24 June, 2016
There are all sorts of things we don't do any longer because of technological advancements. Writing, as in putting pen to paper, is a lost art and I think we are the poorer for it.
I'm not talking about unnecessary writing, like scribbling out a shopping list when a photo of the recipe would suffice. I'm talking about meaningful writing, that when viewed by our future selves will be a reference for how we were feeling and what was important to us at the time.
As an investment analyst, I always regarded my notebooks as my most valuable asset.
At each company visit I would scribble notes and comments made by company executives. There were many sentences I would write verbatim because I felt they were so important I needed to record them rather than rely on memory.
In long or unimpressive meetings, I would sometimes doodle; the quality and extent of those doodles would give a fair idea of how I felt about the investment opportunity when I later reviewed my notes.
Tim Richards, a blogger and researcher of behavioural finance, suggests keeping a journal is useful for all investors as it can help combat hindsight bias. This bias, also known as the knew-it-all-along effect, is the inclination to see things differently after the event.
Armed with information with the benefit of hindsight, we don't revisit our thinking at the time or adjust our behaviour.
Richards says: "Hindsight bias is virtually impossible to eradicate. It's not something you can build defences against, learn new tricks and find ways of overcoming — it seems to be something absolutely fundamental to the whole human experience. Yet it can cause investor overconfidence in a very nasty way; if an investor continues to believe they're doing OK when they're not, then they won't adjust their behaviour to improve."
A journal allows any investor to revisit the real-time thinking and decision process leading to a successful or unsuccessful investment. We can remind ourselves what we considered important at the time and what the key decision drivers were and whether they turned out to be correct.
While my fellow investment analysts don't keep journals as such, they do have to write up their investment thesis for any new investment — outlining the business case, the strengths of the business and its track record (warts and all).
They consider the valuation of the business — base, best and worst case — and discuss any risks, challenges and controversies the company might face.
These investment theses must convince all members of the investment team; it is not sufficient for any one of the team to have a good feeling or want to have a go at a particular investment.
All must be convinced of the logic, and all must understand what could go wrong.
These investment cases serve another important function too. When an investment performs badly, or we start to have doubts about an investment, we can revisit the original investment case and see whether our assumptions and views still hold true.
If nothing fundamental has changed, except the share price, then we will be less tempted to sell and we may even be inclined to buy more.
Author Julia Cameron is an advocate for what she calls "Morning Pages", a ritual where every morning you write down whatever it is that crosses your mind.
Journaling allows us to learn from our past and leave it there, where it belongs.