Like Gates’ plan of “measuring results to get feedback and refine the approach continually” in order to cure the world of broad ills, the same plan makes sense for individual investors to cure them of their repeated mistakes. Will avoiding past mistakes mean that each market move you make will be golden? Of course not, but it can help mitigate the dramatic mistakes that weigh down your portfolio.
Extending the lesson
This same lesson doesn’t just end at your own actions. Use it to evaluate the performance of the companies you invest in, as well. Is a company measuring the right metrics to outperform its peers? Several companies measure a variety of things not required by the SEC. For example, Groupon Inc (NASDAQ:GRPN) reports gross billings per average active customer. Since the third quarter of 2011, this figure has fallen from $189 to $149, but given Groupon’s evolving business that has a new focus on physical goods, gross billings per customer might not be the best thing to measure with the different margins associated with the new segment.
Or, take Netflix, Inc. (NASDAQ:NFLX) . Netflix reports both streaming subscriptions and DVD subscriptions, good things to track for the company, but with investments into new original content, like the reported $100 million for House of Cards, investors might want streaming figures from specific shows. While the company will be measuring such things internally, it might fear that releasing such figures would spook investors who might try to measure the relatively new medium, which drops an entire new season of programming at once, versus the traditional television broadcasting figures. Original content is a long-term investment that avoids licensing costs, so measuring upfront viewers might not capture the entire value as it can be streamed whenever a subscriber wants. However, traditional television’s John Landgraf, president of FX Network, has often complained about Netflix’s lack of streaming disclosure, saying, “They like the fact that they don’t have to have a report card. If you want to be a better student, get a grade. Find out how you’re doing.”
It starts with measuring
Landgraf has the main idea, just as Gates: only through measurement can you improve. Netflix might internally measure streaming statistics, but it might be better for investors not to know the figures due to the market’s stress on short-term results. That’s up for investors to decide.
What investors can do for themselves, though, is improve through measuring their own actions. So take a note from Gates, and take notes on your progress.
The article A Crucial Investing Tip From Bill Gates originally appeared on Fool.com and is written by Dan Newman.
Fool contributor Dan Newman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, and Netflix.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
