M&Ms for Investing

Morbidity and Mortality conferences ("M&Ms") are regular meetings where hospital physicians discuss, without fear of punishment, their cases that had bad outcomes. The point of the exercise is to catch and correct errors and improve the way physicians diagnose and treat their patients. What prompted me to think of this was a recent discussion on the GuruFocus website, particularly this comment by prolific poster, former dentist, and stockbroker Dr. Paul Price (aka "Stockdoxc99") to Daniel Wahl,

Defending your methods regarding your highly touted pick of SRA Corp. after its 96% drop is akin to saying...

"The patient died... but the operation was a success".

Daniel Wahl had already reexamined his investment process on the zinc miner SRA Corp (TSX: SRZ.TO) on a post on his blog, and after noting that in the comment thread and making the M&M analogy, I wrote,

As in investing, there is the process and there is the outcome; sometimes a poor outcome is due to a poor process, in which case the process can and should be improved, and sometimes regardless of the process the outcome would still have been poor.

I went on to suggest that it might be useful for GuruFocus to create its own version of an M&M forum for bad investment outcomes. There's no shortage of commenters eager to point out others' losses, but usually this is done in a spirit of schadenfreude, and not in an attempt to learn from any mistakes that might have been made. I thought an M&M approach might make more sense, where investors could discuss what went wrong without insult.

A quick Google search of M&Ms brought me to an essay by Vincent A. Gaudiani, MD on the Cardiothoracic Surgery Network (CTSNet) that suggests that physicians' M&Ms have their own issues. Dr. Gaudiani writes of the M&Ms he participated in during his residency,

The huge disparity in experience level and the residency hierarchy often led to one-upmanship and a focus on affixing blame for failure as if adverse outcomes implied inadequate performance or lax intent. In other words, it was misused to create winners and losers. As we will see in a moment this is an entirely foolish and juvenile misuse of M&M.

Dr. Gaudiani also notes that problems with M&Ms continue post-residency,

Second and equally foolish is the deafening silence and acceptance of adverse outcomes that often accompanies M&M in the private setting. Experienced practitioners know that they too will have adverse outcomes and therefore choose to judge not.

[...]

To the extent that these misapplications of M&M conference prevail, they subvert the value of meeting in the first place.

It's a little disheartening, though not entirely surprising, to see the same sort of bad faith at work among physicians that you find among commenters on investing websites. Dr. Gaudiani offers some ideas to improve M&Ms. Some of this could apply to investing M&Ms as well:

For its part the community must value learning and desire to improve above all else and abandon invidious judgment. Practitioners must have the honesty and humility to recognize their contribution to an adverse outcome [...]. A few ideas may facilitate this process:

- Ask at which point critical decisions were taken that increased the likelihood of the adverse outcome.
- Ask what information or analyses might have led to a better outcome.
- Avoid defending or attacking a bad outcome. Neither helps.

Food for thought. Worth reading the rest of Dr. Gaudini's short essay.