Last Updated on December 2, 2024
Overview – Improvement Requires Quantitative Data
How often have you told yourself “I need to improve at ______”, only for you to make 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 get the results they want. Are these people just not putting in enough effort? Perhaps, but sometimes, they face an even more fundamental problem: they don’t take any measurements, making it impossible to objectively determine whether they’re progressing.
Like most things in life, the most definitive way of discovering if progress is being made toward something is by having quantitative data to reference; trying to improve is no different.
Most investors understand the importance of constantly becoming better, but without taking key, quantitative measurements then improvement will be elusive.
Why Bother Quantifying Your Efforts to Improve?
When trying to improve at something, most people have, at best, a vague idea of what that improvement looks like. A basketball player can easily say they’ve improved their jump shot, or a pianist can say they’ve improved their ability to play a certain piece, but based on what? “Feeling” like you’ve improved isn’t very insightful.
It’s easy to say “Look at how much I’ve improved!”, but it’s just as easy to overstate (or, less commonly, understate) our progress to try and feel good about ourselves. Lying to ourselves for the sake of saving face won’t get us the results we want.
This is where taking good measurements and numerical data enters the picture.
Numerical data never lies, and because of that it gives an objective, unbiased view of our attempt to improve no matter how encouraging or discouraging the numbers are. Because of this, choosing not to quantify your efforts for improvement can be a very costly mistake.
There are a multitude of things investors can potentially improve at, but they won’t know for certain if they’re getting the results they want without a clear, objective method to measure their progress.
The more numerical measurements an investor takes, the easier it will be for them to achieve the improvement they seek.
Improvement Starts With Having a Clear Baseline
Before any improvements can be made, one of the first, and arguably most important, tasks to do is to understand what your current performance is. Doing so establishes a clear baseline, giving you something tangible to measure any progress (or, hopefully not, decline) against.
Improvement is relative, so what seems like significant progress for one person may be pitiful for someone else; it all depends on the baseline performance of a given person.
In the context of investing, what areas of “performance” can be quantified?
There are a multitude of things in investing that can be quantified to determine performance, such as portfolio returns (over a given period, and can be as broad or granular as an investor wants), the amount of time it takes investors to perform investment analysis, and the amount of time investors dedicate to personal development, to name a few things.
Now, this isn’t to say that everything investors do can be quantified, but many can be. The argument can even be made that certain aspects of an investor’s activities that don’t seem to be quantifiable can be.
For example, it may seem impossible to quantify an investor’s emotions, but you can certainly quantify the number of times an investor loses their cool and how much money they’ve lost to panic selling, both of which are directly tied to an investor’s emotional intelligence and control.
Regardless of what performance metrics investors choose to measure, the goal will always be the same: have a clear, objective idea of how they’re currently performing before embarking on any sort of improvement.
Any Attempt to Improve Will Always Be Relative
Understanding your current performance before trying to improve is crucial because it will directly impact how much time and effort you need to reach your desired level of improvement.
It’s easy for people to say they’ve “worked hard” at trying to improve, but in some cases the time and effort they’ve spent isn’t nearly enough, whereas in other instances it proves to be too much, leading to wasted time and energy that could’ve been spent elsewhere.
To demonstrate, let’s go over some quick examples.
Imagine we have two investors, A and B, who, over the last 5 years, achieved compound annual growth rates (CAGR) of 7% and 12%, respectively. For the next 5 years, they both want to bump that figure up to at least 15%. Investor A will have their work cut out for them trying to improve their growth rate to achieve that goal, whereas Investor B will most likely find it much easier to achieve.
Say that you wish to expand your theoretical knowledge of investing, so you decide to track how many hours a month you allocate to investment study/development. You believe 20 hours a month should be enough to see the improvement you want, but you learn that over the past 12 months, you averaged about 30 hours on development.
Allocating more time to this endeavour even though your benchmark is already above your target would prove to be wasteful, and perhaps there’s a more fundamental problem that needs to be dealt with (more on this later).
Any attempt at improvement will always require time, effort, and energy, but it’s important to know how much of these resources to spend to achieve the desired improvement in the most efficient manner possible. Many investors understand the value of these finite resources, and one of the last things they want to do is needlessly waste them.
Beware the Numbers Trap
So, we know that quantifying our efforts to try and improve is important because it accomplishes two objectives: to give us a clear understanding of our current performance, enabling us to determine how much time and effort we need to spend to reach our desired level of improvement.
While the importance of taking good, quantitative measurements when trying to improve cannot be overstated, it’s important not to fall victim to something we will label as the “numbers trap”. Put simply, this is what happens when we hyperfocus on the quantitative aspect of improvement while largely ignoring the qualitative aspect of it.
Improving as an investor, just like finding suitable investment opportunities, has quantitative and qualitative elements to it, and both must be addressed to a satisfactory degree.
Say you want to improve the quality of your investment analysis, and you know that, on average, it takes you 5-6 days to complete a thorough investment analysis, and your goal is to bring that down to 3-4 days. It’s easy to think that the problem is you simply aren’t allocating enough time to do this task or not working fast enough, but is that truly the reason?
It may turn out that you are only looking at a handful of information sources, resulting in a lack of quality information. If so, the problem isn’t that you spend too little time performing analysis, but rather you lack diversity in your sources of information, leading to a lot of unanswered questions, thereby prolonging your analysis.
Allocating more time to perform this work or working faster won’t do you much good if the underlying problem is more fundamental and can’t be discovered quantitatively.
Numerical data matters when trying to improve, yes, but so too does the quality of the work being done.
Wrapping Up
Anybody, investors included, can easily say “I want to get better at something”, but knowing if acceptable progress is being made is usually a challenge. Fortunately, there exists a practical yet very powerful solution: taking quantitative measurements on what exactly you’re trying to get better at.
Quantifying your efforts to improve is so important because it gives a clear baseline of your current performance, thereby allowing you to understand how much time, effort, and energy you must spend to achieve your desired level of improvement. Saying that you “feel” like you’ve improved at something doesn’t provide much, if any, insight.
Despite the importance of numerical data when trying to improve, it isn’t everything: the quality of the work being done to improve matters as well. Focusing too much on the quantitative element of improving while paying little mind to the qualitative aspect paints only half of the picture, hindering the process of trying to get better.
