Last Updated on December 2, 2024
Overview
In the world of Japanese business, there is a term known as kaizen, which is a concept that refers to the continuous improvement of all business functions and applies to every employee, from the CEO all the way to front-line workers.
An example of kaizen in action is the Toyota Production System (TPS), a set of management philosophies and practices that Toyota follows. Many consider the TPS to be a major factor behind Toyota’s dominance not only in the auto industry but in the broader business community as well.
Countless car manufacturers around the world have studied the TPS and have tried to implement it into their own corporate culture. Auto manufacturer NUMMI was a joint operation between General Motors and Toyota, and it successfully implemented TPS principles.
Despite the TPS being a world-class system, it still receives thousands of tweaks every year from Toyota employees. The pursuit of continuous improvement never ends. That is why the TPS is so formidable – the relentless push to always improve it, no matter how good it already is.
If one of the world’s largest car companies consistently tries to become better, then surely it wouldn’t hurt if investors also strive to constantly improve as well.
The Need for Continuous Improvement
It’s very tempting for an investor to experience investment success and to tell themselves they no longer need to get better. That is a very dangerous mindset to adapt.
Bill Gates once called success a “lazy teacher”, because “it seduces smart people into thinking they can’t lose.” The last thing an investor wants is to become complacent simply because they experienced some success.
The world continues to experience an unprecedented amount of change on a daily basis, and naturally, the domain of investing is taking part in that rapid change as well. Investment strategies and philosophies that worked 10 years ago may no longer be applicable today. Principles persist, but strategies continue to evolve.
With so much change going on around us, one of the top priorities for an investor should be to keep their investing skills in the best shape possible and to constantly adapt to new changes. In the following sections, I discuss some of the methods I practice to keep my investing skills as sharp as possible.
1.) Solidify the Habit of Keeping Your Cool
I previously discussed the importance of having healthy investing habits, and how habits can either set us up for success or weigh us down.
In my experience, the one skill I’ve found that sets great investors apart from mediocre ones is their ability to stay level-headed, no matter how much mania is going on around them.
Anyone can learn to analyze an annual report or apply the correct ratios and metrics on a company’s financials, but none of that will matter if you repeatedly succumb to your emotions and make rash investment decisions as a result.
Out of all the skills an investor should master, learning to keep your cool is, without a shadow of a doubt, the most important.
The best part about this skill is that you can practice it almost every day.
Next time someone cuts you off on the road, or your internet randomly shuts off, or one of many other inconveniences happens to you, it’s so easy to react emotionally: you can choose to scream at the driver or to slam your phone in frustration.
Instead of throwing a tantrum, train yourself to take a deep breath, collect your thoughts, and proceed calmly. This reinforces the habit of calming down instead of throwing a fit in response to an emotional stimulus.
Sure, you can feel good about yourself for a few seconds by yelling at someone or slamming your phone, but the aftermath is made clear right away. Is the damage really worth the few seconds of gratification?
An investor cannot afford to be a slave to their emotions. Losing your cool as an investor never ends well: the investor who learns to keep their cool will always come out on top.
2.) Improve Your Reading Skills
This is another topic I’ve discussed previously, but since reading is such an important skill I will repeat its importance here.
A vast majority of the information that an investor receives will be in written form: annual reports, analyst reports, press releases, proxy statements – the list goes on. With so many words inundating an investor, it is very easy to miss an important detail if they do not keep their reading skills in top shape.
I like to think of reading skill as having the following three elements: reading speed, reading comprehension, and the ability to read between the lines. An effective reader is someone who is proficiently skilled in all three of these elements. Weakness in one element will cause the overall reading skill to decrease dramatically.
With so many factors contributing to reading skill, an investor’s only option to improve is through cold hard practice, lots of it. That means allocating an adequate amount of time every day to read.
Of course, improvements will only be observed if your practice is high-quality. If you only read one type of material, or if you read something that doesn’t require a lot of critical thinking or reading between the lines, then you aren’t going to see major improvements to your reading skill.
I read a wide variety of materials: news articles, books, research reports, annual reports, blog articles, etc. Some of the material I read is interesting, others…not so much. However, the reality is not everything you read that is important will always be captivating.
Written investment information comes in all sorts of formats, so it’s best to expose yourself to as many different forms of written media as possible so that your reading skill remains high no matter what you come across.
Learn to Be More Inquisitive
There are countless people out there who want nothing more than to take your money from you in the most obscene way possible. Whether it’s theft or getting caught up in a Ponzi scheme, the creativity of malicious people knows no bounds.
Not every company you wish to invest in will be forthcoming with their performance. They may sugarcoat their financial data and business activities to make it seem like everything is fine, when in reality, you are walking into a burning house.
Investors should never take everything they see at face value. Just because someone tells you Company X is worth investing in doesn’t mean you should blindly follow their advice.
The approach I’ve adopted is “trust but verify”. Much of the data you come across will probably be correct, but it doesn’t hurt to double-check just to be sure. Maintaining a healthy dose of skepticism never hurt anyone.
Not only that, but if something is too good to be true, it probably is. Whenever you come across this situation, assess whether the offer you are being presented truly is valid without any sort of hidden strings.
Just like the habit of keeping your cool, learning to ask questions more frequently is something you can practice almost every day. In fact, you could even practice this skill along with reading.
For example, say that you read an article suggesting that people don’t need to do as much physical exercise as previously thought. This article comes from a reputable medical research journal, so surely it is credible. However, you decide to dig deeper and find out if there’s more to the article than what’s being presented.
Or perhaps you are waiting for an important package to arrive at your friend’s place, and the mail courier tells you it has arrived. Wanting to double-check, you could call your friend to verify that the package has indeed arrived.
Being inquisitive doesn’t mean necessarily mean asking very big questions, it simply means learning to question things to get closure, instead of taking blindly taking someone’s word for something.
Wrapping Up
Although I only discussed three ways an investor can improve, I know there are many other methods for an investor to take their investing skill to the next level.
Regardless of how you choose to hone your investing skills, the important thing is to never rest on your laurels. One of the worst things that can happen to an investor is to assume that they no longer need to get better.
The world of investing is very dynamic. With so much changing on a daily basis, investors need to ensure their skills stay as relevant and as refined as possible. With this in mind, there is no valid excuse for an investor not to constantly improve.
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