Judge the process, not the last outcome
A good decision can lose money and a bad one can make it. If you grade yourself only on results, you will learn the wrong lessons at exactly the wrong moments.
Markets are noisy enough that a well-reasoned decision can lose money and a careless one can be rewarded. If you grade yourself purely on the last outcome, you will draw confident conclusions from randomness - abandoning a sound discipline after one bad result, or repeating a reckless one because it happened to work.
What a fair review looks like
The honest question after any investment is not only 'did it work?' but 'given what was knowable at the time, was the reasoning sound?' Sometimes the answer is that the process was right and the world simply went another way. Sometimes the answer is that the thesis was thin and the profit was luck. Both are worth knowing, and only the second demands a change.
Where outcomes do matter
This is not licence to ignore results forever. Over many decisions and many years, outcomes are the evidence that the process works. The distinction is one of sample size: a single result says almost nothing about a process; a decade of them says a great deal.
The practical benefit
Separating decision from outcome makes it possible to hold a good position through a bad stretch and to sell a lucky one without regret. It also makes mistakes useful, because a genuine error in reasoning can be identified and corrected rather than lost in the noise of the price.
Got a question on what you have just read - on bottom-up research, quality investing, or the Category III AIF structure? Write directly to the office. These essays are general views only, not investment advice.
A research-led equity investor with over twenty years in the Indian markets. Designated Partner of Stonebridge Advisors LLP, Investment Manager of Anchor Rock Investment Fund - I, a SEBI-registered Category III AIF.