Learning from your mistakes
Can feedback work for investors?
Whether qualitative or quantitative, from people or data, feedback is critical in many environments. But according to Ken Hames too many people and companies ignore it. The former member of the SAS, Royal Marines and Parachute Brigade said the military relies less on strict hierarchy than the stereotype suggests. Feedback, he says, comes pretty fast and furious, even for commanders.
“I’ve always needed feedback,” says Hames. “I’ve always worked in teams and sought to build strong relationships with the people that I work very closely with. I know ego kicks in here because some of us are not very good at sharing what we’re doing. But we need to be a bit more open about it: did I do well, or didn’t I do well?”
But beware. As Greg B Davies of Barclays Wealth and Investment Management highlights, feedback isn’t always applicable to investing due to the long timescales involved. In addition, when learnings are relevant, we should be wary of misappropriating the source of results. As Davies points out, humans suffer from “hindsight bias”. When we succeed, we attribute it to our own skill and ability. When things go wrong, we chalk it up to factors out of our hands. “The catch, in a financial environment, is to find ways of making sure you can record something of your thinking at the time [of decision making] and actually learn from the feedback,” he says.
Former TOPGUN pilot Chris Severson is also a strong believer in in-depth feedback. The ex US Navy serviceman spent more time assessing flights than actually doing them: “We really had this mind-set of briefing, executing, debriefing. In a dogfighting flight there really might be only four or five minutes of dogfighting and we could spend four hours looking at the tapes.”
The difficulty in using feedback in investment is that markets don’t often follow patterns – as other settings do. Feedback, then, should perhaps be taken with a pinch of salt by investors.
It’s important to appreciate though that, no matter what approach you take to investing, you can still lose as investments can fall in value.
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