This post is part of a series on The Virtuous Investor written by Joachim Klement. Let’s face it, we all make mistakes, both as investors and in our lives. There is no shame in making mistakes, but there is shame in not wanting to get better at whatever you strive to do. If you want to be a great painter, you better paint as many paintings as you can. The first few are likely going to be rubbish, but over time, your skills will develop, and you will get better at it. Does that mean you are going to be the next Leonardo da Vinci or Pablo Picasso? Probably not, because these painters had an exceptional amount of talent that only very few people have. But that talent needed to be exercised and practised before it could come to full fruition.

What is true for artists is true for investors as well. We all have to practice investing in order to get better. And just like most artists never will be as good as Leonardo, so too will most investors never be as good as Warren Buffett. But you can at least strive to become the best investor you can be. There is one crucial difference between artists and investors. While we can choose to become an artist or not, everyone is forced to become an investor, whether they like it or not.

The practice is a necessity for investors, but unfortunately, practice is only half the ticket to better returns. The other half is to learn from past mistakes. And unfortunately, this is where most investors fail miserably. As investors, we tend to forget our past mistakes and remember our past successes.

The virtuous investor is aware of this faulty financial memory and uses techniques to record investment decisions and learn from mistakes. The simplest technique Klement knows of and uses are investment diaries. In an investment diary, you record every investment decision you make with three short bullet points:

1. What decision did I make?
2. Why do I think this investment is going to make money?
3. What could go wrong?

These three bullet points in your investment diary give you a picture of your thinking. After a while (and Klement recommends doing this regularly) you can review past decisions and your thinking at the time. This way, you will start to understand where you made mistakes in your investment decisions and learn to avoid these mistakes over time. Klement admits that it is a long and tedious process that will improve your investment performance only gradually, but as with almost all things in life, there are no shortcuts.

Becoming a good investor not only takes years of practice, it takes years of deliberate practice which means not just doing things, but systematically reviewing past actions to learn from past mistakes and build on past successes.

Ian Cassel writes that an investor learns from hindsight and get paid for foresight. Often times an opportunity exists because the conditions aren’t perfect yet. Investor has to pull the trigger in advance of all the pieces coming together. Investment success is determined by two things: First, How well you assimilate imperfect information and Second, Your ability to identify when you are wrong quicker.  

Jeff Bezos of Amazon said the following about decision making. Cassel thinks that it is the perfect description of investing: “Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”

The price of certainty is expensive because it slows you down. We want to know everything. If I just knew a little more. A little more. A little more. But knowing more often times breeds confidence but not accuracy. 

Cassel thinks if Bezos would have continued his quote he would have said focus on the 70% that matters and be okay if the 30% you don’t know hurts you. You have to live with the possibility that you could be wrong. You can’t let the fear of the 30% steal your courage to move forward if you believe the odds are in your favor. 

How can you be both quick and accurate?  Cassel applies four filters to every new company he evaluates: An organization with signs of intelligent fanaticism; A business that can grow through a recession; A balance sheet that can weather a storm and act with occasional boldness; A stock that can conservatively double in 3 years.

When Cassel applies these four filters he might miss something, but it cuts to the core of what is important. He can normally size up a new opportunity that he is attracted to in a few hours. Over the years Cassel found being quick has served better than being slow. If it takes a long time to get to a buy decision then it probably isn’t a buy. The great opportunities are normally obvious, at least to an investor.

In addition, Cassel found buying small and averaging up later as you gain additional conviction is a great way to counterbalance being fast and right with the risk of being fast and wrong. You aren’t going to be right all the time, but try to be wrong as fast as you can and move on. 

“Be willing to make decisions. That’s the most important quality of a good leader. Don’t fall victim to what I call the “ready-aim-aim-aim-aim” syndrome. You must be willing to fire.” – T. Boone Pickens