Aug 2006
In regard to daily processes and overall life approach, one of the descriptive phrases I am most fond of is ‘iterative refinement.'
The American Heritage Dictionary defines ‘iterative' like this: Characterized by or involving repetition, recurrence, reiteration, or repetitiousness. ‘Refinement' is offered up as A keen or precise phrasing; a subtle distinction.
Put the two together (iterative + refinement), and you get an ongoing process of small improvements and continual adjustments. Like a sculptor shaping the clay, the final result emerges over a period of time, developing in stages as time passes.
One can also imagine a sketch artist working with charcoal on rough paper. Shapes are blocked out, guidelines lightly penciled, contours filled, guidelines erased, and so on... until finally, once some mysterious midpoint is reached, the image begins to emerge with increasing clarity.
In regard to problem solving, iterative refinement is sometimes not just the best way, but the only way. Wikipedia explains:
In computational mathematics, an iterative method attempts to solve a problem (for example an equation or system of equations) by finding successive approximations to the solution starting from an initial guess. This approach is in contrast to direct methods, which attempt to solve the problem in one-shot.... Iterative methods are useful for problems involving a large number of variables (sometimes of the order of millions), where direct methods would be prohibitively expensive and in some cases impossible even with the best available computing power.
I think about trading and investing in this way -- as an iterative refinement process. (In fact, iterative refinement applies to every area of my life where consistent improvement is the goal... but trading and investing especially.) This is why I am continuously willing to shift, change, and adjust things. Creative ferment is key. All projects and endeavors have natural boundaries -- but within the scope of those, the canvas is wide open.
I particularly enjoy how the concept of iterative refinement reflects the intrinsic beauty of science. The most elegant scientific insights are the ones that pack a great deal of meaning into a remarkably small space. (For example: the ‘holy grail' of theoretical physics, according to Nobel-winning physicist Leon Lederman, is a theorem that can 1) explain the deeper mysteries of the universe, and 2) fit on a t-shirt.)
As a discrete concept, iterative refinement displays compact elegance in encapsulating how scientific knowledge progresses... and in a larger sense, how all forms of experiential knowledge progress. We discover truth through observation and experience, try new things and make mistakes, synthesize our new observations with past experience and existing knowledge, simplify, simplify, simplify... and then go round the track yet again.
Iterative refinement plays out in the markets (and the business world) through the ubiquitous processes of creative destruction and natural selection. It becomes a critical element for success in competitive and dynamic environments. There is far too much to swallow at once to become great overnight; even with all the knowledge at one's fingertips, the process of getting it assimilated into one's mind, and getting the necessary wiring done, is one of constant iterative refinement. It often takes months, sometimes years.
Iterative refinement is also a useful concept for the deeply motivated. If you entertain the thought of running a large sum of money one day (as I occasionally do), getting from here to there (regardless of where ‘here' is) means getting intimately acquainted with the mechanics of iterative refinement.
The good news embedded in this message is that you don't have to be incredibly good right here and now; you just have to be willing to get better and better, and have a rough sense of the path required to do so. As far as trading and investing goes, one could characterize that path as a three step process:
1. Start building knowledge.
2. Start developing a repertoire of small edges that accumulate over time.
3. Never stop.
One of the original "turtles," of trend following fame, once told me this: "Justice, the exponential curve that is trading returns cares more about your ability to stay alive than the absolute rate of the return. If you are good, and stay in this game long enough, everything takes care of itself."
Of course, the concept applies as much to investing as to trading, and many other things to boot.
So how, then, does one get good? And once one is good, how does one keep getting better and better and better? Through the joyfully relentless process of iterative refinement.
One other bit of food for thought. In comparison to dedication -- a hallmark of iterative refinement -- raw talent is overrated. According to a recent article from Seed Magazine, Mozart may well have accumulated 10,000 hours worth of playing and composition practice by age eight. Tiger Woods, another supposed natural, was on the driving range at 18 months old... and hasn't stopped improving since. "Other golfers may outplay me from time to time," Tiger writes, "but they'll never outwork me." There is no substitute for full immersion.
That kind of dedication to the investing and trading craft may not be your cup of tea. It is most definitely mine, though, and I am happy to share. (My knowledge, that is -- not my tea.) Markets aside, you may have a wholly different area of pursuit where passion grips you. If so, I'd bet my poker bankroll the iterative refinement concept can prove valuable there too.
