Birds do, bees do, why can’t investment committees do it better?
Thomas D Seeley, the chairman of the Neurobiology & Behavior Department at Cornell University, discussed that question last week at the Legg Mason Capital Management Thought Leader Forum in Baltimore, Maryland. The daylong event was organised to bring together non-traditional thinkers from beyond the world of finance, to explore prediction and insights for the future. Topics, ranging from hospital operating rooms to engineering designs to bookmaking for sports, addressed problem solving from various angles – a longtime hallmark strategy of LMCM’s chief investment officer, Bill Miller.
So what can bees teach investors? Seeley’s overarching message is that a swarm balances independence and interdependence in its goal “to optimise performance.” The biologist quoted the work of James Surowiecki, who has written about harnessing collective wisdom for organizational competitive advantage. (article continues below)
When bees need a new home, to store honey through the winter, the destiny of the entire group depends on finding an optimal location: ideally, high and spacious, with a small entrance in a hollowed tree. Several hundred experienced scout bees form a “search committee”, then report back on the distance, direction and quality of their best real estate choice. They code and communicate the specifications by performing a riotous waggle dance on the backs of their sisters, gradually coming to consensus. The more dance circuits a bee performs, the more her site resembles a dream home than a fixer-upper.
The cognitive abilities of individual bees are limited. The dances are independent, in that no bee copies another; yet, in a show of interdependence, the insects learn about housing options through following the scouts.
Seeley suggested effective human groups might draw the following conclusions:
- Remind fellow members of shared interest and foster mutual respect
- Moderate, don’t dominate the outcome (note that the Queen Bee is a royal egg layer, not a decider)
- Seek diverse solutions (scout bees search high and wide)
- Kick it around, avoid overhasty consensus (the waggle dance)
- Blend public discussion with private evaluations
Try them in your investment committee. More money means more honey.
Vanessa Drucker is the American Editor of Fund Strategy, based in New York City. She has worked as a financial journalist for 20 years. In the 1980s, she practiced banking and securities law on Wall Street, and is the author of two business novels. Vanessa can be contacted at firstname.lastname@example.org.