Maybe you're already a great stock picker, or perhaps you're just starting to wet your toes in the financial markets. Either way, there's always room for improvement when your personal wealth and retirement income is at stake.
That's why I wanted to read The Cambridge Handbook of Expertise and Expert Performance, edited by K. Anders Ericsson.
The basics
How would you go about improving your stock-picking skills as efficiently as possible? The Handbook doesn't discuss that particular skill very often, but there's so much agreement among the methods for improving other abilities that it's easy to connect the dots anyway.
Ericsson and his contributing writers highlight two essential attributes of the successful learner:
- Practice does make perfect
- Developing a talent requires "the support, encouragement, advice, insight, guidance, and goodwill of many others."
Master-level chess players, for example, didn't get there by talent alone. Multiple studies show that as much as 70% of a chess master's skill rating is a direct function of the amount of deliberate practice invested -- but tournament experience has almost no effect at all.
And when you socialize with like-minded musicians, athletes, or investors, you will run into people with unique and useful insights that you can piece together to shape your own body of expertise. The bigger the social network you have, the more likely you are to find the answers you're looking for.
As soon as you set your mind to achieving excellence in investing, you're halfway to meeting the first requirement. Then it's just a matter of finding the right social environment and the right information resources to get cracking on the practice you need. And you happen to sit a mere mouse click away from exactly that sort of ideal learning environment -- our Motley Fool CAPS investor network.
In other words, the next Warren Buffett or Peter Lynch won't get rich by instinct or talent alone. It takes years of diligent study and practice, and nobody will climb that mountain alone. Buffett was the son of a stock broker, which exposed him to the tools and social circles of the trade in his early years. His financial talent also gained much from his voracious reading habits. Lynch built his success on talking to business leaders, investors, and analysts for hours on end, picking brains before picking any stocks. CAPS can get you started on the same habits today.
Learn to invest!
Here are five stocks the CAPS hive mind figured I might be interested in this week, based on my previous picks and preferences:
|
Company |
CAPS Rating |
Bull Ratio |
1-year Return |
|---|---|---|---|
|
BP Prudhoe Bay |
94% |
21.2% |
|
|
Chicago
Bridge
& Iron |
98% |
57.6% |
|
|
51job |
98% |
9.9% |
|
|
Rowan |
96% |
10.5% |
|
|
White Electronic Designs |
95% |
(26%) |
The system knows me well. I've come very close to investing in three of these companies but never pulled the final trigger. And from the CAPS profile on each ticker, it's easy as pie to tap into the wisdom of an investor community some 83,000 heads strong -- and counting.
For example, a player with one of the best stock-picking scores on record explains that Prudhoe Bay benefits from oil demand in China and has plenty of usable reserves left. Or I can scan the comments on Chicago Bridge and tell that some of our best investing minds find the stock unfairly punished by short sellers, because the company isn't as exposed to a U.S. recession as you might think.
You get to make your picks in a forum that is public enough to encourage competitive spirit, but risk-free enough to let you experiment. Learn from your bad calls, as well as the good ones. Keep going back to re-examine your old choices, and see why they're helping or hurting your score. This is the "sustained investment in deliberate practice" part of the experience, and a key ingredient in your recipe for Buffett-esque expertise.
Foolish finale
The Handbook is a great reference work for anyone interested in personal improvement, including sharpening your financial panache. Reading these research papers will give you a greater understanding and appreciation of what it takes to truly excel at investing or any other human endeavor.
I'm left with the sense that I will never quite reach my full potential at anything -- because there's always room for more practice, more learning, and a higher plane of excellence. And that's a good thing.
Further Foolishness:
