You might have asked yourself if investing is a skill that can be learnt by you or if it is something that only works for people with sound instincts and good luck. Probably one of the most famous answers to this question are the results from an experiment conducted during 1984 by successful trader Richard Dennis who taught a trend-following methodology to a group of non-investors that he later nicknamed the “Turtles”. Dennis strongly believed that investing abilities could be broken down into a set of rules that could be passed on to others. Here is an extract from the Wall Street Journal article outlining the results:
Can the skills of a successful investor be learned? Or are they innate, some sort of sixth sense a lucky few are born with? Richard Dennis, the legendary Chicago trader who turned $400 into $200 million in 18 years, has no doubt. Following an experiment with a group of would-be investors, he’s convinced investing can be learned. Over the past 1 1/2 years, a group of 14 traders he taught earned an average annual compound rate of return of 80%. In contrast, about 70% of all non-professional investors lose money on a yearly basis.
How long does it take to learn to trade successfully?
Of further interest is the time it takes people to learn to invest successfully. Market Wizards, the best-selling classic reference book by Jack D. Schwager, delves into the minds of some of the world’s most successful investors finding that they took up to a decade to learn to trade effectively.
Al Weiss, who pioneered the development of the urethane skateboard wheel, spent four years developing his trading before he averaged 52% per annum between 1982 and 1991 with his fund AZF Commodity Management.
In a recent audio interview Larry Williams, famous for winning the 1987 Robbins World Cup Trading Championship where he managed to turn $10,000 into $1.1 million, said it took him 6 to 12 years working out how to invest.
Christopher Tate, the famous Australian author on trading, actually claimed it took him around three years just to break even.
Why does it take so long?
You can see that some of the most successful investors took many years to master trading. Why does it take so long? There are a few good reasons:
Firstly, the students of Mr. Dennis had a distinct advantage since they were shown how to invest by a successful investor, demonstrating that one of the most successful ways to learn to invest is to get instruction from a professional, observe what they do, ask questions and have a go yourself. Of course, many of the classic trading books were available at the time of the Turtles experiment, yet the participants were not successful until the expert knowledge and investing experience of a successful investor was imparted to them.
Secondly, investing is a practical skill set. A theoretical understanding doesn’t make a successful investor. The gaining of experience is a vital ingredient to trading as demonstrated by the length of time committed by some of the world’s most successful investors above. Having the discipline to implement your trading plan is perhaps one of the most important elements of gaining practical experience.