What financial investing teaches about Personal Development
As 2019 ended, were you able to look back and say to yourself, “I made significant growth this last year”?
If you were able to see growth, congratulations! You probably had measurable goals that you regularly followed up on, problem solved, and put actions into place to accomplish those goals.
If you found it difficult to perceive growth in your own life, then you likely failed to create a growth strategy for the previous year. Thankfully, now is a great time to do a reset and start building a growth strategy for 2020.
Creating a Growth Strategy
Lately I've been managing my own stock portfolio. Stock portfolios have highly measurable returns with clear performance benchmarks, which makes measuring performance simple.
As part of managing my own portfolio, I've aligned my strategy closely with the practice of growth investing, which focuses on identifying stocks with high growth potential so I can beat the market.
As I study about the strategies involved in growth investing, I can't help but think about analogous strategies we should be applying in our own lives. In effect, we each need to become our own best growth stocks.
Becoming Your Own Growth Stock
If you were a stock, would people invest in you?
Thinking of yourself as a stock might seem strange, but the analogy can expose some interesting concepts. Ask yourself the following:
- Am I a growth stock?
- Did I beat the market return of 30% last year?
- Am I growing or am I losing value?
- Would people want to invest in me?
This growth stock concept is as applicable in the financial performance of your personal or work life as it is for non-financial performance. Consider this: Have you achieved above average performance in the following areas of your life?
- Physical. Are you healthier this year than last year? Will you be healthier at the end of this year?
- Mental/Learning. Have you increased your knowledge over the last year? Will you do so in the coming year? Will your mental health be better at the end of this year?
- Spiritual. Will you be more spiritually balanced at the end of this year? Has your spirituality grown over the past year?
- Work. Are you providing more value at work this year than you were the previous year?
- Relationships. Did the quality of your relationships improve from year to year? Are you finding more quality time to spend with loved ones? Are you increasing the quality of the time you spend?
These questions get at the heart of personal continuous improvement. Goals and the proper goal setting process are at the heart of becoming a personal growth stock.
In episodes 3 and 29 of my podcast Continuous Improvement 4 Life, I reviewed a 4-point system for setting and accomplishing goals. Even with the best goal-setting system, we sometimes find ourselves not accomplishing our goals. Sometimes we get discouraged and give up on our goals. Sometimes we just keep trying the same thing harder and expecting different results. I'd like to teach you a problem-solving method for getting any goal unstuck and back in growth mode.
A popular lean problem-solving method is the DMAIC framework. DMAIC (pronounced de-MAY-ick) is as follows:
- Define. What is the business problem or project goal?
- Measure. How can you measure current and future performance?
- Analyze. What are all the factors that could be affecting performance?
- Improve. Which factor should we change for the greatest net improvement?
- Control. How can we embed the change and ensure sustainability?
Example: Applying DMAIC to Personal Investing
To see how DMAIC works, let's walk through the framework in the context of personal investing.
Define: What is the business problem or project goal? In the case of personal investing, I wanted a higher return on investment. Specifically, I wanted to beat the market by at least 20 points. This was my problem and opportunity statement.
Measure: What does the data say? What is my baseline performance? Last year my investments achieved a 28% return on investment. Here are the achievements of various index funds:
- Dow: 23%
- S&P: 30%
- Nasdaq: 37%
An additional metric of note was that over the last 20 years, the returns of the Dow were 7% and the S&P 5.9%. So last year was an incredible year for sure.
Analyze: What are the root causes? Why was my return on investment last year roughly the average of the most common stock indexes? The answer: I had over 200 stocks and ETFs in my portfolio, so my stock picks were so diversified I was destined to achieve market averages.
Improve: What can I do to eliminate the root causes of my issue and prevent future problems? My favorite way to approach this step is to ask, “What are the best doing that I can replicate or learn from?” For those investment firms that achieved over 50% last year, what are they doing differently from me?
For example, over the last 16 years, David Gardner of the Motley Fool has achieved a 621% return. What can I do more like Gardner to achieve similar results?
For me to achieve the right results, I started to apply lessons from the best advisors I've come to trust.
A key learning here is to become a researcher of your own performance. Be curious, be an objective observer. Analyze your areas of improvement as dispassionately as possible and put a plan in place to improve. If you can't analyze objectively, then get an accountability partner or coach to help you.
Control: How can I embed the changes to ensure sustainability? Now that I've identified qualified advisors, I've started reviewing their recommendations every Saturday in preparation to make the appropriate investment changes for Monday.
To beat the market by 20 points, I started to focus on the Technology and biotechnology sectors. They have been high growth areas of the market.
Also, I started focusing on companies that have double digit growth in sales and whose stock volume trading has been growing.
So far, this practice has returned a significantly higher return than the general market in just over six months.
I am not trying to become a professional trader but trying to prove a point: with the right mindset, toolset, and skillset you can achieve any goal in life!
Apply DMAIC to Other Aspects of Your Life
I encourage you to apply the DMAIC process to any area of your life. As I mentioned above, you can use DMAIC for the spiritual, emotional, physical, financial, work, or relationship goals you have in your life. You can problem solve using DMAIC with yourself or use a trusted accountability partner or coach.
At work if you were 20% off target, you would gather as a team to problem solve and implement new actions to improve. Why don't we do the same thing with our personal development?
Just ask, “Which area do I want to work on first?” Pick the area and run through the DMAIC problem-solving process. Review your solutions during your weekly planning process and you will achieve outstanding improvements and results in your life.
You can achieve any improvement in your life. You just need the right mindset, toolset, and skillset to analyze and improve.
I hope these tools and examples have inspired you to work on your own personal or professional continuous improvement.
Be a Personal Continuous Improvement Growth Stock!
With questions or comments, email me at email@example.com.