In the Flow with Dean Cashman

With the economy slowing down, a growing number of people being laid off and an uncertain horizon, this month we sit down with asset management guru Dean
Cashman to talk about how he makes decisions and stays ahead of the competition.

Welcome Dean. Thank you for joining us. Please tell us more about what you are doing right now in your current role at Eastspring.

I am the Portfolio Manager, Head of Japanese Equities at Eastspring Investments, where we manage around 13 billion Singapore dollars’ worth of Japanese equity funds. There are retail investors in our funds, but there are also big institutions, including government-related entities and some big multinational corporations. Ultimately, we’re in charge of not only the stewardship of that money, but obviously adding value or out-performing the chosen markets that our clients have decided to invest in.

How long have you been in this industry and what got you into it?

I’ve been in this industry probably around 28 to 29 years now. I’ve always had an interest in financial markets pre-dating my university days. When I was in school, I grew up in a middle class family in country Australia and we didn’t have a lot of money. I earned some pocket money doing odd jobs and even then I started trading – in those days, precious metals, and eventually I moved into university trading stocks. I’ve always found the markets intriguing. That’s ultimately what inspired me to pursue a career in financial markets broadly.

As it happened, I was offered a job in a company that at that time was the employer of choice, if you like, in the financial industry in Australia. They bought me on as a fresh graduate and put me in asset management. At that time, I was a poor student struggling through to make ends meet. When I was offered probably a better job than I had ever imagined, I jumped at it.

Could you share some memorable experiences from your years in the financial industry?

There was the Black Monday market crash in 1987 and I was panicking, wondering if I would still have a job. It simply reminded me of our vulnerabilities to unexpected or external events. This is something that has been with me, I guess, throughout my career and something that ultimately was the first of many lessons: that the way that most people approach this business is, in my view, wrong-headed.

You can’t forecast the future. You can have scenarios. You can have ideas. But most of our industry, most of the press, most of people’s thinking around it – beyond even the financial market – people are thinking about forecasting the future. Whether it be the economy or more mundane day-to-day matters, people think that there are relationships of causality and you can understand what’s going on. In reality that’s very difficult and there are a lot more unexpected events and randomness than many people appreciate. Yes, we do a lot of financial analysis, we are very company-focused, we are stock pickers and we go out and find companies at the stock level. But it’s not about believing that we can forecast the future. That’s one of the big lessons I’ve taken from all the events that I’ve seen. The focus on this belief that you can forecast the future, you can pick the winners and you can also avoid the pitfalls is largely erroneous.

So for me, it is about the deep-seated behavioural biases that we all have in the way our brains work, which boils down to basic psychology and/or neurology. From my perspective, I need to have the expertise in really understanding how to take a company apart, to see its financials, go have a dialogue with the company, talk to the CEO and understand their business. But it’s not about them believing we can forecast the future; it’s about exploiting all the behavioural errors out there that all of us make. That means that ultimately prices are wrong or beliefs are wrong and therefore one can take advantage of that.

With experience, you build a more systematic understanding – in other words, understanding that there’s a much more deep-seated behaviour here that can be exploited, which is not just about the financial market. It’s about people and our biases of how we think and behave. And translating that understanding into what we would refer to as an edge. Because ultimately to be successful in any field, not only in investing but also in, for example, the performing arts or business, you have to have an edge. You have to really know what that edge is and be able to articulate that clearly and have a good idea as to why that might be sustainable.

People like to believe in simplistic narratives and causal stories, and they extrapolate from that into what’s going to happen in the future. And that’s what all the marketing ads are doing out there. In reality that’s very difficult to do, if not impossible. So what’s our edge? Our edge is understanding people’s behaviours and how they drive prices to an extreme, then we do all the work, we do all the analysis to determine what is a reasonable value and whether there a behavioural episode going on leading to a big enough difference such that we can exploit it. Our edge is about systematically moving probability in our favour, if you will. Because ultimately there are lots of events out there that we’ll never know or forecast. It doesn’t mean we have to get everything right, but it means we have to get enough right such that we can add value over time. It’s not easy, but with this approach we are very confident we can add value over time.

Tell us more about the traits that embody this edge.

When I employ people, for example, I’m looking for skillsets, but the key trait we look for in what we do is humility. Because you have to be – particularly in the way we approach investing – you have to be somewhat humble. You have to realize that the market is always bigger than you are. There’s always a lot that will happen that you just won’t know why. It’s that humility to look at where you might be wrong, what might be wrong and being able to accept that. The worst thing you could have in an investor is someone who lacks that humility and is adamant that they’re always going to be right.

I’ve always been a contrarian, even in my taste for music and even compared to my peers in the industry. In financial markets, one of the bigger behavioural biases is this sense of wanting to belong, wanting to be with the crowd, the herding effect around beliefs, the desire to be not too different. And certainly in our business, it is a much greater risk to be wrong on your own, than to be wrong with the crowd. Because say you’re invested in something, say in the press, a fantastic asset or company, and when it goes wrong, the defence is that everyone thought it was good so clearly this couldn’t have been foreseen. Whereas if you are the one person that said, that’s terrible, I can’t buy that, a terrible asset and everyone owns it, and you’re wrong – that is a career-risk bias, a risk of being wrong on your end that is potentially threatening to your career. That’s something that I’ve always had a high tolerance for – being happy to embrace this risk because I am inherently comfortable to do things differently from the crowd. And therefore as I started to learn about the underlying behaviours of psychology, of broader traits in the market, the lightbulb went off, and that’s something that I’m comfortable in and suits the way I approach this anyway. By embracing it and understanding it more, I can actually put more rigour around what I do. So there is an alignment between who I am, where I came from and the edge that I’ve identified.

This approach was something I felt a natural affinity to before I had discovered the deeper basis behind it. It’s finding that edge that is inherently within you, or really suits the way that you work and is therefore sustainable. As I’ve gathered more experience and understanding around the way I work, it has become self-reinforcing and I’ve built on that and put a lot of rigour around that. And it feels comfortable. So your edge has to suit you. Your edge has to be something that’s sustainable not only because of its own inherent properties, but also because it works for you as a person.

So how does this relate to the fresh graduates finding their way through the market right now?

First, you’ve gotta meet the market. You do have to work out what’s in demand. But it’s gotta be genuine. You gotta work out who you are. You gotta understand yourself. That is also the first step in critical thinking. You can’t be a real critical thinker if you don’t understand yourself. When we go through the process of hiring people, it’s hard finding people who have that true level of critical thinking because they don’t really have the level of introspection.

On introspection, some people find it inherently easier than others. It’s taking that time just to think about who you are, for yourself and not just for the next result. It’s also thinking about what you are really trying to achieve. Within Singapore, there are a lot of high achievers, but they don’t really take that time to think or be prepared to challenge more, perhaps. So for critical thinking, there is the outward and inward aspect. The outward aspect is being prepared to challenge and therefore doing things perhaps differently. The inward aspect is being more self-aware. I think these factors are all important and there isn’t one way to achieve them. It depends on the individual. The main way is to simply think about them. That is the start of self-awareness.

Have you ever wondered if you were really on the right track?

I have been very lucky in terms of the opportunities presented and the incredible people I have worked with. There are times when I’ve been working with really smart and influential people and I’ve had to make sure I stopped to think about what is true to me, what is true to how I want to try to build my own franchise in terms of my own future in this industry. Sometimes you do have to make a departure from the direction of those around you. There are also times, depending on where you are in your career, when you don’t have a lot of choices.

Earlier in the career, it’s perfectly fine to stop and ask if this is the direction that I want to be going in, but it’s also an element of embracing opportunity. Particularly now, I see a lot more people coming into the industry and think that’s not where they want to be going. And 8 years later, you will find that these people have hopped around to 3-4 different jobs. That’s not necessarily the best approach either. When you stop and judge if you’re on the right path, you’ve sorta got to take a longer view of where you really want to be and being true to yourself. But that doesn’t mean you don’t embrace the opportunity that is presented to you.

Before Japanese equities, I actually started in fixed income markets and moved on to European equities. I was seen to have done a good job and was asked to move on to the Japanese desk. Was that necessarily the decision I would have agreed to if I had a full menu of options in front of me? Probably not. But I embraced it. It was a recognition. It was also embracing the learning experience of a new challenge. If I hadn’t embraced that opportunity, I wouldn’t have ended up leading the team a few years later.

There were a number of times when I was offered a position somewhere else, in the US, in Europe, etc. At that time it didn’t work out – not just for me, but also for us as a family. It’s not just about your expertise. There will always be conflicting interests. There will always be other considerations. But in terms of your longevity and really building that longer-term position that you want to build, sometimes the short-term move is not the right one to do. Looking back, it was indeed right not to have taken up those offers at that time. But when the right opportunity did come up for me and the family, then we fully embraced and committed to it.

That’s something I would like to see more of, particularly with some of the younger people that I’ve spoken to in Singapore. You don’t have to jump at every chance. But when the right thing comes along, don’t be afraid to really go at it and make that move. A number of younger people that I’ve spoken to tend to have a reluctance to leave Singapore. So don’t embrace every opportunity, but embrace the right one. And be courageous as it is not as big a chasm as you might imagine it to be at the time.

In light of the economic uncertainty and job layoffs, any words of encouragement for the working professional out there?

Clearly it is a more uncertain environment – how long will it last, will it get any better, who knows? Just as when everything is great, no one will see the end coming, so when things are bad, everyone will tend to extrapolate and tend to be gloomy about it. Well, neither is probably correct. So one, have hope because none of these conditions are permanent. The other is persistence and being realistic, but knowing what the program is.

The company I was working for in Australia was sold in a way that was not very satisfying. After working very hard and building up my part of the business there, I was fairly disillusioned at that time and I took some time out to reflect. It was also a great opportunity to spend some time with the family. My girls were quite young then and it was an invaluable period to take my daughters to kindergarten, which I never had the opportunity to do previously. I was always gone very early in the morning and back in the evening and I travelled a lot. While that period remained fairly uncertain, I was able to embrace the opportunity to reflect and freshen up after giving all the effort that I had put into the business. And I got to participate in that part of my daughters’ lives, which never would have happened otherwise.

Great insights. Thank you Dean!

Here are our 3 takeaways from this discussion to finding your edge in the current economic climate:

  1. Take the long-term view. It’s easy to get lost in the shuffle or even in the rat race. Don’t lose sight of where you’re headed and stay the course!
  2. How do you know if you are on track? It should become apparent when you achieve inside-out comfort and clarity, which is derived from introspection
    over time (i.e. taking the time to understand yourself and discovering what you truly value).
  3. Stay grounded, heed your calling, but be ready to jump when the right opportunity presents itself!

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