December 24th, 2009
I don’t know how many of you are familiar with the man who’s picture is to the right. It’s William Edward Deming (October 14, 1900 – December 20, 1993), who according to Wikipedia was:
“an American statistician, professor, author, lecturer, and consultant….widely credited with improving production in the United States during the Cold War….perhaps best known for his work in Japan….from 1950 onward he taught top management how to improve design (and thus service), product quality, testing and sales (the last through global markets) through various methods, including the application of statistical methods.”
Perhaps he is most known for, though incorrectly quoted as having said, that “You can’t manage what you don’t measure.” This old management adage means that something won’t get better unless you measure to see if it’s getting better or not. With year-end tomorrow, it’s appropriate and necessary to do some accounting and soul-searching with regard to your trading and investment practices because if you don’t measure how well you did, you won’t be able to do even better in the future.
Think back on the past year to see which were your best trades were and which your worst….and why. Did you take steps, or didn’t take steps that you would have done differently if you could only do over. Did you let emotions get in the way of your achieving the results you wanted and could have done better had you held those emotions in check. While doing this exercise, write them down and, when finished, post them to the wall were you do most of your trading as reminders next year of what you should do.
Break the analysis down into individual contributing factors like capital gains (net of losses), dividend income, commissions. Don’t forget to factor in withdrawals and any additions or contributions you may have made. Finally, after you calculate the true return for the year, compare it against your favorite benchmark, like the S&P 500 or the Russell 2000. By completing this analysis, you will have taken the first step towards improving your result next year.
There is a second step, one that’s appropriate as a New Year’s resolution – engage a coach. Most of us, after putting together a little savings, may have read one of Cramer’s pablum books on fundamental analysis, watch CNBC’s Fast Money show, subscribe to a stock newsletter or website service and feel we know enough to dip our toe into the stock market. We open an online brokerage account and buy a familiar-named stock, like Apple, Pfizer or Walmart. We may get lucky and make a quick 15% on that first trade and say to ourselves, “That was easy; I think I’m getting the hang of this.”
We sock some more money away, buy some other familiar names, and find that our account continues to grow. All along we’re oblivious to the fact that the market has increased over 25% (the Nasdaq around 60%) in 2009. We may think it was our fabulous stock picking prowess that enabled us to make those profits and are oblivious of the fact that even a monkey throwing a handful of darts at a stock list would have done as well, or better, than we had.
We usually “self-coach” thinking that if we consult with someone it signals that we’re somehow deficient. We think that having and raising kids should come naturally, everyone should do well in an interview if they just act “themselves”, that golf, tennis, skiing, softball or basketball should be as easy and natural as riding a bike or jogging. So if we are our own coaches in all these endeavors, shouldn’t we also be able to manage our own investments?
Regardless of how well they perform, the best athletes have coaches throughout their competitive careers. The best corporate executives often engage a coach, whether represented by the board or outside consultant, to help them plan, execute and manage others. If you’re looking for a job, a personal coach can help you improve your interview technique and help you transition into a new position. Finally, all of us who are parents wish we could have had a coach to help us survive and our kids thrive through their terrible-two’s, preadolescences or teenage years. Top athletes, businessmen, parents and average investors get coaches for the following reasons:
- Having a coach gives you someone to be accountable to. The more accountable you are the more likely you are to have it done.
- A good coach will not insult or belittle you but help you learn more about yourself and why you did or did not make a certain trade.
- Good coaches will also be personable and open so that you can feel safe opening up to them and sharing your desires, whatever they might be.
- Having a coach is a great way to reach your goals and to change your life.
- Coaching yourself is like the blind leading the blind: You can’t know what you don’t know.
- Coaches help you identify and take advantage of opportunities.
- A coach can help you navigate through a changing market or economy
- Coaches help you develop and refine your ideas and design a plan of action.
The truth is that everyone could use an investment coach. I’m not suggesting that you turn your funds over to a professional investment manager. What I am suggesting is that you get a personal investment coach to act as your sounding board, someone with whom you vet your ideas, someone to help you navigate your way through chart reading basics, someone to give you credit when you hit a double and help you figure out what to do (even avoid) the next one of your stocks surprisingly drops 15% from a bad quarterly earnings report.
Resolve that as we begin a New Year next Monday that you avoid the ravages of another crash more than just “break-even” in new bull markets. Resolve that you will actually move your portfolio significantly ahead while avoiding unreasonable risks. Resolve that in the New Year you’re going to engage an investment coach and mentor.