Practical analysis for investment professionals
23 February 2017

Library of Mistakes: How Long Is the Investment Learning Curve?

Mistakes and disappointments are not unusual in the investment world. On the contrary, it is investment successes that are rare.

Howard Marks, CFA, made an insightful observation: “. . . in order to strive for performance which is far different from the norm and better, you must do things which expose you to the possibility of being far different from the norm and worse.”

Persistent boom-and-bust economic cycles — Minsky moments — underline the numerous unavoidable challenges that investment decision makers face. Moreover, professional investors rarely have a complete understanding of their own miscalculations or those of others.

From poor analyst forecast accuracy to delivering active performance, mistakes trump successes.

The medical doctor Atul Gawande, in his book Complications, highlights the important role errors play in shaping learning outcomes. Whether it’s determining when to consult a more experienced doctor or mastering a difficult surgical procedure like inserting a central line, interning medical students often stumble. They are forced to learn the hard way.

Gawande’s book shows that a successful medical career is built on consciously improving and learning from a library of mistakes.

Finance and investing are not as critically urgent as medicine. Nevertheless, like medicine, investment decision making is nondiscretionary. But are investment professionals, like their medical counterparts, less vulnerable to mistakes as they mature and gain experience? Is there a learning curve?

We asked CFA Institute Financial NewsBrief readers how experience correlated with investment errors.

The survey results indicate a consensus that investment decision makers reduce their vulnerability to mistakes as they gain experience. But the data also suggest that experience has its limits: Almost 20% of participants — a sizable proportion — say that seasoned professionals — those with at least five years experience — are actually more prone to errors than novices and newcomers.

Which of these professional investor groups is most prone to investment mistakes?

Which of these professional investor groups are most prone to investment mistakes?

Close to half (49%) of the 492 respondents said new entrants are the most vulnerable to making mistakes — a result that emphasizes the need for practical training to reduce the potential for errors.

Almost one in three (32%) poll takers think that professional investors with zero to five years experience are most susceptible to investment mistakes. That practical experience translates into fewer errors supports the notion that investors improve with knowledge and training and that certain investment mistakes may have an operational component.

About 9% of those surveyed believe that investors with five to 10 years experience are most susceptible to errors. This suggests an interesting possibility: Could those with less experience lack decision-making authority and thus have less agency to commit mistakes?

Lastly, one in 10 respondents believe that those with over a decade of experience are the most error prone.

The breakdown between the 81% who see experience as a potential panacea against mistakes and the 19% who believe it may actually render practitioners more error prone presents an interesting contrast. Perhaps those in the latter cohort believe that consequential decision making happens at a relatively senior level.

It is also possible that there are limits to how far learning and operational expertise can go in minimizing investment mistakes. Maybe there is a class of errors that operational expertise can’t address.

As my colleague Jason Voss, CFA, pointed out, our behavioral biases — another cause of errors — actually strengthen as we age. Maybe experiential learning can address and minimize cognitive aspects of our behavioral biases, such as how we process information. But the emotional component of decision making may leave us vulnerable to mistakes.

In Blink, Malcolm Gladwell demonstrates the important role practice plays in achieving mastery over a discipline. Gladwell highlights a 10,000-hour threshold after which a practitioner becomes an expert. Intense and conscious on-the-job learning, at some point, starts to translate into mastery: intuitive, unconscious knowledge.

But as Gawande points out in his book, we can’t say precisely how.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

About the Author(s)
Shreenivas Kunte, CFA, CIPM

Shreenivas Kunte, CFA, CIPM, is director of content at CFA Institute, where he contributes financial market insights about India and the developed world. Previously, he taught at and managed SP Jain’s Trade and Applied Research lab, which he helped found. Kunte also served as a country trading strategist at Citigroup’s Tokyo office. He actively contributes to the development sector in India and is an external research scholar at the Indian Institute of Technology Bombay.

Ethics Statement

Beyond the easier to understand, important codes of conduct, “Ethics” for me is awareness; an endeavor for right thought and action.

6 thoughts on “Library of Mistakes: How Long Is the Investment Learning Curve?”

  1. How many received the survey and how many responded? Are these responses statistical in any sense?

    1. Paul McCaffrey says:

      Thanks for your comments, Stephen. We had 492 respondents as of yesterday morning. We’ve since added that fact into the article.

      For more information on how the polls are conducted, here is some information provided last week by one of our contributors.

      The gist:

      1. If memory serves we have over 40,000 subscribers to the CFA Institute NewsBrief.
      2. When we did a subscriber audit we found that the overwhelming majority of subscribers were either CFA charterholders, or candidates for the charter.
      *. You are correct that it is not a random sample. For example, you can vote more than once. This is why we do not present the results using standard statistics reporting. We do not represent the data as statistically significant. This is not a function of our desires, but is a function of our third party provider’s limitation on their survey function. Though less than ideal, as an organization we like the ability to take quick straw polls, if you will, about what a number of people in the investment space believe at any given moment.

  2. Thanks,Paul. Just feel that there needs to be a note up front to insure that it is perceived as a straw poll, and is not statistically significant. On the ESG survey a while back, the data were headlined all through the ESG community, citing percents without noting limits of the data.

  3. Olivier De Timmerman says:


    Very interesting findings.

    “About 9% of those surveyed believe that investors with five to 10 years experience are most susceptible to errors. This suggests an interesting possibility: Could those with less experience lack decision-making authority and thus have less agency to commit mistakes?”

    Not necessarily.

    I would like to suggest another possibility: complacency. Let me explain my thinking: suppose those with less experience (0 – 5 years) are extra careful not to commit mistakes because they fear the consequences (e.g. job loss as a result, blow to a fledgling reputation) and are able to avoid mistakes during that period of time, suppose once they reach a more experienced level (5 – 10 years) they start to be a little bit more complacent, after all they never made a mistake in the past, hence could feel they won’t make mistakes in the future, and then let some of their guard off at some point.

    Training, knowledge, experience, 4 eyes principle, good risk management behaviour and systems are all mitigating factors of course. But in the end, we are all humans (still?), and humans are prone to making mistakes.

    In my humble opinion, learning is a lifelong process.

  4. Charles Allen, CFA says:

    The article states the survey was based on News Brief Readers’ opinions of which investors make the most investment mistakes. I have two questions: 1. How does each News Brief Reader define an investment mistake? 2. What data are the News Brief Readers using to back up their opinions?

    Trying to draw conclusions from a poll, based on Readers’ opinions with no data, doesn’t really tell us much.

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