Thursday 2 March 2017 7:00 amCFA Institute Talk

How Long Is the Investment Learning Curve?

What is city talk? Info Info. Latest
These are articles written by professionals for investment professionals. They are contributions from external subject matter experts who do not work for CFA Institute, but may be a CFA charterholder as well as a member of a CFA Society. All are experts in their field and strive to deliver useful insights that help investment professionals make better decisions.

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

Persistent boom-and-bust economic cycles 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.

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 per cent 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 per cent) of the 492 respondents said new entrants are the most vulnerable to making mistakes — a result that emphasises the need for practical training to reduce the potential for errors.

Almost one in three (32 per cent) 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 per cent 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 per cent who see experience as a potential panacea against mistakes and the 19 per cent 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 minimising investment mistakes. Maybe there is a class of errors that operational expertise can’t address.

If you liked this post, don’t forget to subscribe to the Enterprising Investor.