Saturday, 6 July 2013

6 Steps To Investing Excellence

Do this and you'll become an expert investor.

You've probably heard of psychologist Dr. K. Anders Ericsson's theory that, with 10,000 hours of practice, anyone can become expert at anything.

The idea was popularised by Malcolm Gladwell in his book Outliers, and often pops up in articles and publications.

What about talent?
The idea that anyone can expertly master a random field of pursuit after 'just' 10,000 hours of practice has appeal. But I don't believe it's as simple as that. If you allocated me the task of mastering tennis or squash, for example, I'd probably give up long before achieving that goal due to boredom and frustration.

I reckon that to stick to anything long enough to master it then we need the existence of desire, and that probably won't take root unless we have some aptitude or talent for the pursuit in the first place.

Becoming an expert investor
Endeavouring to achieve investing prowess is stimulating for me. I have entrepreneurial blood pumping through my veins, and read business and investing books as a recreational activity!

In my case, on top of an earlier career in business, by my reckoning I have about 7,000 hours of serious investing study and practice under my belt, and my passion for it burns as strong as ever. I think that's what it takes to become an expert in any pursuit: a strong desire built on an aptitude for the field and 10,000 hours of practice.

In his book Be Excellent At Anything, Tony Schwartz sets out what he believes are six key steps to excellence:

1. Pursue what you love
This one is obvious to many, but it took a long time for me to figure it out. As a young man, I wasted far too much effort trying to shore up my weaknesses. Trust me, it's not the way to excel in life. I reckon the best way is to focus on building your strengths first. Use your leftover energy to address weaknesses, but not at the expense of playing to your strengths.

According to Schwartz, passion is an incredible motivator that fuels focus, resilience and perseverance. He's right. If you have that for investing, you're heading for, or already have, expertise. If investing is a bit of a chore, buy an index tracker or some other passive investment vehicle and divert your 10,000 hours to mastering golf, or singing, or horticulture, or whatever sets your passion burning.

2. Do the hardest work first
It's easy to become distracted in the world of investing. Reading bulletin board posts, newspapers and articles, or checking share price movements and posting on message boards -- although entertaining and sometimes useful on the margins -- is not necessarily counting towards the 10,000 hours of practice required to become an expert.

A better approach is to spend your time pursuing the difficult tasks that will move your investing forward. For example, valuing and analysing businesses, targeted study of investment literature, record keeping and analysis of investing successes and failures, and evaluating the differences between companies in terms of accounting, strategy, markets and competitive advantages.

3. Practise intensely
Short, intense bursts of focused activity are better than long, grinding hours glued to your desk and computer screen. In fact, Schwartz reckons that sessions of 90 minutes are quite long enough before taking a break.

Joyously, he also says that evidence shows that great performers practise no more than four-and-a-half hours a day. Indeed, I'm a great fan of the less-is-more school of investing, and rarely need encouragement to sneak off for some fun!

4. Seek expert feedback in small doses
There are many expert investors active on the Motley Fool discussion boards, and if you use the boards intelligently, and not for idle chat, they are a great investing resource. Schwartz says that the simpler and more precise the feedback, the more equipped you are to make adjustments. Too much feedback can create cognitive overload, increase anxiety and interfere with learning.

Bouncing ideas off other investors can be useful, I reckon, but don't become hooked on it. In the end, investors must make their own decisions and learn their own lessons.

5. Take regular renewal breaks
Relaxation or alternative activities can provide the opportunity to both rejuvenate and metabolise learning, says Schwartz. It's also during such activities that creative breakthroughs tend to arrive.

That certainly works for me. I've found that clarity and understanding on investment topics can arrive at the most unexpected moments.

6. Ritualise practice
For me, mornings are the best time to perform difficult and mentally demanding tasks like investing, so I ritualise practice then. Schwartz reckons that establishing specific, inviolable times for practice prevents us squandering energy thinking about them. He reckons that research shows that none of us possesses much will power or discipline, so rituals get around that weakness.

Overall, I think Schwartz is on the money. What do you think?

By Kevin Godbold

Quote for the day

"People don't buy for logical reasons. They buy for emotional reasons." - Zig Ziglar