Thursday, August 2, 2012

This is how a good investor becomes great!

The Olympics are currently underway in London. So what better way to start than take an example out of the world's biggest sporting extravaganza? You see, all the champion athletes who compete in the games seem to put in the same amount of training hours and possess a similar level of work ethic. Yet, at the end of it all, there is only one winner who walks away with that elusive gold medal.

And here in lies the biggest mystery we believe. If all the participants pass through virtually the same work routine, why is it that some achieve success and others remain perennial underachievers? Most of us would put the reason down to some inborn talent.

However, a recent research in this area has shed light on a completely different reason behind this phenomenon. It has argued that if one wants to get good at something, how a person spends one's time is far more important than the total amount of time spent. Thus, the number of hours and the amount of sweat that one puts behind an activity is only a weak indicator of performance. What matters is that one should closely watch where one fails and then learn from the mistakes. In other words, unless we are constantly pushing ourselves to the limit and continuously monitoring our performance, we are never going to improve in our chosen field. On most occasions, we do our activities in our comfort zone. But true progress happens when we move out of there and get into the zone of learning.

Can this approach be used in investing as well? It certainly can but we believe it will require a small twist. As a financial blog points out, unlike sports or music, there is this problem of not getting an immediate feedback in investing. Whenever we make certain long term investing decision, its results will be known only after a time lag of 2-3 years. This could thus lengthen the whole process of learning. Fortunately, there is a solution at hand. And it says that we can become much better investors by studying the past investment made by successful investors. By recreating the situation when the other successful investors made their investments, we get a chance to understand what exactly must be going through their minds when they made their investments. You can then compare your conclusions and your logic behind investing with theirs and thus keep getting continuous feedback. Done over and over again, this approach has a much greater chance of turning you into a great investor than the one you currently seem to be using we believe.

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