The Framework Foundation
Nothing in this world can take the place of persistence. Talent will not: nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not: the world is full of educated derelicts. Persistence and determination alone are omnipotent.
If our aim is to build an investment framework, then like any construction project, we need the proper foundations. Not just so the framework will last, but so it will be capable of constant renovation as both our knowledge and the state of the world change.
This foundation is built on three principles of learning:
1. Willingness to Learn
The key to pursuing excellence is to embrace an organic, long-term learning process, and not to live in a shell of static, safe mediocrity.
If you’ve got this far, its fair to say that you are interested in learning. But there is a difference between being interested in learning and being willing to learn. In her book Mindset, Carol Dweck highlights two different mindsets that people have regarding their personal traits, such as intelligence and personality. People with a fixed mindset believe their traits are given and that outcomes are a result of these traits. If they succeed its because they are intelligent, if they fail its because they are not. In contrast, those with a growth mindset, view their traits as things that can be developed with effort.
Successful learners not only have a growth mindset, but are willing to invest in their growth. In The Art of Learning, Josh Waitzkin¹ notes:
“what I am best at is not Tai Chi, and it is not chess – what I am best at is the art of learning”.
For Waitzkin and many other successful performers, learning is not a passive pursuit, it is active, conscious and deliberate.
2. Deliberate Learning
Practice doesn’t make perfect. Only perfect practice makes perfect.
If you are willing to learn, the second element of the foundation is how to learn. Whilst there are different tweaks on this, the message seems clear – learning must be a deliberate and conscious act. In Talent is Overrated, Geoff Colvin argues that the key to elite performance is what he calls Deliberate Practice:
- It is an activity designed specifically to improve performance, often with a teacher’s help;
- It can be replicated a lot;
- Feedback on results is continuously available;
- It’s highly demanding mentally; and
- It isn’t necessarily much fun.
Waitzkin’s approach, whilst couched in more philosophical terms, is essentially the same. In an approach he calls making smaller circles, he champions depth over breadth:
“It is rarely a mysterious technique that drives us to the top, but rather a profound mastery of what may well be a basic skill set. Depth beats breadth any day of the week, because it opens a channel for the intangible, unconscious, creative components of our hidden potential”²
A key component of this approach, is a willingness to make mistakes in order to go forward.³ Waitzkin calls this “Investing in Loss” which led him to intentionally spar against bigger and better opponents or those he knew would play dirty in order to improve his technique.
For most readers, this philosophy is difficult to implement on a day to day basis where the realities of business performance don’t allow for ongoing on the job failures. In this case, the investment in loss must take place elsewhere.
3. Learning for task
So Plato, Aristotle, Socrates, I am not guided by them… I am interested in what works
The third element of the foundation is what to learn. For investors this poses a dilemma. If you want to get better at chess – you practice chess; running – running and so on. So if you want to get better at investing, you need to practice – Investing! But how? Clearly the ability to replicate a given investment is difficult, if not impossible. For many trading strategies, feedback is delayed by months or years and is regularly clouded by statistical noise. Furthermore, “investing in loss” can carry unfortunate commercial and career practicalities.
As a result of these difficulties, investment education is often reminiscent of the drunk looking for his keys under the street light rather than where he lost them, because “that’s where I can see”. Too much education in investing is focused on things that are either easily taught and assessed, or that are interesting and entertaining:
- Basic analytical skills and terminology.
- Academic finance theories.
- The techniques of other successful investors.
Learning and understanding these things will certainly improve your CV and probably your credibility in meetings. It may also be considered a necessary condition for you to become a better investor, much like a runner needs to learn how to tie their shoelaces before they can run.5 But this knowledge should not be confused with actual investment expertise, which is judged not on whether it sounds good, but the simple test of – Does it work?
Unfortunately, this website does not offer a silver bullet solution to gain investment expertise. No one book or blog can. Expertise must be gained with experience, including the inevitable investment in loss. What this website does hope to achieve is a means to accelerate that learning experience and to minimise the investment in loss. It aims to do this by making it easier for you to answer the simple quesitons – “What are the implications of this knowledge for investing?” and “How will I incorporate this knowledge into my investing framework?”. A willingness to keep asking and acting upon these questions is the Framework Foundation.