The competitors serve as a reliable sounding board because they are scornful of poor quality: “they’re disrespectful of people who are not the real deal”. JANA’s Carew says really successful managers who have made their life’s money stay in the game because they are so competitive. “They want to outperform. They want to beat other managers. And you see this outside their work – they’re out there running halfmarathons on the weekend.” Dougherty’s team at Towers Watson don’t affix a tag to the best managers they meet. But in discussions, they often compare a talented investor with a flawed diamond. “Every diamond is flawed. But it’s about how you see it: they all have to be cut somehow,” he says. “We often ask each other: ‘Are you looking for the perfect diamond, or the least number of flaws?’”

How great managers operate

Standout managers exhibit a rare “dynamic flow” of ideas that is responsive to how investment opportunities are changing, Dougherty says. It isn’t good enough to simply be open to new ideas. They need to source the right information, and interpret it meaningfully. “Is it data or noise? How do you filter that data so it becomes information? You can collect data from a wide variety of sources, but are you distilling it?” Great investment thinking is “not about calculating things to two or three decimal points,” Frontier’s Hill says, “but accumulating information, distilling it and putting it into the bigger picture”. Ideas can emerge out of broker research, company visits, or team discussions. Or observations during outings in restaurants or shopping arcades. Or by talking with retail staff, builders or miners.

Morry Waked, the former investments chief at Barclay Global Investors who has just launched a new quantitative equities boutique, Vinva Investment Management, says great ideas are rarely struck in isolation. “I don’t think you generate a great idea by locking yourself in a room and forcing yourself to think really hard. You’re more likely to come up with something by sitting around a table and arguing a point with your colleagues,” he says. Ideas can also come from existing portfolios. Analysis doesn’t end with an investment, says Dustin Adams, head of Australian equities at Advance, BT’s multi manager, because good managers usually think further along the link in the supply chain in which they’ve just invested. This idea flow often happens when a manager lives and breathes their work, as they find diverse insights into the drivers of investment performance.

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