Originally published April 2022.

The skills needed to identify market opportunities are very different from those required to convince stakeholders of the validity of your view. Strategists need to nurture the ability to bring others with them to maximise their impact on investment outcomes. 

The best opportunities are contrarian positions where you see matters quite differently from other market participants. But it’s difficult to isolate yourself from the thoughts and feelings of the crowd.

Michael Mauboussin has written that “the crowd is often right, but when it is wrong you need the psychological fortitude to go against the grain”. He identifies this strength of character as a key attribute of great investors. 

Mauboussin says, “…great investors don’t get sucked into the vortex of influence. This requires the trait of not caring what others think of you, which is not natural for humans”. Good strategists can avoid “the vortex of influence” by bringing an objective, systematic and unemotional approach to identifying attractive investment opportunities. 

But having identified attractive contrarian positions, how should strategists convince fund managers, investment partners and investment committee members of their views? 

Typically, my response has been to double down on my research and develop a large body of evidence to support a well-reasoned and much-tested argument. 

But in focusing exclusively on the quality of evidence and strength of argument I was making a mistake. I failed to have as much influence as I could have as a result.

I would have done well to take note of the author of How to Win Friends and Influence People, Dale Carnegie, when he wrote, “When dealing with people, let us remember we are not dealing with creatures of logic. We are dealing with creatures of emotion, creatures bristling with prejudices and motivated by pride and vanity”. 

People are emotional beings and there are limits to what can be achieved through logic-driven arguments. When presented with a contrarian idea, caution comes from it feeling inappropriate to do something different to the majority. It is emotionally driven. 

In Influence – The Psychology of Persuasion, Robert Cialdini explains that social proof is very powerful. He observes that we determine what is correct by finding out what other people think is appropriate. So advertisers love to tell us of the ‘fastest-growing’ or ‘largest selling’ products.

Clearly, social proof is working against those making the case for contrarian, non-consensus position-taking. Fortunately, Cialdini identifies several other powerful levers of influence that can be utilised. 

You can lay the groundwork by making people more amenable to being influenced by you, create a sense of scarcity and frame market calls as early rather than contrarian. 

Lay the groundwork

There is much that can be done to make stakeholders more receptive to your arguments. 

First, build strategic relationships. People are more likely to be influenced by people they like. And we tend to like people who we share similarities with. 

So, both Cialdini and Carnegie emphasise the importance of taking a genuine interest in other people to uncover and communicate similarities. Carnegie stresses the need to be a good listener and to encourage others to talk about themselves so that you can talk in the terms of the other person’s interests. 

Second, we should take advantage of what Cialdini calls “the role of reciprocation”, which states that “we should try to repay what another person has provided us”. 

The Japanese word for thank you is ‘sumimasen’, which literally means ‘this will not end’. In English, sometimes when we are grateful, we say much obliged, just as the Portuguese say obrigado.  This demonstrates that we feel obliged to do something for those who have done something for us. Waiters know this when they leave a sweet or chocolate with the bill just as you decide how to tip. 

It pays off to do things for others, to help out and make concessions. But Cialdini stresses the need to activate the rule of reciprocation. Make it clear that you are doing something for someone – do not say “no big deal” or “don’t even think about it”. Then call in those favours when you want some reciprocation. 

Third, recognise that consistency is an important motivator of people’s behaviour. Generally, inconsistency is thought to be an undesirable personality trait, whereas personal consistency is highly valued. So, it can be easier to get people to agree with a course of action that they see as consistent with what they’ve said previously.

Strategists should obtain commitment to an investment philosophy that encompasses non-consensus positioning. Gaining agreement about the types of market calls that are to be looked for ahead of time will make people more amenable to specific opportunities when they arise.

Create a sense of scarcity

People generally assign more value to less available opportunities. People do not like the idea of missing out on an opportunity. Hence advertisers use ‘limited time only’ or ‘last few’ tactics.

So, if you expect a ‘short window of opportunity’ to take advantage of market pricing, say so. If it feels like a ‘once in a cycle opportunity’, use that to create a sense of scarcity.

Frame market calls as early rather than contrarian 

If the weight of current opinion is leaning against you, Cialdini suggests you may still be able to use the power of crowds. He says, “Rather than relying on existing social proof, a communicator can do at least as well by relying on evidence of future social proof”. 

He highlights a quirk in human perception: when we notice a change, we expect the change will continue in the same direction. “While trends really tell us where we have been and are, we think or naturally assume trends tell us where other’s behaviours will be,” he says. 

If there is a trend that supports a contrarian view, make it central to the messaging. For example, if a price decline has made an asset attractive, pointing to price stabilisation and the first signs of recovery may be persuasive. 

So, don’t present a view as contrarian, present it as early and find a trend to be your friend in communication.

Thinking about building strategic relationships and the positioning of arguments may not come naturally to strategists. It didn’t to me. I inclined to use data, logic and reasoning. But Cialdini and Carnegie have shown me that my research could have had a greater impact if I had balanced that with a focus on managing stakeholders’ emotions. I hope others can learn from my experience.