“I love to practice. I need to practice. How can I skip practice? I need it.” – Michael Jordan
Some days ago at an Investor conference – I talked about what investors can learn from the game of poker.
One area I talked about is that in almost all skill games and sports players are on a continuous path of learning. The best Poker players are actively using course material, solvers (decision tree), and active feedback through coaching or peer review to improve their game. One of the most active methods of improving the game is taking coaching and this is also true for most sports/games be it tennis, cricket, or chess.
It’s not how good you are now; it’s how good you’re going to be that really matters
Atul Gawande – a surgeon has been actively able to apply coaching in surgery with his professor watching him doing surgery and giving feedback. The improvement was very slow but gradually helped in reducing complications in surgery.
Don’t just be Driving; Become a Racer
Investors are always eager to learn. Learning by investors is however like driving. Most of us once we know driving can reach locations safely and once we are good at it we stop improving. However, not many of us after years of driving can be good at off-roading or racing. Investing also most people believe after a point is habitual and fluid. The learning is limited to reading books and attending conferences. The same can be said for amateur poker players. They are always playing and believe as they play more, their game is improving. However, this is far from true.
Best Poker players are constantly spending an enormous amount of time reviewing their previous plays, learning from hand reviews of themselves and others, and discussing and learning new strategies. The poker industry has a very active environment for learning and coaching.
When the student is ready the teacher shall appear
One of the corollaries of coaching in the world of investing is having mentors. Having mentors in investing is just about being lucky to have access to some great minds, it’s not a commercial setup. It’s time the investing industry like the poker community had a strong group of people who are actively coaching or teaching investing. Please don’t confuse it with people from WhatsApp groups or weekend get-togethers to regularly give you buy/sell ideas.
Poker players employ a method of learning called deliberate practice. This is to focus on a specific spot and just work on it. Investing also can be broken down into specific learning areas – understanding blockchain, the impact of platform companies, etc. It can also be broken down into ground research to understand consumer behavior. One of the fund managers spends a significant time of per month away from Mumbai in a new city regularly.
Also investing as a task involves finding investing ideas, financial analysis, ground research, Corp governance check, position sizing , and exiting. Not all investors are good at all of them. Currently, some investors are outsourcing a few of these activities. Personally, I have always failed in buying large quantities , holding bad investments too long and definitely selling too early. I have done ok with selecting good companies. I have always sold early despite reading enough about the miracle of compounding.
Poker players actively indulge in group learning. Strategies to play a hand or a particular spot in the game are actively debated and while there may never be a consensus – it is always an evolving thought process. In poker, it is almost easy to identify the smartest poker player in a group and people will actively seek out his/her opinion. The smartest poker player always talks in possible ranges and are never certain and never result-oriented. The same can be done in investing where stock/sector ideas are actively discussed among experts. However, given feedback is noisy in investing world – investors generally tend to believe the person whose portfolio is doing the best in recent times to be the smartest, and therefore ideas of an underperforming investor despite being very good may be sidelined. Do remember people in the last few years started questioning Prashant Jain. Ex-CIO of HDFC MF as well.
I hope in a few years we have dedicated investing coaches who are available to be hired – who will actively look into your investing process or portfolio and suggest what’s the right approach. This should be a recurring task. Investing is a process that requires genuine learning and improvement and hopefully, people will stop calling business channel experts and anchors for stock advice as they know nothing about your process and your overall portfolio.
How to Practice investing? Value Amitabh Bachchan
One way to practice investing is to start valuing unlisted companies and businesses of which no fair value is available. What’s the price you will pay to get all of Amitabh Bachchan future earnings (do assume he will restart ABCL)? What’s the value you will ascribe to Part 2&3 of Brahmashtra trilogy ? ( For the contrarians). How about valuing a fintech startup in Kenya ? Also, analyzing your own forecast 20,10, 5 years ago can give insights into improving.