In almost everything we do—whether it’s learning the violin, playing chess or excelling in sports—practice makes us better. In his bestselling book Outliers, Malcolm Gladwell popularized the “10,000 hour rule.” It says no matter how talented one might be, becoming a virtuoso musician, a chess grandmaster, or an elite athlete typically requires approximately 10,000 hours of practice.
Even more important, you need to receive useful feedback during your practice. In Thinking Fast and Slow, the psychologist Daniel Kahneman explains that learning to drive is one activity where feedback is immediate and clear. When you’re taking curves, you instantly know whether you’ve turned the wheel too sharply or applied the brakes too hard. This makes it relatively easy to improve as a driver. By contrast, a harbour pilot learning to guide large ships experiences a longer delay between his actions and their outcomes, so the skill is harder to acquire.
Now consider how these ideas apply to investing. Someone who has little experience is likely to make many mistakes—which is normal in any new activity. They might think they’re well diversified even if they own just five Canadian stocks, or they may choose a bond based solely on its yield,