The individual investor
…the more investing stays difficult
A world of change has come to investing. But, have things really changed. That is the subject of this post.
In 1972 when I started investing there were no ETFs, only mutual funds. Some mutual funds charged you when you bought your units or shares (called front-end load or initial sales charge) and others charged you when you sold (called back-end load). Charges paid at the time of redemption varied depending on how long you had held the fund. On top of that, the fund charged fees and expenses called the Management Expense Ratio or MER.
To get access to sell side analysts’ reports on individual stocks you had to persuade your full-service broker to send you one or more by mail. Discount brokers were in their infancy.
To buy an individual stock you had to phone a full-service broker who would tell you the substantial buy/sell spread. The order would be placed and a follow-up phone call would be needed to find out the price paid. The commission on a $10,000 trade might be in the range of $300. The only way to track stock prices was through the following day’s newspaper.
The system was full of frictions and access to information was awkward.
Today, in 2025, ultra-low-cost index ETFs are available. Stock trading is almost frictionless. For individuals there is almost perfect liquidity with miniscule buy/sell spreads. And, information and analysis are readily available on-line.
The simple question
We can ask ourselves whether investing has become any easier over the years. This is a trick question. Yes of course it’s easier. But it’s only easier in the mechanics and costs. In truth, successful investing has become no easier.
It’s far from easy
As Warren Buffett advises: “Should you choose, however, to construct your own portfolio, there are a few thoughts worth remembering. Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.” (Buffett, The Essays of Warren Buffett: Lessons for Corporate America. Lawrence A. Cunningham 1998) p93 (Emphasis added)
Human instincts
Human nature hasn’t changed in the last 50 years or 5,000 years. The main thing is that investing doesn’t come naturally. In fact, most of our human instincts work against successful investing. One example is our survival instinct. That causes neophyte investors to sell at the first sign of trouble.
Ways to lose money
Losing money in the stock market is as easy as ever. In the 1970s there was a host of speculative stocks available for foolish investors to fritter away their money. Meme stocks and promoted theme ETFs are not one bit crazier than the speculative stocks of yesteryear.
Learning curve
Many investors will make a serious effort to learn how to invest in the early days of their investing. There is a learning curve. Often the investor will progress up the learning curve only to plateau out after a few years. That is not good enough. Investing is sufficiently complex that one can spend a lifetime learning it. I expect that Warren Buffett, who at the time of this writing is into his nineties, is still actively learning and continuing to make an effort to learn.
One won’t learn any more by continuing to do the same thing. One must make a continuing effort to identify strengths and weaknesses. Some mistakes keep cropping up. Those are the easy ones to address. There must be a process of continuous improvement. Reading helps. Comparing one’s performance to an index also helps. It is critical to appreciate how much we don’t know; and, how much there is still to learn, even after decades of learning.
Lifelong learning
As we get more experienced, we realize how much we don’t know and how important lifelong learning is. This itself may be an effective antidote to overconfidence.
This continuous learning by learning from one’s own mistakes is a relentless operation. It requires the investor to be honest with themself. Greed, laziness, ego and overconfidence are the greatest impediments to continuous learning. Believing that a few years of lucky returns is proof of brilliance is pride before the fall. The enjoyment of the challenge is the single biggest spur to lifelong learning. Writing this blog is part of my lifelong learning journey.
Learning to invest
When I started investing, I put all our retirement savings into a stock-only mutual fund. At the same time, I opened a brokerage account. I put money in the account. It was enough money that I paid attention to it but not enough that our finances would be seriously hurt if I made a mess of things. I tried all sorts of things in this account. They included common stock, preferreds, options, warrants, split and straddle strategies and short selling. I never did very well with the most aggressive strategies but I did learn a lot of lessons. After ten years of this learning in the school of hard knocks I took on the job of managing our family’s investments by myself.
The mistake family so large
In 1923 Edwin Lefevre, a newspaper reporter, published a book called Reminiscences of a Stock Operator. In the book the operator was named Larry Livingston. In real life he was Jesse Lauriston Livermore, one of the most extraordinary stock market and commodities speculators of all time. The book is a delight to read and one of the most popular investment books of all time. It was republished by John Wiley & Sons Inc. in 1993. It contains many gems of investment wisdom that are equally applicable to investing as they are to trading. The quotes are so colorfully expressed that they make their points memorably. Lefevre was a gifted reporter and while I refer to what Lefevre wrote, the words captured so naturally are really those of Jesse Livermore. (Lefevre, Reminiscences of a Stock Market Operator. 1923,1993)
Lefevre wrote, in the words of Livermore: “The recognition of our mistakes should not benefit us any more than the study of our successes. But there is a natural tendency in all men to avoid punishment. When you associate certain mistakes with a licking, you do not hanker for a second dose, and, of course, all stock-market mistakes wound you in two tender spots – your pocketbook and your vanity.” He adds: “Of course, if a man is both wise and lucky, he will not make the same mistake twice. But he will make any one of the ten thousand brothers or cousins of the original. The Mistake family is so large that there is always one of them around when you want to see what you can do in the fool-play line.” (Lefevre, 1923,1993) p119
Deliberate practice
Anders Ericsson and Robert Pool have told us in their book Peak: Secrets from the New Science of Expertise that focused training through ‘deliberate practice’ can lead to exceptional skill levels. (Ericsson & Pool, 2016)
In a paper titled ‘The Making of an Expert’ in the Harvard Business Review, July–August 2007 Issue, by K. Anders Ericsson, Michael J. Prietula, and Edward T. Cokely the authors look at this issue.
The authors summarize their conclusion:
“The journey to truly superior performance is neither for the faint of heart nor for the impatient. The development of genuine expertise requires struggle, sacrifice, and honest, often painful self-assessment. There are no shortcuts. It will take you at least a decade to achieve expertise, and you will need to invest that time wisely, by engaging in “deliberate” practice—practice that focuses on tasks beyond your current level of competence and comfort. You will need a well-informed coach not only to guide you through deliberate practice but also to help you learn how to coach yourself. Above all, if you want to achieve top performance as a manager and a leader, you’ve got to forget the folklore about genius that makes many people think they cannot take a scientific approach to developing expertise. We are here to help you explode those myths.”
The term they use “deliberate practice”, has a very specific meaning:
“To people who have never reached a national or international level of competition, it may appear that excellence is simply the result of practicing daily for years or even decades. However, living in a cave does not make you a geologist. Not all practice makes perfect. You need a particular kind of practice—deliberate practice—to develop expertise. When most people practice, they focus on the things they already know how to do. Deliberate practice is different. It entails considerable, specific, and sustained efforts to do something you can’t do well—or even at all. Research across domains shows that it is only by working at what you can’t do that you turn into the expert you want to become.”
The authors conclude: “Before practice, opportunity, and luck can combine to create expertise, the would-be expert needs to demythologize the achievement of top-level performance, because the notion that genius is born, not made, is deeply ingrained.” The authors’ conclusion is that genuine expertise can be learned and that we can forget the folklore about genius. This is a hopeful conclusion that I certainly agree with.
There is a caveat. Deliberate practice seems to be more effective in chess, music, sports and other activities with defined rules. Investing calls on a broader set of skills. I also think that in investing, a coach is not necessary.
Conclusion
The French expression is ‘Plus ça change, plus c’est la même chose’. The world of investing has changed significantly over the last 50 years. But successful investing is no easier today than before. The learning of investing skills is timeless. There is only one way to learn about investing. It involves study (book learning) and practice with real money over time.
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