To answer this question, let’s start with the video on the Veritasium YouTube channel:
The 4 things it takes to be an expert
The possibility of becoming an expert does not depend only on us, but also on what we apply ourselves to. In any case, there are no natural people in cognitively demanding fields.
Fifty years ago Herbert Simon and William Chase drew one of the most famous conclusions in the study of expertise:
There are no instant experts in chess—certainly no instant masters or grandmasters. There appears not to be on record any case (including Bobby Fischer) where a person reached grandmaster level with less than about a decade’s intense preoccupation with the game. We would estimate, very roughly, that a master has spent perhaps 10,000 to 50,000 hours staring at chess positions…
This has been scientifically verified by demonstrating that chess champions do not have an extraordinary memory, but an extraordinary ability to recognize the patterns on the board and their evolutions (ability to be several moves ahead of the opponent). When the game's rules are changed while using the same board, experts and novices get the same results.
This leads us to 4 conclusions:
No natural talent can avoid going through the creation of the mechanisms of recognition of the variables and adaptation to them. This creation requires work, in chess, music, mathematics, etc.
If the environment in which we apply our knowledge no longer responds to the recognition mechanisms mentioned above, our expertise becomes useless. Imagine a surgeon who operates on an individual affected by a new form of situs inversus that involves a different arrangement of the vascular system: the patient will not survive.
Progress is made possible precisely by point 2. The solutions of the past experts represent the starting point for future experts because the environment in which to apply them is the same.
Creativity itself is the right combination of what we can define as the patterns acquired in the thousands of hours of practice; a process that follows that of biological evolution in which randomness also counts (the right place at the right time).
The video highlights two other elements: timely feedback and deliberate practice.
The first is necessary to select the correct learning path; the feedback must be immediate or consistent with the learning times.
The second is the will to improve oneself, regardless of the objectives already achieved.
I would add a further element:
Experts have had access to conditions that make all those years of practice possible.
These conditions in today’s world have been democratized: the internet allows access to knowledge and tools that were once the privilege of a few.
I give a personal example: I played the guitar for 4 years as a boy (before I played the piano).
My goal has always been to play the great solos of Satriani, SRV, Joe Perry, ZZ Top, etc.
At the end of the 90s, it was expensive and difficult to recover the CDs and the scores.
And even having them it was not easy.
After 12 years of inaction, I picked up the guitars - electric and classical - and thanks to the powerful means of the Internet, including free software to slow down the music tracks, in the next 4 years, I managed to achieve what I always wanted, reproducing perfectly songs like Satch Boogie and the like.
And now we come to the initial question:
Is it really possible to become an expert trader/investor?
As explained in the video, the stock market is a low-validity environment.
It means that the rules change with its evolution and the feedback of our actions is delayed and hardly distinguishable from the background noise of the information we obtain from its observation.
Not to mention the “pareidolia effect” that affects all those activities that involve the observation of time series on graphs.
To use a sports metaphor, the danger is to show up at a tennis match with a ping pong racket.
So for now, anyone can draw their own conclusions.
I leave the question open to come back to it in another phase of our journey.
Thank you for sharing this, Giovanni.
The quote you included resonates: “We would estimate, very roughly, that a master has spent perhaps 10,000 to 50,000 hours staring at chess positions…”
Having interviewed many traders and reflecting on my own experiences, I agree that an effective ways to develop a good feel and understanding of the market is through observation. Taking meticulous notes on market movements, positions, and even personal emotions is invaluable.
Also, a significant growth driver in my journey as a trader was testing trades in real-time with real capital. Once committed to a trade, I had to see it through and manage accordingly.
Keep up the writing!