We all recognise the value of feedback, even if it can be tough to hear at times. Most of us can recall a moment when someone challenged our approach or offered an observation that we may not have welcomed initially, but which proved valuable in hindsight. Constructive feedback is a critical driver of development, both personally and professionally. It helps prevent small issues from becoming larger problems and, I would argue, is essential to learning. Unless we get timely and accurate feedback on what we are doing right and what we are doing wrong, then improvement over time is far from guaranteed.
As you may have gathered, I am pretty passionate about the value of feedback, particularly when it comes to decision making processes. In this weekly update, I would like to share why I think that is the case and why a relatively modest investment of time in obtaining better feedback can help to deliver major rewards.
At its best, good feedback is timely and unambiguous. Let’s take learning to ride a bike as an example – you try, you wobble, and if you get it wrong it hurts. This form of strong, natural feedback explains why most people master the skill relatively quickly.
Unfortunately, life is often far less clear. Consider a pension investor who selects a “high risk” option and then experiences a sharp market fall six months later. Was that decision right or wrong? The answer is not straightforward and might take years to fully become clear. As feedback becomes delayed or obscured, learning slows and, in some cases, can stop or even lead to bad habits.
One notable example of this comes from a US study examining whether experienced police officers are better at detecting lies during interviews. The team first asked a range of officers how confident they were in their ability to spot a lie. As you might expect, junior officers were less sure while veterans had higher confidence. However, when performance was tested under controlled conditions, experience showed no clear relationship with accuracy. Some officers were better than others, but time on the job was not the determining factor.
So, why was this the case? Researchers concluded that the problem lay in the lack of clear and timely feedback. An officer may form a judgement during an interview, but the outcome of a case often emerges months later, if at all, and may hinge on factors unrelated to that initial assessment. In many instances, the officer never learns whether their judgement was correct. Without clear and timely feedback, the skill simply does not improve. This struck me as very relevant to the world of investing, where skill and luck are heavily intertwined, and was something that really stuck with me.
In environments as noisy and uncertain as financial markets, feedback does not arrive neatly packaged. It has to be actively sought, but that is easier said than done. This is where life tends to get in the way. We are all busy and so, naturally, reviewing past decisions often slips down the agenda. However, if we can find the time to actively seek clear feedback on a few key areas, the rewards over time can be huge.
Feedback helps drive incremental improvement, which, over time, has a flywheel effect. Within our team, we operate a couple of key processes designed to deliver clear and timely feedback despite the noise of markets. My favourite example is our decision log. Significant portfolio decisions are recorded alongside the rationale at the time they are made, before hindsight and outcome bias have a chance to creep in. These decisions are then reviewed a year later. This allows time for the results to become clear and for any emotion associated with the decision to subside, while being timely enough to provide a continuous trickle of feedback.
Over time, patterns emerge and this has shaped how we work today. One classic example here is market timing versus stock selection. It is very clear, looking at the log, that our time is far better spent identifying underappreciated assets and high-quality fund managers than attempting to time market movements, however compelling those tactical calls may have appeared at the time.
These techniques have played an important role in the development of our processes as they stand today. And if you have got this far in the article, I would encourage you to consider a similar approach in your own decision-making. Choose a topic, find a way to get better feedback and review your decisions over time. You might find it well worth the effort.
