More often than not when I mention to various friends or relatives my intention to enter the field of professional investing, their reaction ranges from disbelief to outright surprise. After all how could I possibly do well in this competitive arena without having learnt the trade at someone else’s expense before? In other words, the professionals will likely “eat me alive” and it’ll surely end badly, professionally and more importantly, financially.
These concerns are well intentioned and legitimate. They are based on the logical premise that one must prepare well before taking on any type of endeavour. After all, some of these confidants of mine may well have read Malcolm Gladwell’s book “Outliers” and its convincing arguments about the benefit deliberate practice and the 10,000 hours of practice that stands as a threshold to true mastery.
As a rather risk-averse individual (after learning the hard way) I am not inclined to easily and haphazardly join the ranks of “me-too” money managers. Yet I feel I must disclose my own statistics in the spirit of Mr Gladwell’s book. My own numbers fall far short of the 10,000 hours of dues deemed necessary to reach “proficiency”: After adding up all the reading, actual investing, security analysis, various blogging activities and verbal discussions on the subject it comes to about 1,000 hours. Put another way, I am some 10% of the way to becoming an investing expert.
The question for me however, is not how long it takes to become good at something? But rather, what are the key areas to be worked on that deliver the most return for the effort placed?. In essence have my 1,000 hours constituted a solid enough platform from which to base my future work?
Well, given that investing is a part-time endeavour for me, as I continue to be fully dedicated to another occupation for most of my waking hours (bills need to be paid after all…), there’s little hope of turning those 1,000 hours into 10,000 anytime soon. But still I am not concerned and here’s why:
a. 10,000 hours are what’s required to reach “proficiency” and I am yet to meet an investment manager that started off in the game with this much knowledge under his or her belt on day one.
b. At the risk of sounding cocky or overconfident, it’s safe to say that the majority of the “professional” competition I’ve met have certainly not dedicated their 10,000 hours to the right tasks. Frequently industry “experts” squander their time in futile asset gathering efforts rather than in perfecting their craft via diligent investing practice.
c. Related to the earlier point, the fascinating story of Dr. Michael Burry, a one-time medical doctor turned value investor (see Michael Lewis ‘s “The Big Short” book soon to be released for more information) proves that 1,000 hours of honest to god analysis counts for far more than 10 years in the industry !
As for me, here’s where I am spending the next few hours:
1. Narrowing down the search to digestible pieces. By using common sense valuation screeners, and researching the ideas of experts as generously exposed on websites such as VIC or Gurufocus. (There’s no shame in seeing where others are treading) and besides in investing there are no prices for originality.
2. Notice that I didn’t say “piggybacking” but rather “researching” other’s ideas. The point is these narrowing down exercises are the starting and not the end point of the security selection process.
3. Running the valuations in reverse (this is something that apparently Mr Buffet is keen on). It basically means trying to estimate a valuation without a previous peek into current market price. By so doing we eliminate the bias known as “anchoring” and can claim to start with an open mind.
4. Not placing artificial constraints in the initial search process. After all, since opportunities may exist in any geographic location or industry, so why rule out a specific location or sector? Having a broader target market at the initial stage of the search process should ensure that only the very best ideas reach the end of the selection process.
5. Limit potential portfolio size to under 20 securities to reap the benefits of minimum diversification and yet allow for both deep analysis of each component piece.
For now it’s time to get started and be selective. As the saying goes, “good things come to those who wait”
These concerns are well intentioned and legitimate. They are based on the logical premise that one must prepare well before taking on any type of endeavour. After all, some of these confidants of mine may well have read Malcolm Gladwell’s book “Outliers” and its convincing arguments about the benefit deliberate practice and the 10,000 hours of practice that stands as a threshold to true mastery.
As a rather risk-averse individual (after learning the hard way) I am not inclined to easily and haphazardly join the ranks of “me-too” money managers. Yet I feel I must disclose my own statistics in the spirit of Mr Gladwell’s book. My own numbers fall far short of the 10,000 hours of dues deemed necessary to reach “proficiency”: After adding up all the reading, actual investing, security analysis, various blogging activities and verbal discussions on the subject it comes to about 1,000 hours. Put another way, I am some 10% of the way to becoming an investing expert.
The question for me however, is not how long it takes to become good at something? But rather, what are the key areas to be worked on that deliver the most return for the effort placed?. In essence have my 1,000 hours constituted a solid enough platform from which to base my future work?
Well, given that investing is a part-time endeavour for me, as I continue to be fully dedicated to another occupation for most of my waking hours (bills need to be paid after all…), there’s little hope of turning those 1,000 hours into 10,000 anytime soon. But still I am not concerned and here’s why:
a. 10,000 hours are what’s required to reach “proficiency” and I am yet to meet an investment manager that started off in the game with this much knowledge under his or her belt on day one.
b. At the risk of sounding cocky or overconfident, it’s safe to say that the majority of the “professional” competition I’ve met have certainly not dedicated their 10,000 hours to the right tasks. Frequently industry “experts” squander their time in futile asset gathering efforts rather than in perfecting their craft via diligent investing practice.
c. Related to the earlier point, the fascinating story of Dr. Michael Burry, a one-time medical doctor turned value investor (see Michael Lewis ‘s “The Big Short” book soon to be released for more information) proves that 1,000 hours of honest to god analysis counts for far more than 10 years in the industry !
As for me, here’s where I am spending the next few hours:
1. Narrowing down the search to digestible pieces. By using common sense valuation screeners, and researching the ideas of experts as generously exposed on websites such as VIC or Gurufocus. (There’s no shame in seeing where others are treading) and besides in investing there are no prices for originality.
2. Notice that I didn’t say “piggybacking” but rather “researching” other’s ideas. The point is these narrowing down exercises are the starting and not the end point of the security selection process.
3. Running the valuations in reverse (this is something that apparently Mr Buffet is keen on). It basically means trying to estimate a valuation without a previous peek into current market price. By so doing we eliminate the bias known as “anchoring” and can claim to start with an open mind.
4. Not placing artificial constraints in the initial search process. After all, since opportunities may exist in any geographic location or industry, so why rule out a specific location or sector? Having a broader target market at the initial stage of the search process should ensure that only the very best ideas reach the end of the selection process.
5. Limit potential portfolio size to under 20 securities to reap the benefits of minimum diversification and yet allow for both deep analysis of each component piece.
For now it’s time to get started and be selective. As the saying goes, “good things come to those who wait”
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