I’ve been reading Malcolm Gladwell’s Outliers. One of the key themes of the book is that experts in a field became experts through 10,000 hours of deliberate practice. There are numerous academic papers that support this view including The Role of Deliberate Practice in the Acquisition of Expert Performance.

[this article] explains expert performance as the end result of individuals' prolonged efforts to improve performance while negotiating motivational and external
constraints. ... Individual differences, even among elite performers, are closely related to assessed amounts of deliberate practice. Many
characteristics once believed to reflect innate talent are actually the result of intense practice extended for a minimum of 10 years…

For us the interesting question is what would deliberate practice look like for a value investor. Mark Sellers suggested some things that are not in his speech titled “So you want to be the next Warren Buffett? How’s Your Writing?”

• Reading books and magazines – the law of diminishing returns applies once you have the core knowledge and at best this allows you to keep up
  
• MBA, CFA or CPA – these teach you how to exactly match the market
  
• Experience – if this were true then the best investors would be in their 70’s

and then he suggests 7 traits that make a great investor and that cannot be learned

• Ability to buy stocks when others are panicking
  
• Obsessive about playing the game and wanting to win – this often means a hard time maintaining personal relationships
  
• Willingness to learn from past mistakes
  
• Inherent sense of risk based on common sense
  
• Confidence in their own convictions and stick with them even when faced with criticism – this also means no 2% positions, what’s the point
  
• Ability to use both sides of your brain. It’s not enough to be able to do the math you need to be able to write and think of inventive ways to solve problems. You do need to be able to do the math!
  
• The ability to live through volatility without changing your investment process

Now Mark believes that these traits are set in your early childhood and by the time you leave school it’s too late to change them. I suspect that Mark is mostly right. These are probably well developed by the time you leave school but with sufficient commitment you could practice your way to these behaviours. Of course the the question is would you commit to such a program if you didn’t already have some degree of these behaviours ingrained. If the value investing inoculation worked on you then you probably have what it takes to commit.

So what might deliberate practice for a value investor look like? Tony Schwartz in this HBR article distils the steps required to be an expert into these six steps:

1. Pursue what you love
   
2. Do the hardest work first
   
3. Practice intensely
   
4. Seek expert feedback, in intermittent doses
   
5. Take regular renewal breaks
   
6. Ritualize practice

Here are some ideas for deliberately practice towards become a value investing expert

Deliberate Practice	Not Deliberate Practice
Detailing how specific news items may impact your investments understanding if you should still hold those investments quantifying the impact on your valuation	Reading the newspaper
Valuing & evaluating Businesses Use annual reports to value companies Read annual reports for different companies in the same industry Evaluate the differences between companies in terms of their accounting, strategy, competitive advantages Summarize the results of the research	Reading Annual Reports
Engage the ideas in books Summarize books using mind mapping or similar tools. Apply the ideas presented Compare the ideas to your current ideas Test the ideas presented	Reading Investing Books
Engage the ideas and authors Summarize and file articles Comment on articles, engage the author in a discussion Compare the ideas to your current ideas Test the ideas presented	Reading Articles
Manage a portfolio Create and maintain a list of businesses and the prices that you would like to purchase them at (and if they hit your price then buy) Review the stocks in your portfolio and look for better opportunities (and if there are then sell / buy) Constantly evaluate if the situations has changed (and if it has then buy/ sell) If the price drops substantially where the situation is unchanged then purchase more Deliberately setting appropriate position sizes and evaluating performance in light of the chosen position size Constantly evaluate the overall portfolio and ensure that you have not accidentally made just 1 or 2 big bets (and adjust your portfolio if you have) Keep a log of why you bought and sold	Buying and selling shares
Writing your own research Write down your ideas along with the reasoning and encourage critical review Look back over your previous writings to see where you went wrong	Posting on message boards
Be a contrarian Buy stocks on the 52 week low list Sell when your stocks hit your estimate of fair value Develop systems that work for you to ensure that this happens (like Good-Till-Cancel limit orders) Keep a diary of trades and identify the market context at the time	Buying when the market is doing well or selling when it's doing poorly

If you can engage in 20 hours of deliberate practice a week then you’re looking at about 10 years to become an expert. Over that time you would have read around 3,600 annual reports and evaluated around the same number of companies. You would have read 9,000 articles, reviewed 450 personal trading decisions and written around the same number of articles/ research pieces.

Finally the “Dan Plan” describes Dan McLaughlin’s efforts to go from no golf experience to a golf pro using deliberate practice. He’s at about 1,200 hours and so far has only practiced putting. He hasn’t played a single game of golf yet as playing a game isn’t deliberate practice. Buying and selling stocks is not going to make you an expert value investor. Doing the hard work, practicing your analysis skills intently and then critically reviewing your results just might!

Let me know your ideas for deliberate practice (or examples of not-deliberate practice) in the comments!

What Worked in the Stock Market for Long-Term Investors?

Extensive research has found that the companies with predictable revenues and earnings outperform the market average; they also suffer lower probability of loss. As a matter of fact, this kind of companies are exactly what Warren Buffett wants to buy and hold forever. Please read the research about what worked in the stock market:

Part I: What worked in the market from 1998-2008? Part I: Predictability Rank
Part II: Role of Valuations
Part III: Intrinsic Value, Discounted Cash Flow and Margin of Safety

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