Overview – Improvement Begins With Good Measurements
How many times have you told yourself “I need to improve at ______”, only for you to make very minimal progress in your attempt at improving?
Many people have things they want to improve on, yet time and time again some people just can’t seem to move forward. Are these people just not putting in enough effort? Perhaps, but sometimes, people simply don’t know the numbers.
Say you go for daily runs, and you want to run longer distances. The first thing you should measure is how long you’re able to run currently, and by how much you increase your running distance every time you attempt to do so.
This idea of measuring something to try and improve it is attributed to the famed management consultant Peter Drucker, the author of several classic business books such as The Effective Executive and The Practice of Management. Drucker’s quote was “if you can’t measure it, you can’t improve it”.
Many investors want to improve on something, but they won’t get very far if they don’t have a clear baseline, or if they fail to measure their progress.
You Can’t Improve Without a Reference
When it comes to improvement, it’s important to remember that any sort of improvement needs to be established relative to some previous baseline. You can’t possibly hope to improve if you’re unaware of your current peformance.
For example, let’s say that you want to improve the time it takes for you to finish a 3 km run. This naturally begs the question of “what previous time do you want to improve upon?” If you don’t know the time it currently takes for you to complete a 3 km run, then your attempt at improving is pointless because you don’t know what you’re comparing your performance against.
However, if you know that it currently takes you 20 minutes to complete a 3 km run, then you have a baseline to work with – completing a 3 km run under 20 minutes would be a clear sign of improvement.
Improvement is relative, so improvement demands that a person or organization knows what their current baselines are. Without a reference to benchmark your performance against, you’ll have no idea whether you improved or not.
An ordinary person and an Olympic athlete may both want to improve the time it takes for them to run 3 km, but their baselines may be completely different. An ordinary person may be able to finish a 3 km run in 20 minutes, whereas an Olympic athlete can finish it in 10 minutes. “Improvement” will look very different for these two people.
As you may have already suspected, the idea of “if you want to improve something, measure it” can be applied to almost every aspect of our lives, especially investing.
Mastering the Numbers Game
Investors work with quantitative data all the time, so it should come as little surprise that improving as an investor is something that can be achieved through the power of numbers.
Let’s say that you’ve recently come across several new investing topics/terms that have left you confused, so you decide to dedicate more time to your personal study and practice. The first question that needs to be answered is “how much time am I already dedicating to investment study and practice?”
You measure how many hours you dedicate every month to personal study and practice, and you discover that this number is 20 hours (approximately 5 hours a week, or one hour every week day). For most investors, 20 hours is a very reasonable amount of time to spend on personal improvement, given that they have other commitments to attend to as well.
So, the amount of time you spend studying isn’t the issue. In this case, the problem isn’t how much time you study, but rather the quality of your study. Perhaps you’re reviewing the same concepts too many times, or maybe you don’t expose yourself to new topics?
On the flipside, if you discover that you spend only 4 hours a month (or rougly 1 hour a week) to your personal development, then it’s clear that you’ll probably want to spend more time dedicated to investment study and practice.
In another scenario, imagine your portfolio is comprised of companies from four industries, and you feel that one industry is weighing down your portfolio’s returns. One of the first things you should check is the historical returns of each industry, and to see which industry (or industries) have historically posted the lowest annual returns.
A lot of insight can be gleaned by taking the time to sit down and analyze the numbers. Numbers on their own may not reveal much, but when placed in the proper context numbers they can reveal a great deal of insight. This may explain why a growing number of companies are using big data for several purposes, from marketing all the way to predictive maintenance schedules.
Personally, one of the tools I use to help run ilucidy is Google Search Console, which gives me insight on how ilucidy performs in Google searches. I use this information to learn which posts/pages are getting the most views, and as a result, which of these pages I need to update/revamp.
Without the insights from Google Search Console, I’d have no idea what content needs improvement, and what content is already doing fine.
It’s very easy to lie to ourselves by overestimating or underestimating certain things to try and find solace, but the beautiful thing about numbers is that they are brutally honest – that’s why good measurement taking and data collection is such a powerful tool.
Knowing the truth may sometimes hurt, but accepting the truth is the first step toward the path of improvement. An investor can’t possibly hope to achieve any sort of significant progress unless they know where exactly they stand right now.
Lying to yourself may bring temporary comfort, but the long-term damage may end up being irreparable. For investors, it’s much better to deal with problems now than to let them grow into much bigger problems later.
The power of numerical data should never be underestimated. Google has an entire department, People Analytics, dedicated solely to using data to better understand their workforce. If one of the largest companies in the world has an entire department dedicated to using data to improve workers, then it should be a no-brainer for investors to implement data collection to help advance their investment goals.
While the importance of data grows every day, it’s easy to forget that there’s more to improvement than just studying the numbers. Getting too caught up with the data may even end up being detrimental in some instances.
Beware the Numbers Trap
When making any sort of measurement or collecting data, it’s easy to fall into what I call the “numbers trap”. That is, focusing too much on the numbers and not focusing on the quality of the work that needs to get done.
Say you want to improve the quality of your investment analysis, and you know that, on average, it takes you 2-3 days to complete a thorough investment analysis, it may be tempting to make the conclusion that you simply need to dedicate more time to do your work, but is that really the case?
It may turn out that you are only looking at a handful of information sources, resulting in a lack of quality information. In this case, the problem isn’t that you spend too little time performing analysis, but rather you lack diversity in your sources of information, leaving holes in your knowledge.
It doesn’t matter how long it takes to perform investment analysis if you work with such limited information. This is a problem that can’t be solved by simply dedicating more time to performing the task.
This is a textbook example of the “numbers trap”: the false belief that improvement can be obtained by spending more time on an activity, rather than taking the time to understand if the activity itself is flawed.
Taking measurements and determining baselines is important, yes, but it’s just as important to make sure that the activities you are performing are high quality as well.
1 hour of high-quality practice is much more effective than 10 hours of erroneous practice. As the saying goes: “practice doesn’t make perfect, perfect practice makes perfect.”
If the activities you are performing to try and improve are inherently flawed, then it doesn’t matter how many hours you commit to improvement, you will only end up mastering the wrong thing.
My experiences have taught me that measurement taking/data collection and the quality of your work go hand in hand. One without the other won’t get you far: you need equal amounts of both if you want to see improvement in whatever endeavour you are trying to get better at.
Wrapping Up
Everyone has something they want to improve at, but they won’t get very far if they don’t have a baseline or reference to compare their progress against.
Any sort of improvement is relative, a beginner runner and an Olympic athlete may both seek improvement, but what that improvement looks like will vary considerably. The first step when trying to improve is to measure your current performance – you can’t improve if you don’t know where you currently stand.
While taking good measurements is important, numerical data only represents half of the improvement equation. It’s easy to fall into the “numbers trap”: that is, focusing too much on the numbers while neglecting the quality of the work that needs to be performed.
Quantity and quality must be present in equal measure if any sort of significant improvement is to be achieved.
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