The Tyranny of Improvement

There is no evidence that mammographers make better diagnoses as they gain experience. Surgeons, however, do get better with time.

The difference, according to psychologist Anders Ericsson, is that surgeons get quick feedback on whether their procedure was successful, while mammographers have to wait weeks or months to see if their diagnosis was right, by which time they’ve likely forgotten what they were thinking at the time.

Ericsson studies the science of performance. One of his most important findings is that fields with true experts have a common denominator: Immediate feedback.

Shoot a basketball and within one second you get feedback on that shot. Tell a joke in a comedy club and the audience instantly lets you know if it’s good. In both fields people who practice quickly get better, because instant feedback tells you whether you’re doing something right or wrong. That isn’t true in mammography, farming, or education, where it can take months or years to see if your actions worked. This scales up: The longer the gap is between action and feedback, the harder it is to improve your skill.

This idea is so important in investing, where the gap between action and feedback can be several years, and in between you’re fed a steady stream of noise masquerading as feedback.

The only way investors can hope to do well over time is to exercise patience, since patience is one of the few things that can’t be arbitraged away by smarter investors and machines. But patience comes at the expense of feedback. Giving myself years to be right means it’ll take years to tell whether I’m right. Which is an astoundingly hard way to learn.

What do I make of a business whose revenue declined last quarter? It could be feedback that the company is in trouble. Or it could be run-of-the-mill volatility that every company faces from time to time. It’s hard to tell in real time. We usually need hindsight, and sometimes it takes years of hindsight before we can distinguish feedback from noise. Same with market moves. Higher or lower markets could be feedback about your decision. Or it could be the natural volatility of markets that are unrelated to your decision. Investing is like shooting basketballs, except it takes years to tell whether your ball made it in and in the meantime you see a bunch of false images of baskets made and missed, unaware which one is yours. You start to see why there are so few enduring Michael Jordans of the investment world.

The worst part is that by the time you can be sure you’ve been given legitimate feedback you may have forgotten why you originally made the investment, which distorts the process of feedback helping you make better future decisions. If you buy a company because you love its brand, and two years later it gets bought out at a higher price because another company wanted its patents, you are not receiving any feedback that you made a good decision. But the quirks of psychology will convince you that you did.

There’s no easy solution to this problem. It’s why investing is hard. But two things help.

Document your thoughts and decisions. The key to feedback improving performance is linking your actions to the outcomes that followed. Since so much time passes between investment actions and feedback, it’s crucial to document why you made a decision so your actions aren’t lost to the rewritten memories of time. Some investors journal their decisions. Some write investment summaries. Some send so much email between team members that everything is archived. What’s important is that you can objectively link outcomes to why you made a decision, rather than what you pretend to remember about why you made a decision.

Study the decisions and feedback of those who came before you. I may only get a few dozen or hundred pieces of feedback during my investing career, which is tiny. But I can study hundreds of other investors who have received the same, learning vicariously through their successes and mistakes. Investors have a fascination with market history, and they should. But more valuable than market history is the decisions investors made during that history – how they thought, how they acted, and what kind of feedback they got in return. Every kind of investing strategy has been attempted. No need to wait for feedback when others have already received it.


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