worked with was a professional in the State of Georgia, not a PGA Tour professional, a local touring professional. I started working with him. At the end of the year, he won the Georgia section of the PGA. I worked my first PGA Tour golfer and all of a sudden, applying social cognitive theory, got results immediately. The dominoes started to fall very quickly, such that just by applying the psychological theory and changing people's mindsets, the scoreboard started changing. Eventually within a couple of years, I was having lunch with Jack Nicklaus, and I'm, here I am fresh out of graduate school, still green, but getting all these results by applying this psychological theory. I ran that playbook on the PGA Tour to the tune of 60 wins and then started running the same playbook with hedge fund, portfolio managers in the hedge fund world and the results were consistent and in any achievement domain, you start to find simple patterns of results. When you have an individual who's struggling or flourishing in an achievement domain, and you apply the right type of psychology that by changing their mindset, the dominoes start to fall such that you see an actual change in the scoreboard and to me, that's the most fascinating thing in the world.