The Speed Of Learning
Much has been written about the traits of a good trader/investor. In this post I am referring to the Personal Investor. Speed is the single largest advantage the Personal Investor has over the Institutional Investor. By that, I do not mean speed of execution of trades, but the ability to get in, or to get out of a position in the market. It takes institutional managers weeks to completely execute a position. The average Personal Investor could take as little as a day. For that reason, I believe one of the key traits of a Personal Investor is that of being a quick learner.
Need To Know Basis
Quick learners have the ability to take in a large amount of data, process it quickly, no matter how conflicting and varied, and come to a definite decision. The mistake too many people make is to want to develop an expertise in a particular area. The only certainty in this world is that the rate of change is increasing. The commitment of time and effort to become an expert slows people's ability to adapt to new changes. We have all heard the expression that a person with only a hammer sees everything as a nail. The person who can learn the most the quickest, is the type of person who will be the most successful in today's world - and not just when it comes to investing!
Not only must Personal Investors have a knack for learning quickly, they have to be able to do it under pressure. Panic is the enemy of good investing practices. We cannot say we are a quick learner unless we can do so under pressure. You see, the thing I have learned is we can only say we have a given trait if we are able to apply it when the chips are down. This is a good way of distinguishing between innate, as opposed to learned behaviours. No matter what, when push comes to shove, that is when our true character shows itself.
Being a quick learner may be helpful in various situations, but it is necessary in order to be a successful Personal Investor. The mistake too many make is to get caught up in the trap of linear thinking. We see it every cycle - people pile in at the end of the trend, and bail out at the wrong time. Why? Often it is because they think the future is an extension of the past. The successful investor needs to be able to recognize the winds of real change.
Critical Success Factors
This also means recognizing the few critical success factors that determine success or failure. I loved the story in Blink! where Malcolm Gladwell talked about the hospital that was trying to quickly diagnose emergency patients with real heart problems. The doctors could not believe a brief questionnaire could be developed to distinguish between real heart issues and others. There are so many factors involved, how can they be reduced to a set of only a few key questions? In fact, that is just what they were able to do. Investing is the same. We are led to believe that we have to understand cash flow, accounting, industry trends, inventory management, micro economics, macro economics, financial ratios, to name a few.
Up or Down?
Nothing is further from the truth. We need to be able to assess if, historically, the stocks of a company are on sale, and if they are in an uptrend, or a down trend. Add a sell strategy to the mix, and that is all we really need to know. Learning to do so is quick, and means we don't have to be an expert in analyzing balance sheets, evaluating industries and projecting trends.
I believe the best Personal Investors learn quickly, are not victims of linear thinking, and understand that success is determined by a smaller number of critical factors. Everything else is, in reality, just more noise and confusion.
How do you rate in your ability as a quick learner?