Practice Makes Perfect Even with Investments

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The following is a Peco medija contribution

Spending time on your investments isn’t all you have to do to succeed.

You know how the old saying goes; practice makes perfect. And while this is certainly true for artists, athletes, and musicians, is it the same for those of us with investment portfolios? The answer is a resounding yes, and here’s why.

The art of deliberate practice

While there are many studies proving that continued practice does indeed improve skills and performance, they also highlight the fact that repetition doesn’t always have the same effect. And this is why we must focus our practice on a particular aspect. This is what is commonly known as deliberate practice.

Now before we delve into anything investment related, let’s first take a closer look at this type of practice as described by Cal Newport, a computer science professor at the Massachusetts Institute of Technology. Newport felt so strongly about the topic that he wrote a book So Good They Can’t Ignore You. In it, he lists his theories on improving both productivity and skills.

Newport’s theory on deliberate practice is of particular interest to us as it can be used in practically any discipline. Football players, writers, and even poker pros use this method of practice to hone their skills in their free time. Newport feels that truly successful people will focus their efforts on the aspects of their chosen discipline that they cannot do rather than practicing the aspects that they are already familiar with. So while an average soccer player might continue practicing a simple skill like passing the ball, a dedicated player will practice placing the ball in the top right corner of the goal hundreds of times until they have mastered it.  

So what does this deliberate practice thing have to do with investments?

Malcolm Gladwell’s popular theory that it takes 10,000 hours of practice at something to become an expert is where we’re going to start. This theory, as you may have guessed claims that it takes considerable practice before a person can expect a meaningful result from their efforts. So if we apply this to investments, we could say that you’d need to spend at least a couple of years of non-stop investing before you could consider yourself an expert.

Now anyone with any experience in investing will know that this is patently wrong. The amount of time you spend playing with stocks and bonds does not make you an expert. As Newport said, it’s how you spend that time that is important.

So let’s take a look at this practice idea from an investment perspective. Whether it’s blockchain or stocks matter not, if you have little experience in the world of investments, you’re going to make a few mistakes. In fact, you might even make a lot. You may hold your investments in the wrong accounts from a tax perspective or simply make the wrong call at the wrong time. While these mistakes might seem like rookie errors to most, to the novice investor, they’re a major drawback. Add to that the fact that there’s no real feedback from peers on what has gone wrong and you can see that there really is no substitute for experience.

The pain of rookie mistakes!

Photo by geralt / CC0 Creative Commons

But when we move past those early rookie mistakes and start taking a deeper interest in our investments, we begin to take more risks. And that’s when we start to realize that there may be certain aspects of our investment practices that need improving. But at this point, the word practice might have tones of risk associated with it. After all, you’re likely playing around with larger sums than you were at the start of your journey.

So how to practice without risking it all? The simplest way is to use a platform for dummy trading or practice investing. Now there are a few out there, and each has both its pros and cons, so we’re not going to recommend one. But we will advise you to do your homework before opting for one over another. These platforms allow you to make investments using virtual money, but the cash side of it is the only thing that’s not real.

Your dummy dollars (no they’re not really called that) will be used to invest virtually in real companies, and your investment will fluctuate according to the markets. Using this approach, you can then focus your efforts on honing those investment skills that need improving the most without taking too great a risk. As you can imagine, this opportunity for practice has incredible benefits and while we’re not really proponents of playing with fake money, when it comes to practicing your investment skills, it’s a real win-win situation.

One thought on “Practice Makes Perfect Even with Investments

  1. The market is such a tempremental thing. There is no-one that can say they know fully what is coming next, only predictions. But practice makes perfect. It does make it harder when it comes to investing though. But as long as things are trending upwards then you are winning!

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