Does Your Personality Shape Your Investment Strategy?

Source: www.towardsdatascience.com

Kellogg Professor Zhengyang Jiang, LSE Professor Cameron Peng, and DePaul Professor Hongjun Yan have written an interesting new paper titled, "Personality Differences and Investment Decision-Making."  They found several significant links between personality characteristics and the strategies individuals employed when making financial investment choices.  

First, they found a link between neuroticism and investment decisions. Neuroticism refers to a "tendency toward emotional instability and psychological distress including anxiety, depression, self-doubt, and other negative feelings." Jiang explains to Kellogg Insight that, “People with high neuroticism tend to be the ones who invest less in the stock market, even after we control for the other types of individual differences. People with lower neuroticism tend to take more risks and buy more stocks rather than safer bond assets."  

Second, the scholars discovered that openness is another personality trait that matters. In other words are people "intellectually curious, willing to try new things, and aware of their feelings?"  People who rate high on openness tend to invest more in equities and less in fixed income assets.   

Third, the examined whether certain traits make people more likely to follow the crowd with regard to investment choices.  The scholars discovered that, 

"Personality traits also shape how investors react to the behavior of people in their social circles. The study revealed that both neurotics and extroverts are more likely to adopt a certain investment when it becomes popular among the people around them, but their path to this decision is likely different.

'An extravert derives utility (and pleasure) from interacting with others and tends to copy their investment decisions after such social interactions,' the authors write. Neurotics may also copy their friends, but 'one possible explanation is that more neurotic investors have more fear of missing out (FOMO), and therefore tend to follow the crowd.'”

What does it mean for us as individual investors, as well as for the investment firms and financial advisers interacting with us?   The scholars conclude that we need to look beyond demographic attributes such as age or wealth, or typical questions about people's aversion to risk.  Understanding our personality can help us determine whether we might be making suboptimal decisions at times.  

Chrysler's Brand Strategy

The title of this post may be a bit misleading. After all, these days, one really has to wonder whether Chrysler even has something that resembles a brand strategy. Several weeks ago, we heard from David Kiley at Business Week that the company was considering creating a new brand, Ram, which would cover its line of trucks (currently sold as Dodge Ram trucks). You would think the firm needs fewer brands, not more. Now, we hear again from Kiley that they are working with ad agencies on a concept whereby they would try to position Chrysler as an upscale brand, up there with the likes of Cadillac. Really? How will Chrysler achieve this, particularly given its poor reputation for quality and the dearth of exciting new products in its pipeline?

Clearly, Chrysler understands that it has a need to distinctly position its brands. For years, the firm sold Dodge, Chrysler, and Plymouth cars that were nearly identical. The brands had no distinct meaning. The firm killed off Plymouth, an understandable move given the brand confusion. Now, it's trying to position Chrysler as something quite different than Dodge. Again, conceptually, this makes sense. However, you have to have the product to support the positioning. You can't just use marketing and advertising to create a new brand positioning in smoke and mirrors like fashion.

Here's a thought... if Fiat wants to come up with distinct positioning for its various brands, why not make Dodge the truck brand, and Chrysler the car and minivan brand? That fits more closely with the product portfolio as it currently exists, and it doesn't stretch either brand to be something completely foreign to how it is currently perceived by consumers. Moreover, you wouldn't be worrying about selling cars under both brands that are essentially identical automobiles.

Risks of Using AI in Human Resources

Source: https://inc42.com/

Artificial intelligence has the potential to transform the way much work is done in the human resources divisions of companies. For example, Nickle LaMoreaux, IBM's chief human resources officer, told Fortune, “We’ve got over 280 different A.I. automations running inside HR right now. That’s what is different here. It’s making HR more human because we’re spending time on things that matter.” Fortune reports that IBM saved 12,000 hours in 18 months by applying artificial intelligence to a series of human resource tasks.  However, Paige McGlaufin has written an excellent article for Fortune highlighting several critical risks that may emerge as artificial intelligence transforms the way human resources departments do their work.

1.  The potential for bias:  Several companies have learned that artificial intelligence tools exhibit a bias against certain groups of employees or job candidates.  

2. The potential for data leaks:  Firms will have to be highly vigilant to be sure private information about employees and job candidates does not get leaked and misused by others.  

3.  The potential for relationship breakdowns:  Efficiency clearly can be enhanced using artificial intelligence.   However, one has to ask:  Will that efficiency have a detrimental impact on the social connections that are crucial to getting work done and retaining employees?  McGlaufin writes, 

"But that efficiency could come at the cost of interpersonal connections. Imagine a scenario where A.I. tools fully administer the hiring and onboarding process: “If I’m a new employee and A.I. is getting my materials and my laptop, onboarding, and online tutorials, I don’t feel connected to the organization,” says Dustin York, a communications professor at Maryville University. That could spell trouble for retention. “I can easily leave and go somewhere else.”

4. The potential for employee  pushback regarding AI tools:  Many employees exhibit an aversion to the use of artificial intelligence tools for certain tasks.  Julia Dhar, director and managing partner at Boston Consulting Group, told Fortune:   “Change doesn’t come super comfortably to human beings. And if executives and leaders are consistently out there only saying that this change is exciting and energizing, you’re unlikely to bring people with you."  

Low Quality Feedback Harms Employee Retention Efforts

Source: Thrive Global

Kieran Snyder, CEO of Textio, and Mallun Yen, CEO of the Operator Collective, have published some fascinating results of a study they conducted regarding employee feedback. You can read about their findings in this article they have written for Fortune, and you can examine their complete report here.  Synder and Yen describe how they studied feedback at one large organization in depth:

To explore this, we looked at the performance reviews of a large, international enterprise organization across a variety of roles. The data set contains performance reviews for more than 13,000 employees across two annual review cycles. Because we have two years of data, we can see whether an employee in the Year 1 data set is also included in the Year 2 data set. In other words, for each employee, we can see the quality of their written performance feedback, as well as their retention or attrition outcome the following year.

People who received low-quality feedback were more likely to leave the organization than people who received more actionable feedback. What’s more, this impact is causal, not just correlational: Our analysis controlled for potentially confounding factors such as numerical performance rating and employee tenure. People who received low-quality feedback were 63% more likely to leave their organizations than everyone else. This held true whether they were high, middling, or low performers.

Snyder and Yen go on to make a crucial point about some managers' unwillingness to provide direct feedback.  Trying to avoid a confrontation can be problematic. Some managers try to "soften" their feedback in ways that are detrimental to long-term employee retention.  They write: 

Shying away from giving direct feedback also causes employees to quit. Even when feedback is provided, it may be provided in conflict-avoidant and indirect ways. The practice of hedging, where the feedback provider couches their intended feedback in less direct language, is common... “I think” was by far the most common phrase used in hedging feedback. By introducing feedback with an “I think” statement, the manager is communicating that their point of view might just be a matter of opinion and that they might not be fully committed to it. This is problematic even in positive feedback, as the manager inadvertently communicates doubt about the praise they’re giving. For example, by saying “I think you did a good job on that presentation” rather than just stating that the report did a good job.

It matters. People who get performance reviews containing “I think” hedging statements were 29% more likely to leave the company within a year than everyone else.

So much attention has been placed on whether to eliminate annual performance reviews, or to alter various employee ranking systems. In some ways, we might be missing the most important point about developing our people - namely, the quality of the feedback (and the language we use in offering that feedback) matters a great deal regardless of the timing or the format in which we provide that feedback.  We have to overcome the tendency for conflict avoidance and train our managers to provide actionable, constructive feedback even when those conversations might be difficult.  

Is Office Chitchat an Unproductive Activity?

Source: NBC

Several weeks ago, Rachel Feintzeig wrote an article for the Wall Street Journal addressing the issue of productivity and distractions at home versus in the office. I found the end of the article quite interesting. One interviewee notes that she "remembers walking into her office complex every day at 9 a.m. to face the long warm-up: colleagues exchanging hellos, putting away their lunches, filling up coffee cups. 'Nothing really got done that first hour,' she said. 'That was our work-life balance, right there.'” The interviewee continued her commentary by talking about the value of just getting right to work:

Same thing at the end of the day, as people wound down, she said. If she wrapped her work early, she felt unable to leave even though the job was done. Starting a remote job last year, she found the idea of working, and breaking, on her own time thrilling. “You don’t have to go up to everyone and go, ‘How was your weekend?’ ” she said. “You can just get to work.”

Whatever we think about the remote work debate, this story suggests that some people are misunderstanding the value of informal non-work-related talk at the office. Catching up about others' lives, children, or weekend activities over a quick cup of coffee is not "unproductive" chatter. It's an important part of how we build relationships with others, and those relationships can be crucial foundations for getting real work done.

Recent research examined the impact of "office chitchat." Scholars Jessica R. Methot, Emily H. Rosado-Solomon, Patrick E. Downes, and Allison S. Gabriel have found that office chitchat can certainly be distracting. However, they also found that, "Small talk enhanced employees’ daily positive social emotions at work, which heightened organizational citizenship behaviors (OCB) and enhanced well-being at the end of the workday." For more on this topic, see Lindsay Mannering's article for the New York Times titled, "The Awkward But Essential Art of Office Chitchat."